Revenue accounts vary by publisher.
A startup eBook only publisher may have only a single revenue account for sales. A publisher of professional texts will have accounts for sales, returns, future returns charge, translation rights, permission fees and reprint royalties. A successful trade publisher will have accounts for sales, returns, future returns charge, translation rights, book club revenue, serial rights and film rights.
- 40000 Revenue
- 40100 Sales
- 40200 Returns
- 40300 Future Returns Charge
- 41000 Other Publishing Income
- 41100 Translation Rights
- 41200 Book Club Revenue
- 41300 Film Rights
- 41400 Permission Fees
- 41500 Reprint Rights
- 41600 Serial Rights
The image below shows these revenue accounts in the QuickBooks chart of accounts.
On a profit and loss statement the income accounts are displayed as follows:
40000 Revenue
40100 Sales
Sales is a sub-account of revenue.
40200 Returns
Returns is a sub-account of revenue. Books sold to wholesalers and retail stores can be returned remain unsold. This balance in this account shows the publisher total returns activity for a period.
QuickBooks does not track sales and returns separately. Recording returns activity requires a general journal entry (Company > Make General Journal Entries).
The monthly journal entry to record returns is a debit to returns and a credit to sales for the amount of credit memos issued during the month.
- 50200 Returns…………..$500
- 50100 Sales…………………………..$500
Because sales and returns increased by the same amount there is no change to net revenue.
| Account | Before Journal Entry for Returns |
After Journal Entry for Returns |
|---|---|---|
| Sales | $10,000 | $12,000 |
| Returns | n/a | $(2,000) |
| Net Revenue | $10,000 | $10,000 |
40300 Future Returns Charge
Future Returns Charge is a sub-account of revenue. Book publishers that sell physical books to wholesalers and retail stores may have a returns rate of 20% to 40% or more. Under accrual accounting, if you have sales of $100,000 in 2015 and you expect to receive returns of $20,000 from these sales in 2016, you should recognize only $80,000 in revenue for 2015. This is the 2015 sales amount less the expected future 2016 returns derived from 2015 sales.
Established small and medium sized publishers that follow GAAP (general accepted accounting principles) will make a year end journal entry to adjust the balance of the contra asset account: Allowance for Returns to equal the amount of expected returns to be received.
The “revenue portion” of the journal entry to account for future returns is a debit to Future Returns Charge and a credit to Allowance for Returns.
Example: Year 1 year end entry to create the allowance for returns balance.
- 40300 Future Returns Charge…………………………….$20,000 (revenue account)
- 10100 Allowance for Returns……………………………………………………………………..$20,000 (contra-asset account for accounts receivable)
Example: Year 2 year end entry to adjust the allowance for returns to account for a 15% increase in sales. This entry increases the allowance for returns from $20,000 to $23,000.
40300 Future Returns Charge…………………………….$3,000 (revenue account)
10100 Allowance for Returns……………………………………………………………………..$3,000 (contra-asset account for accounts receivable)
Note: Royalty contracts often have a clause that allows the publisher to withhold for one royalty period; if royalties are paid semi-annually or annually, a portion of royalties earned to account for expected returns. This is a reserve for returns clause.
Example: “The Publisher may withhold a reserve against returns not to exceed ten percent of the Author’s earnings for a royalty period. The Publisher shall indicate such reserve on the Author’s statement of accounting. Each period’s reserve shall be withheld for no more than one accounting period.”
41000 Other Publishing Income
41100 Translation Rights
Translation rights is a sub-account of other publishing income. Translation rights is the income received from licensing foreign language rights for a title to another publisher.
41200 Book Club Revenue
Book club revenue is a sub-account of other publishing income. Book club revenue is net of the associated cost of goods. If book club sales total $18,000 and cost of goods is $16,000, book club revenue is $2,000. If the book club prints their own copies; the preferred arrangement for large book clubs, the publisher incurs no production costs and the publisher earns a royalty on copies sold.
41400 Permission Fees
Permission fees is a sub-account of other publishing income. Permissions are the one time fees received for allowing another publisher to license your content (selected paragraphs, pages, image or a chapter) for use in their publication.
41500 Reprint Royalties
Reprint royalties is a sub-account of other publishing income. Reprint royalties are the fees received for allowing other to print selections (pages or a chapter) from a book.
