| Publishers often pay authors
in advance of publication. How should this
be accounted for?
The appropriate procedure is to create a
balance sheet asset account called Royalty
Advances. This is an asset as it will technically
be refunded to the publisher if the book does
not earn back its royalty advance (PS: most
publishers write-off any unearned advance
and do not demand repayment). This amount
will reduce the amount of future royalty payables.
When a royalty advance is paid credit (reduce)
cash and debit (increase) Royalty Advance
- the balance sheet account.
When the book is published you apply the
royalty advance against the royalties earned/payable.
This reduces the amount of money that you
owe the author, but not the royalty expense
(as you paid some of the royalty expense in
advance of publication).
If the book is not published or royalties
are not expected to cover the the royalty
advance the publisher should write off the
remaining balance of the book's royalty advance.
This will credit (reduce) royalty advances
and a debit (increase) the expense account
Royalty Advance Write-offs.
Tip: Review your royalty
advance balances at least twice a year and
write down any advances you do not expect
royalties to cover.
Why twice a year? So that management is not
surprised by a large write-off at year end.
Tax Note: In the United States royalty advances
are taxable to the author when they are paid.
All amounts $10 or more are reportable to
the Internal Revenue Service on the author's
1099 statement in Box 2 - Royalties.
Software Tip: Make sure
that your royalty software tracks royalty
advance balances.
Looking for royalty software? Visit RoyaltySoftware.net
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