This article shows how book publishers account for cost of sales in their chart of accounts.
510000 – Cost of Goods Sold
Cost of goods sold shows the cost of physical units that were sold.
520000 – Inventory Write-down Expense
The write-down expense account is used to record entries for damaged stock, stock shrinkage and destroyed stock.
540000 – Plant
Plant expenses are one time expenses incurred for the development of a book. This includes cover design, copy editing, line editing, and proofreading. When product development expenses are initially incurred they are capitalized in a work-in-progress (or work-in-process) asset account. When a book is published these expenses are moved from work in progress to the “Plant” balance sheet account.
The plant balance is amortized over the expected life of the title. This is usually a period of 1 to 5 years. If the life of a title cannot be estimated plant expenses are expensed upon publication.
- Plant costs for trade fiction and non-fiction titles are typically amortized over a period of 1 year.
- Plant costs for pulp romance novels are expensed upon publication.
- Plant costs for annual reference books are amortized over a period of 1 year.
- Plant costs for a professional reference book or a middle school textbook may be amortized over a period of 3 to 5 years.
Small publishers usually amortize the plant balance using the straight-line method. Large publishers favor the double declining balance method. An Excel spreadsheet shows the monthly amortization of plant expenses by title (row) and month (column).
A monthly journal entry records the amortization expense for the month. The journal entry is:
- Debit: Plant (expense)
- Credit: Plant (asset)
55000 – Royalty Expenses
Royalty expenses reflect the actual and projected cost of royalties on sales. There are often three sub-accounts linked to Royalty Expenses.
55100 – Royalty Expense
Royalty expense reflects the actual royalty expense that is available after royalty statements are calculated.
55200 – Accrued Royalties
Accrued royalties are the estimated royalties for a period. Typically, a publisher will accrue royalty expenses each month and reverse this accrual when royalty statements are generated.
55300 – Unrecoverable Advances
Unrecoverable advances reflect royalty advance payments that cannot be recovered for books that will not be published, or for books whose sales will not earn out the advances paid.
Publishers may also have a general ledger account for unrecoverable royalties. This is used when returns exceed sales and the publisher does not expect to recover excess royalties paid; during a prior royalty period, to an author.
601000 – Transportation Charges
Many publishers track outgoing transportation charges; the cost of shipping goods to customers, in a transportation charges department. This is an expense account, not a cost of goods sold account.
The transportation charges department records the actual shipping costs; not the fulfillment costs, for each order, shipped. There are two sub-accounts for this department; shipping expense and shipping income. Shipping costs record the cost of shipping stock to customers. Shipping income reflects shipping charges billed to the customer.
- 601010 Shipping charges out
- 601020 Shipping charges income
If shipping income exceeds shipping charges out the transportation charges department will have a negative balance.
Order fulfillment expenses; distribution, picking, packing, and warehousing, are tracked in a separate fulfillment department.