NESFA® Treasury Procedures: Paying Royalties
NESFA runs all royalties which are not one-time payments through
royalty accounts, which are the RY-name accounts in the Chart
When NESFA incurs a royalty expense we first put the payment into the proper
royalty account and then write a check paying off the royalty account. One
reason for this is so that we properly take into account any advances on
Advances on royalties
When an advance on royalties is given to an author, the check is written
against the author's royalty account. When this is done, the royalty account
should show the author owing NESFA (i.e., there will be a debit balance for)
the amount of the advance. This debit balance will disappear when the book is published.
Royalties paid upon publication
All current contracts call for royalties to be paid upon printing rather than
upon sale. The proper procedure is to:
- Get the number of books which are theoretically available for sale. This
number includes books which are given away to the author, the artist, our
own library, and review copies (but see below). The number does not include excess
copies printed in a limited edition, but does include books printed in excess
of the amount ordered in an unlimited edition (because they are saleable).
by the royalty rate specified in the contract and multiply that
product by the book cover price to get the total royalty due.
Enter this amount as a credit to the author's royalty account RY-author,
and a debit to the book's production account AS-BOOKnnn.
(We have a description
of this process.)
After posting the above transaction, get the balance due the author in the
royalty account and write a check. Be sure to take into account any
amount paid in advance toward the royalties.
Send the check along with an explanation of how we arrived at the amount
to the author.
Record the check written as being against the royalty account.
At this point, the amount of royalties should have been added to the AS-BOOKnnn
account and the author's royalty account should be zero.
- For unlimited edition books, such as NESFA® Choice books,
use the actual number of books received from the printer, after excluding
any damaged or missing copies. (In that way, the production costs
are amortized over the books actually received and available for sale.)
- For limited edition books, such as Boskone® books, use the
number declared on the title page, which includes both serially numbered and
lettered copies, but not the excess copies printed.
The excess copies can be used as review copies, marked as such, and
royalties are not paid on them. The excess copies cannot
be sold, or even given away except as review copies.
Royalties paid upon sale of book
(This section will probably apply to sales of electronic editions of books as well.)
Some old contracts still call for royalties to be paid on each copy sold when
it is sold. In actuality, we pay these royalties annually for the sales of
the books then pending. The list of books on which these royalties must be
paid and the entities to which the money should be paid can be found by looking
at transaction number 44367 or 44368.
- At the end of each fiscal year,
get total sales for each book and enter
them into the treasurer's royalty spreadsheet in the file
Care should be taken that such books which were given away (
and those which were declared as hurt are included in the count,
but those which were destroyed or discarded should be excluded.
- The spreadsheet will list the amounts to be entered. Typically, a royalty
due should be entered into Peachtree as a credit to an author's royalty
(liability) account and a debit to
the book's Sales Expense (SE) account.
- Once all royalties are entered, write checks for the balance in each
author's royalty account.
Other amounts in the royalty accounts
Sometimes payments are owed to authors for short pieces, such as forewords,
afterwords, and similar pieces included in a book written by someone else.
Payments for those pieces are debited to the book's AS-BOOKnnn
account and credited to the author's RY-author account.
When used in this fashion, the
royalty account is used like an advance
account, in the sense of an account payable.
An artist may also have a
royalty account for payments for
artwork they've done for one of our books.
IRS Form 1099
This form must be filed for authors and artists receiving ten dollars ($10.00)
or more in royalties, or six hundred dollars ($600.00) or more in payments, including
art show sales, in a calendar year.