I run a small publisher. For normal royalty payments to authors I treat the author as a supplier and raise a purchase record and link this to the corresponding bank payment. However, we sometimes sell copies of an author’s books to the author. In a few cases, if we also owe the author a royalty payment, they ask for the royalty owed to them to be discounted from the invoice total for their book purchase. I understand that I can just deduct the royalty by adding a line with a negative amount on the invoice. However, I also want to keep a record of the royalty that has been paid out to the author. At the moment I raise a purchase record (booked to 6101 Royalties Paid Out) for the royalty owed and then a corresponding credit note (booked to 5009 Discounts Taken) to show that it has been paid. Is there a more efficient way, from an accounting perspective, of handling things?
This is a case of “contra invoicing” and the simplest way to handle it is with an additional dummy bank account. Mark the whole sale as paid into the dummy account and the royalty purchase as normal paid out of the same account. The actual money you receive from the author will be the difference between the two and can be tagged as a bank transfer from the holding account to return its balance to zero.
Thank you, Ian. I tried that approach and it works well.