This lesson reviews best practices for royalty expense recognition using QuickBooks and EasyRoyalties.
Royalty Expense Accrual
Step 1. Monthly run the “Royalty expenses” report for each royalty schedule. The report’s activities should be based on activity date. This selection will calculate the royalty expense based on the sales records for the period.
Step 2. Accrue the monthly expense with a journal entry that debits “Royalty Expense” and credits “Accrued Royalty Liability.”
- Royalty Expense is an expense account.
- Accrued Royalty Liability is a current liability account.
Record Actual Royalty Expense
Step 3. When a schedule’s royalty expenses for a period are calculated; via a royalty run, create a journal entry that reverses the monthly accruals for that royalty run.
Step 4. Import; or manually enter, the royalty payments owed to authors/beneficiaries (QuickBooks vendors). Each royalty payable record will be charged to the royalty expense account.
Step 5. The last step is to run the GL Accounting Summary report for the royalty run. This report shows the royalty expense activity that is not reflected in the royalties payable amount. Enter a journal entry to record the impact of these activities. This can increase the royalty expense for the period.
The GL Accounting Summary report is generated by selecting the toolbar’s documents/print icon from within the selected royalty run record.
Example 1: The GL Accounting Summary shows a reduction in royalty advances, the journal entry to reflect this is a debit to royalty expense and a credit to royalty advances.
Example 2: The GL Accounting Summary shows a deduction for in royalties payable for expenses incurred. The journal entry to reflect this is a debit to royalty expense and a credit to the related expense account.
Example 3: The GL Accounting Summary shows a credit for reserves withheld (i.e. reserves for returns). The entry to reflect this is a debit to royalty expense and a credit to reserves payable.
Example 4: The GL Accounting Summary shows a debit for reserves released. The entry to reflect this is a debit to reserves payables and a credit to royalty expense.
GL Account Summary Report Example
The GL Account Summary report below shows the impact of the royalty run on the general ledger accounts.
Recording this in the general ledger requires two transactions:
- Importing the accounts payable transactions to record the $25,846.37 in new payables. This process will create a new vendor invoice for each payment due to a royalty recipient.
- A general ledger transaction to reflect the changes in reserves and royalty advances not reflected in the payables entry.
|55020||Royalty Expense||Entry 1: Accounts Payable Import||$25,846.37|
|20000||Accounts Payable||Entry 1: Accounts Payable Import||$25,847.37|
|55020||Royalty Expense||Entry 2||$6,544.18|
|21040||Reserve for Returns Liability||Entry 2||$544.18|
|55020||Royalty Advances||Entry 2||$6,000.00|
|Total Debits & Credits||$32,390.55||$32,390.55|