How to Account for Royalty Payments

Royalties are payments made to artists, musicians and other creators who own intellectual property by the distributor, publisher, or manufacturer that sells the creator's property.[1] These licensees pay royalties to the creator, the licensor, either upon the sale of an item or each time an item is used.[2] Royalty payments are made according to carefully constructed contracts, so it's important to employ an accurate accounting system to keep track of them. This ensures that payments are rendered in a timely manner and in the correct amount. Accounting processes vary based upon the nature of payments made and other contract stipulations, so it's important to know the specific entries required for each type of transaction.