If you follow Generally Accepted Accounting Principles (GAAP) your royalties will likely be tracked with four accounts in your balance sheet.
Assets (Non-current)
- Royalty Advances
- Unearned Royalties
Liabilities
- Royalties Payable
- Reserve for Returns
Royalty Advances track the amounts that you have advanced to authors in advance of their royalty earnings. It is treated as an asset because; theoretically, you can demand the return of the advance if the manuscript is not delivered or royalties earned do not cover the advance.
Unearned Royalties arise when the royalty recipient has been paid for royalties that they did not earn. This usually arises then the author earned royalties in period A and in period B sales turned negative and the resulting royalties are a negative amount. This credit will be applied against future royaltiy earnings.
Royalties Payable is used to track the royalties that you owe to royalty recipients. Most companies track royalties payable seperately from their normal accounts payable. This allows them to see at a glance how much they owe their authors.
- 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.
Sample Royalty Balance Sheet Report from Easy Royalties
