In terms of accounting, royalty is what a lessee pays to a lessor for the use of any rights, copyrights, franchises or any such asset. It is the system of sharing of revenues between the lessee and the lessor. It is a periodic payment. Royalty is generally paid on the basis of output or sale. It is paid for extraction of mines, for use of the patent, for use of technical know-how, to an author for sale of his books, etc. It is recorded in the ledger as a debit to royalty expense and a credit to accrued royalties. Royalties based on output should be debited to Manufacturing or Production Account whereas royalty based on sales be treated as selling expenses should be debited to Trading Account or Profit and Loss Account. The presentation gives better understanding on the topic.

Vidya V

28 resources

1

0

2

Like