Royalty Accounting Expense Accounts

These are the four royalty expense accounts that track royalty expenses.

1. Royalty Expenses (consolidated). Many organizations have a single roll-up account that summarizes the balances of their royalty sub-accounts.

2. Royalty Expense. This account tracks royalty expenses.

3. Royalty Advance Write-Off account is used to expense royalty advances that are written off. An advance is written off if the project is canceled or if it appears that royalties from sales will not cover the royalty advance. Why? It is customary not to ask the royalty recipient to pay back an advance that will not be earned out.

4. Royalty Write-Off is used to expense the write-off of unearned royalties – i.e. an noncollectable credit balance owed by an author to the publisher. Usually, a credit balance occurs if returns for the period exceed that period’s sales. If the publisher does not expect this credit to be reversed from future sales (or applied against other contracts) the credit balance is written off by debiting royalties payable and crediting the expense account: Royalty Write-Off.

Analysis

The use of four expense accounts allows a publisher to track the value of royalties paid, advances written off, and excess royalties paid in addition to presenting royalty expense as a single line item on the income statement.

Example 1:

Royalty Expense (consolidated)……$100,000

Unconsolidated:

Royalty Expense……………………………..$95,000
Royalty Advance Write-Offs……………..$1,000
Unearned Royalties Write-Off….…..….$4,000

Some publishers break down royalty expense by product format or sale type.

Example 2:

Royalty Expense (consolidated)……$100,000

Unconsolidated:

Royalty Expense – Print…………………..$75,000 (13% of net print sales)
Royalty Expense – Digital…………………$10,000 (25% of net digital sales)
Royalty Expense – Special Sales……….$10,000 (50% of net special sales)
Royalty Advance Write-Offs……….……..$1,000
Unearned Royalties Write-Off….……….$4,000