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 of Accounts.

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 royalties.

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:

1. 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).
• 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.
Multiply it by the royalty rate specified in the contract and multiply that product by the book cover price to get the total royalty due.
2. 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.)
3. 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.
4. Send the check along with an explanation of how we arrived at the amount to the author.
5. Record the check written as being against the royalty account.
6. 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.

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.

1. 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 "N:\Treasurer\Year-end Transactions.xls".  Care should be taken that such books which were given away (freebies) and those which were declared as hurt are included in the count, but those which were destroyed or discarded should be excluded.
2. 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.
3. 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.

This page is maintained by Treasurer at NESFA dot org.