I was recently asked how items like ISBN and copyright registration costs should be handled: what accounts should they be in, how should those accounts be tied to the particular title, and how they should get into COGS. (Cost of Goods Sold)
I’m going to start answering this at a simpler level: COGS comes in 3 types. PPB, Royalties, and Plant Expenses. PPB means Paper, Printing and Binding. It usually includes everything on your printing bill. We all know what Royalties are. Plant expenses are those costs where the total expense doesn’t change when the number of copies sold or printed changes. (NB: Plant means something very different outside of book publishing!)
ISBN and copyright would be plant items. So are design, editorial work, etc.
Plant expenditures are recorded as a current asset, until the book is published. At that point, you begin to amortize the total over the expected life of the title. This reduces the asset by a certain amount each month, and moves that amount over to the COGS — Plant account.
Assets accounts usually begin with a 1, liabilities with a 2, equity and retained earnings with a 3, revenues with a 4. Many publishers also assign their COGS accounts to the 4s. Then selling, distribution and marketing are usually in the 5s.
Operating expenses are usually in the 6, 7, and 8 ranges. Extraordinary items, interest and taxes are in the 9s.
If your accounting program allows long enough account numbers, you may want to assign the second through fifth digit to describe the type of item, and the sixth through tenth digits might designate the title.
For example, your chart of accounts might show an account number 1 3510 67890.
This could be decoded to read: 1 = asset.
Next digit: 3 = inventory or plant. (2, 3 or 4 = current asset, 5 through 9 = long-term asset.)
Then comes 510 = ISBN registration. (There’s no common arrangement for these digits, this is just an example!)
And last, 67890 = title id. Usually the end of your publisher prefix, and the title identifier. (Omit the check digit or not, according to taste.)
Let’s suppose, though, that your accounting program doesn’t allow such long account numbers. Then, you may need to employ sub-ledgers. These expand the level of detail you track for a particular summary account. Plant asset records are often kept in a subledger, and only the totals are entered into your general ledger account. Then you can use Excel or something in your accounting package to track individual titles’ accumulated expenditures, and the offsetting amortization.
Combining the information tracked by title for sales, subsidiary rights revenue, PPB, Plant and Royalty expenses, as well as marketing and distribution expenses, will give you a very good handle on which books were successful and which were not. They can help you understand whether or not your projections before the project launched were accurate or not, and sometimes they can even help you pinpoint why one book succeeded and another did not.
All of this is pretty complicated, so please do ask questions in the comments section. You do NOT have to register, just comment away.