If you follow Generally Accepted Accounting Principles (GAAP) your royalties will likely be tracked with four accounts in your balance sheet.
- Royalty Advances
- Unearned Royalties
- Royalties Payable
- Reserve for Returns
- Example 1: Accounts Payable $500,000
- Example 2: Accounts Payable $200,000, Royalties Payable $300,000
Reserve for Returns holds the amounts that publishers withhold from author payments to cover estimated future returns. Usually this amount is a percent of the royalties earned is returned to the royalty recpipient in the subsequent royalty statement.