Definition of franchise fee revenue

revenue obtained by a company that allows an independent party to operate a business using its name, merchandise, and supplies. Franchise fee revenue from the initial sale of a franchise is recognized by the franchisor only when all material services or conditions applicable to the sale have been substantially performed. Substantial performance is indicated by: (1) absence of intent to refund cash received or forgive any unpaid balance; (2) performance of substantially all initial services; and (3) nonexistence of other material conditions related to performance. Commencement of operations by the franchise is presumed to be the earliest possible time at which substantial performance occurs. If the initial fee is deferred, related expenses for later matching against revenue must also be deferred. Continuing franchise fees are recognized as earned. An estimated uncollectible account expense provision should be made.