Continuing franchise fees should be recorded by the franchisor
A)as revenue when received.
B)as revenue in the period they are earned and received.
C)in accordance with the franchise agreement.
D)as revenue only after the balance of the initial franchise fee has been received.

Question

Quizplus · Accepted Answer

Continuing franchise fees represent ongoing revenue streams for the franchisor and, therefore, should be recognized in the period they are earned and received, in accordance with generally accepted accounting principles (GAAP). This method ensures that revenue recognition is accurately reflected in the financial statements, and enables investors and other interested parties to make informed decisions based on consistent accounting practices. Option A, recognizing continuing franchise fees as revenue when received, does not consider when the fees are earned and would not be in accordance with GAAP. Option C, recognizing continuing franchise fees in accordance with the franchise agreement, may not be consistent with GAAP if the agreement does not align with accounting principles. Option D, recognizing continuing franchise fees only after the balance of the initial franchise fee has been received, also does not consider when the fees are earned and would not be in accordance with GAAP.

Continuing Franchise Fees Should Be Recorded by the Franchisor