How to Account for Merch Purchased by or Advanced to a Payee

When a payee purchases merch from a catalog directly, or is advanced in merch, additional transactions must be entered into the system to establish the accountancy picture for these situations. These scenarios can be easily addressed within IC by following the helpful instructions below!

How to Account for Merch Purchased by a Payee

When a payee purchases merch from the catalog (i.e. artist money is exchanged for label product), these totals should be entered into IC in order to account for the amount received by the label as a contribution to recoupment, in addition to tracking the overall unified balance of the Release. How to account for these totals is dependent upon whether or not the associated Release itself has recouped.

If a Release is unrecouped, the amount received by the label can be entered simply as a positive income transaction. For example:

Release 1

$100 positive income <-- received by the catalog from the payee in exchange for product

-$200 expenses

= -$100 project balance

50% split 

= -$50 payee balance

In this instance, the $100 that the catalog receives contributes to recouping the -$200 in expenses for the release. The $100 is not being "paid back" to the payee, however, it is bringing the release closer to recoupment - wherein the payee and catalog will both be in a payable position.

If a Release is recouped, this scenario gets a little more complex, since income added to the system representing payment received by the label from a payee for merch product will be split by the terms of the Release contract. As such, in addition to the positive income transaction, a negative transfer transaction must also be logged in order to offset the amount that would be "paid back" to the payee. For example:

Release 1

$100 positive income <-- received by the catalog from the payee in exchange for product

50% split 

= $50 payee balance

-$50 negative transfer

= $0 payee balance

This combination of positive income and a negative transfer ensures that the income can be accounted for in the system without being paid back to the payee by simply offsetting the amount they would receive proportional to their split % of the release contract.

If a Release is in recoupment and the merch income takes the Release from unrecouped to recouped, you'll need to do a little extra math to determine how much income to offset. For example:

Release 1

$100 positive income <-- received by the catalog from the payee in exchange for product

-$50 expenses

= $50 project balance

50% split

= $25 payee balance

-$25 negative transfer

= $0 payee balance

The negative transfer transactions are necessary here as the payee is implicated in the split, and as the payee received product for the amount they exchanged in cash, they are not payable on the income remitted to the catalog associated with these income transactions.

Additionally, some catalogs prefer to leave merch accountancy out of IC with the thought that the transaction of payment for product "cancels out" any transactional total - which is technically true in the event that the corresponding release has recouped, however, as best practice we recommend always logging these transactions in order to have a single source of truth for release balances in IC.

How to Account for Merch Advanced to a Payee

If product is advanced to a payee, the transactional total corresponding to the merch can be treated like "cash" in the system. To do so, simply create a negative transfer transaction in the total $ amount that the product represents. This amount will then need to be recouped by the payee in full, from their share of royalties, before they are in a payable position. For further details, please see our transfers doc and the example below:

Release 1

-$100 negative transfer <-- $100 in product advanced by the label to the payee

= -$100 payee balance balance

$500 income

-$300 expenses

= $200 project balance

50% split

= $0 payee balance <-- the payee's 50% share of the project balance ($100) less their merch advance (-$100)