Royalty Account

Royalty is payable by a user to the owner of the property or something on which an owner has some special rights. A royalty agreement is prepared between the owner and the user of such property or rights. If payment is paid to purchase the right or property that will be treated as capital expenditure instead of a royalty.

Payment made by  the lessee on account of a royalty is normal business expenditure and will be debited to the royalty account. It is a nominal account and at the end of the accounting year the balance of royalty account need to be transferred to the normal Trading and Profit and Loss account.

There are basically  three types of royalties
1. Copyright
2.  Mining royalty
3. Patent royalty

A periodic payment which may be based on a sale or output is called a royalty. Royalty is payable buy the lessee of a mine to the lessor, by publisher of the book to the author of the book, by the manufacturer to the patentee, etc.

You can learn more about Royalty account in the video below.

Dr. Gunjan Agarwal
Assistant Professor
Department of Accounts and Law
Faculty of Commerce