Initial franchise fees should be recorded as revenue by the franchisor
A)in accordance with the franchise agreement.
B)when cash is received from the franchisee.
C)when all material services relating to the sale have been substantially performed.
D)during the year the franchise agreement is signeD.

Question

Quizplus · Accepted Answer

According to the revenue recognition principle, revenue should be recognized when all material services related to the sale have been substantially performed. In the case of initial franchise fees, the franchisor has to provide a range of services to the franchisee, such as assistance with site selection, training, and support. Therefore, revenue should only be recorded when all these services have been adequately provided. This may not necessarily coincide with when cash is received or when the agreement is signed.

Initial Franchise Fees Should Be Recorded as Revenue by the Franchisor