An author may be paid a portion of the earnings from the sale of their book. One royalty arrangement would be that the author receives 15% of net sales of hardbacks and 7.5 percent of net sales of paperbacks. A person can pay to start a restaurant franchise, such as McDonald's or Kentucky Fried Chicken. They usually require an initial investment of $10,000-100,000 depending on location but with some franchises earning over $1 million per year.
An actor or actress may receive a percentage of the profits from their work. For example, Tom Hanks was paid between 5% and 10% of the box office revenue for each of his films. Actors are typically paid per performance rather than based on box office revenue like musicians.
A sports player may receive a salary from their team or league instead of being paid individually by companies that want to hire them. These companies include NBA teams, NFL teams, MLB teams, and NHL teams. Some athletes make more money than others - for example, LeBron James or Alex Rodriguez could earn many millions of dollars per season if they were to join an NBA team as a free agent. Others who have less success on the court or field can still make a good living through endorsement deals and corporate sponsorships.
In conclusion, royalty means a share of ownership or income from something.
An author receives 20 to 30 percent of the publisher's earnings for a hardback, 15 percent for a trade paperback, and 25 percent for an eBook under conventional royalties. So, generally, every hardback publication that earns out provides the author around 25% of the publisher's total earnings. For trade paperbacks, this figure is around 20%. For eBooks, it is around 15%.
The actual amount an author will receive depends on several factors such as how long after publication the book sells enough copies to be eligible for royalties but before those sales drop below what's required to be profitable. Also relevant is the type of work being considered. For example, if the work is in high demand with little opportunity for licensing, it will likely generate higher royalty rates than one that's less popular.
In addition to the percentage offered by the publisher, most books also pay an advance. This is money paid by the publisher to the author up front, with the goal of making sure the book gets written first and sold best. It can range from $10,000 to $500,000 or more for major publishers. Most advances are non-refundable even if the book doesn't sell well or at all; however, they do carry an obligation for the publisher to pay the author something if there are no other revenues generated from the book.
Finally, some types of works don't pay anything.
It is recorded as a debit to royalty expenditure and a credit to accumulated royalties in the ledger (assuming the royalties are to be paid at the end of the period). For example, an author may get paid $1 every book sold for the first 10,000 copies, then $1.50 each book sold after that. The publisher records 10,000 as the royalty payment for the year and also credits the author with $10,000 of new revenue.
The royalty expense should be equal to or greater than the royalty income. If it is not, then something has been misstated. Either there was actually less royalty income than reported or more royalty expenses were incurred than reported.
For example, if an author's royalty income is $10,000 and his royalty expense is only $5,000, then there is a difference of $5,000 between the two lines on the statement of financial position. This means that the agent who prepared the statement of financial position assumed that the author would spend $5,000 when in fact he or she did not.
In this case, the author's share of the company profits must be adjusted down by $5,000 so that his or her net profit is $3,000 rather than $4,000.
This example shows how important it is to check the accuracy of your statements against external sources of information, such as accounts sent to you by agents or publishers.