Royalty Accounting Balance Sheet Accounts

The general ledger balance accounts for royalty obligations usually include;

Asset Accounts

1. Royalty Advances (other assets)

Royalty advances are payments advanced against future royalty earnings of the royalty recipient.

2. Unearned Royalties (other assets)

Unearned royalties occur when returns for a period exceed the period’s sales. When this occurs royalty earnings are negative, not positive. These negative earnings are carried forward to the next royalty period and are used to reduce future payables.

Liability Accounts

3. Royalties Payable (current liability)

Most companies track royalties payable in a seperate payables account. With a dedicated account you know exactly how much you owe in royalties and how much you owe for your normal operating expenses.

4. Reserve for Returns (current liability)

5. Accrued Royalties Payable (current liability)

If you record an estimate for your monthly royalty expense; instead of the actual expense, you will record this as an accrued liability by debiting royalty expense and crediting accrued royalties payable. When you generate the actual numbers you will debit accrued royalties payable and credit royalties payable to zero out the accural account.