what is royalty account

Royalty refers to the payment made to the owner of an asset or property for usage. In accounting, royalty is a nominal account and is treated as an expenditure made normally. Royalties exist in different industries, and payments are generally made in the case where trademarks, copyrights, and patents are required by another individual. Royalties can be periodic payments made by the user of the asset to the owner or the creator of such an asset for its use. The consideration paid in exchange for using the asset of the owner is determined in terms of the number of items produced or sold. Royalties can be calculated based on gross revenues, which is a fixed percentage of total income before outlays, or net revenues, which is a fixed percentage of profit per unit of asset sold. Royalty agreements are legal contracts between a licensor and a licensee, and the agreement grants the licensee the right to use the licensor’s intellectual property in exchange for royalty payments.