Continuing franchise fees should be recorded by the franchisor
A) as revenue when earned and receivable from the franchisee.
B) as revenue when received.
C) in accordance with the accounting procedures specified in the franchise agreement.
D) as revenue only after the balance of the initial franchise fee has been collected.

Question

Quizplus · Accepted Answer

Continuing franchise fees should be recorded as revenue when earned and receivable from the franchisee. This is because the franchisor has fulfilled its obligation to provide ongoing support and services to the franchisee, and is entitled to receive payment in return. The revenue from continuing franchise fees should be recognized in the same accounting period in which the services are provided, regardless of when the actual payment is received. This is in accordance with the accrual basis of accounting, which records revenue when earned, rather than when received.

Continuing Franchise Fees Should Be Recorded by the Franchisor