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Chapter 15

1.7 Royalties

A royalty is a payment to the patent owner in exchange for use of the patented
product, component or production process by another business entity. The royalty is
normally directly related to the number of units produced (e.g. $2 per unit produced)
during an accounting period. It is therefore a direct cost of production and included in
the calculation of prime cost.

The accounting entries for royalties payable to the patent owner are as follows:

Debit: Royalties expense $X

Credit: Payables (or cash paid) $X

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