Royalty Income Journal Entry

Usually the royalty agreements contain a clause for the payment of a fixed minimum amount to the lessor every year as royalty irrespective of the actual benefit to be taken by the lessee simply in order to assure the lessor of a certain regular income from his property.

Royalty income journal entry. Debit lessee with the amount due to be paid by him. Entry 15 in lieu of paying himself. This minimum amount is known as. Entry 12 paul starts giving guitar lessons and receives 2 000 in lesson income.

The total royalty payment 7 percent of 100 000 or 7 000 would be debited to the royalty expense account and credited to the prepaid royalties account. In other words the owner author of the asset such as mine patent book artistic work etc. The royalty accounts journal entries to be passed in the books of lessee can be done away through two methods as under. Debit royalties suspense account with the short workings recovered.

The journal entry to record the transaction is to debit prepaid royalties for 50 000 and credit cash for 50 000. Sales 600 royalty 500 x 8 00 100 x 9 00 4 900 the total sales are 1 100 during period 2 the sales reach the 1 000 step and the royalty rate is increased to 9 00 per sale for the final 100 units sold during the accounting period. Sales 500 royalty 500 x 8 00 4 000 period 2. Thus he can count on income only after sales exceed 200 000 because he already received an advance royalty payment for this sales amount in the beginning.

Entry 13 pgs s first bank loan payment is due. Financial accounting royalty accounts royalty is payable by a user to the owner of the property or something on which an owner has some special rights. Entry 14 pgs has more cash sales of 25 000 with cost of goods of 10 000. A royalty agreement is prepared between the ow shortworkings difference of minimum rent and actual royalty is known as shortworkings where payment of royalty is payable on the basis of minimum rent due to shortage in the production or sale.

So if by the end of the accounting period the publishers sell books for 150 000 he will make the following journal entry to reflect royalty payment to the licensee calculated by multiplying net income of 150 000 by 10 which is 15 000. Royalty is nothing but a periodical payment made by the user of the asset to the owner or the creator of such an asset for its use. With the opening of minimum rent account. Without opening the minimum rent account.

Credit royalties receivable with the royalties on the year s output. Expensing monthly payments at the end of each month you must account for the. The entries to be made when royalties exceed minimum rent so that short workings are recovered are.