Royalty accrual

Royalty accrual: A royalty accrual is the recognition of royalty expense in the period the royalty-bearing sales occur, before the royalty statement for that period is prepared or cut. Each month, the licensee estimates the royalties earned on the period's licensed sales — the rate applied to net sales as each agreement defines them, plus any building minimum-guarantee shortfall — and records that amount as expense with a corresponding liability. The statement, produced later on the agreement's reporting cadence, settles the liability; the accrual is what keeps the expense in the right period when the paperwork follows the sales by weeks.

Accrual and statement cash diverge for structural reasons, not errors. Returns lag means the net sales a period was accrued on keep moving after it closes, with true-ups attributing the difference back to the original-sale period. Advance recoupment means expense accrues while no cash leaves at all. And a minimum-guarantee shortfall builds as an accrual across the measurement period but pays as a single settlement at the boundary. A reconciliation between accrued royalty expense and statement totals is therefore a period-close control in its own right — the difference should be explainable line by line, not carried as a plug.