FRANCHISING: FEATURES OF REVENUE RECOGNITION, EXPENSES AND THEIR REFLECTION IN ACCOUNTING
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Abstract
Introduction. This article explores the intricate relationship between franchising, revenue recognition, expenses, and accounting practices. Franchising has become a significant driver of economic growth globally, making it crucial to understand the financial dynamics specific to this business model. The study delves into the complexities of revenue recognition in franchising, including initial fees, royalties, and advertising fees, while also addressing the various expenses involved, such as initial investment, ongoing fees, and marketing expenses. By examining the relevant literature, case studies, and empirical research, the work seeks to uncover the challenges, controversies, and best practices in accounting for franchise businesses. Additionally, it explores the legal and regulatory considerations and accounting standards that govern revenue recognition and expense management in franchising. In conclusion, the study synthesizes key findings and implications for accounting in franchising, offering valuable insights for practitioners, scholars, and policymakers.
Purpose. This study aims to dissect the multifaceted dimensions of revenue and expense recognition in the franchising context, delving into the nuances of the accounting practices that underpin this business model; offered a comprehensive understanding of accounting principles and the challenges inherent in franchising. The literature and empirical studies related to revenue recognition and cost allocation in franchising were analyzed.
Results. The study found that the application of the performance obligations principle is crucial in determining the appropriate timing of revenue recognition for initial franchise fees. Additionally, ongoing royalties and fees were identified as a significant component of franchise revenue, requiring careful assessment of the timing and method of recognition, especially when variable consideration is involved. The research also highlighted the complexities of identifying and separately accounting for multiple performance obligations within franchise arrangements, such as training, support, and access to intellectual property, and the impact of these obligations on revenue recognition.
Originality. The research aims to explore the complexities and challenges associated with revenue recognition in franchising, including the various sources of revenue such as initial franchise fees, ongoing royalties and other sources of revenue. Explored the nuances of cost management in franchising, covering initial investment, marketing costs and operating costs, while taking into account the clear financial landscape of a franchise business. Peculiarities of reflection in accounting practice, including financial reporting, compliance with regulatory requirements and consequences for stakeholders in the franchise ecosystem, are studied. Proposed practical recommendations for improving accounting practice in franchise organizations
Conclusion. Overall, the findings of this study highlight the need for clear guidance and best practices in addressing the complexities of revenue recognition and expense reporting in the franchise sector. The findings of this study have implications for both practicing accountants and standard setters, highlighting the importance of addressing the unique challenges associated with franchise arrangements in accounting standards and professional guidance.
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