Reserves for Returns

Reserves for returns is a key functionality of royalty software.

Reserves are used when your contract allows you to withhold a portion of royalties earned in the current royalty period to cover expected returns that are expected to be received in the next royalty period.

In Easy Royalties you can set the reserve rules in the Royalty Contract > Reserves tab. A contract can have multiple rules for reserves.

reservescontracttab

Example: A reserve rule withholds a declining percentage of royalties earned on non-ebook sales for one period for the first 3 royalty periods and no reserve thereafter. Usually no reserves are withheld on ebook sales as the percentage of ebook sales returned for credit is zero.

Royaltysoftwarereserves

On the royalty statement this is shown as: Reserves witheld against returns and Prior period reservees brought forward. The text description can be changed.

royaltystatement with reserves

Royalty Accounting for Reserves

On the balance sheet reserves for returns is shown as a liability because the reserve reflects an amount owed to the royalty recipient.

To record reserves for the example above the entry is:

  • Royalty Expense………..$1106.89
  • Royalties Payable……………………….$932.36
  • Royalty Reserves………………………..$174.54 (the net of $221.38 withheld and $46.84 recovered)

Balance Sheet

Liability Accounts

  • Royalties Payable………$932.36 (due and payable now)
  • Royalty Reserves……….$174.54 (payable in the future)

Sample Contractual Clauses

“The Publisher may maintain a reasonable reserve against returns”

“The Publisher may maintain a reasonable reserve against returns (for sales of physical products) from distributors, retailers, and customers, in any accounting period, not to exceed fifteen percent (15%) of the amount due to Author, and Publisher shall indicate such reserve, if any, on the Author’s statement of accounting. Such reserve shall be maintained for no more than one accounting period.” PublishLawyer.com