Franchise accounting guide How should a studio or spa book memberships, packages and gift cards?

Why is a sold package not yet revenue?

Under the revenue standard, a payment received before the service is provided creates a contract liability for the obligation to provide it, and revenue is recognised as the obligation is satisfied — as the class is taught or the treatment given^[1]. A studio that books a $2,500 package as revenue on the day it is sold shows a strong month followed by months in which members use sessions the P&L already counted. Across twenty studios the swing is large enough to mislead a lender and the owner alike.

How is each product recognised?

A worked example: a ten-class pack

3 March — pack sold
Dr  Bank / card clearing            250.00
    Cr  Deferred revenue — packs          250.00

31 March — six classes used at 25.00
Dr  Deferred revenue — packs        150.00
    Cr  Class revenue                     150.00

Deferred revenue carried into April   100.00

At month end the studio software’s report of sessions used — its earned-revenue report — drives the release. The balance left in deferred revenue should equal the value of sessions members still hold; if it does not, a pack was refunded, frozen or expired without an entry.

What about packs and gift cards that are never used?

That is breakage. When you expect to be entitled to it and can estimate it from your own history, recognise it as revenue in proportion to the pattern of rights members do exercise; when you cannot estimate it, recognise it only when the chance of use becomes remote^[1][2]. Before ASC 606 many private companies simply waited — commonly two years of inactivity — which delays revenue the standard now lets you recognise as the pattern emerges^[3].

Gift cards carry one more constraint: many states’ unclaimed property laws require unused balances to be remitted to the state after a dormancy period, in which case that portion is never your breakage. Check the states you sell in before estimating.

How do class marketplaces fit in?

A marketplace that sells your classes to its own members pays you per visit or per period on its own schedule, net of its share. Book the visit revenue at what you are entitled to receive, match the marketplace’s settlement to the bank the way you would a delivery payout, and keep a clearing account per marketplace so an unpaid settlement shows up as a balance instead of disappearing into “other income”. See reconciling delivery payouts — the mechanics are the same.

Is royalty due when a package is sold or when it is used?

Whichever your franchise agreement says. Many fitness and wellness agreements charge royalty on gross sales as collected, which means royalty on the whole package the week it is sold, regardless of when the revenue is earned in your books. Others follow the service. The royalty basis and revenue recognition are separate questions answered by separate documents: the agreement for the first, the revenue standard for the second. Read what counts as gross sales for royalty before assuming they match.