Hard Costs Direct Costs

Hi there, Linda Ardesani, Ardesani Accounting. So this week is about hard costs, direct costs. How do you book them into accounting records? Attorneys will have fees that they have to pay along the way for a client. It might be a filing fee, it could be a witness fee, a deposition fee. These are fees that are directly for a specific client. So it's not for multiple clients. For the most part, it's always for a specific client. One of the interesting questions I have had asked of me is, well, what do you do if the attorney doesn't give you the names and how do you map that into your accounting? That makes it really hard, right? Because you need to create an asset account called Advanced Client Costs and then start to book your transactions into that along with the client name or the matter name. You want to tag the matter name so that way they'll sit in the asset until you bill them back to the client. And when you bill them back to the client, aka invoice the client for your time and those expenses to recoup the funds, they wash themselves out. They go into that asset, they come out of the asset. It's very basic and simple. But if the attorney doesn't give you the information that you need, then it makes it a lot harder for you to even figure out where you're— how do you track that? Because you need to track it in case maybe a matter settles and then an expense comes in and it will just sit there in perpetuity. It'll never be taken down. So it's an account you have to reconcile. Those are some of the things you need to think about as you start to use advanced client costs or client advanced costs. They have lots of different names, prepaid client expenses. I've seen all different names, but that's something you need to think about. An easy way to track this is to use my favorite legal app or software. Actually, software is LeanLaw. LeanLaw will help you to track those expenses. Partner that with Dext, which is an app that you can use to import Bills and any receipts. So if the attorney goes to, to the court and spends $400 on a, on a filing fee, they can just write on the receipt, you know, matter XYZ, and then upload it into Dex. Now I have that information. I don't have to worry about them losing that receipt, and I know what matter it goes to. So when it comes time to bill, they recoup the cost. So having that client conversation and speaking to them directly and say, look, I need to know these names so that you don't miss anything. So that's the real reason you need to put it into their perspective. And say, look, I know you're spending all this money on client expenses, but we need to have the name of the matter or the case so that way we can track it and follow it and have a proper accounting workflow and advance client costs. Let me share my screen. I'm going to show you how easy it is to do this in LeanLaw and then how easy it is to track. This is why you want to use the software. Think about that as you start to work with attorneys. Having the software in place, talking to the attorney, getting the software in place will help you in your workflow and help Make sure that you don't miss any costs. Just missing one cost alone can pay for the software. Let me share my screen. So here we are in QuickBooks, and I'm going to take you to a transaction I just created, which is I just created a real quick check. And it could be a check, it can be a bill, and you book it to client advanced costs. As you can see, I did that here. I paid court call $375 for to record fees to record A deposition. And obviously you're going to put what, like on March 31st, 2021. So you want to put details in there because that's what's going to be pulled into the invoice on the LeanLaw side. So I'm just gonna hit that. And then we'll come over to LeanLaw and I'll show you— well, actually, let me show you in a report where this hits in the books because it does hit the balance sheet line. Advanced client costs. Let me just do all dates here. So we can find it. I'm going to come over to my Advanced Client Cost Account, which is an asset. It's right here. Should be one of my more recent ones. And here it is, Court Call, Court Call, and the $375. So it's in here. It's hitting the Advanced Client Cost Account. So you can see the ins and the outs here, in and out, in and out. In when you pay for the expense, out when it gets billed back to the client. So it doesn't really have an effect on the attorney's books in a profit and loss sense of thinking, but it does happen. In, in the records as an in and out, kind of like a clearing account. So I'll come over here to the trust account, to LeanLaw, and you can see here I'm in the ready to be billed. You can also click on expenses. I've already keyed in, and I can key in over here the same thing, the Hessington Oil, which is the name of the client, and the matter was acquisition. And you can see the expenses that were keyed in. And here's, here's the record to record deposition on 3/31/21. So you can see that it's here. If I wanted to create a bill, In LeanLaw, I can come over here and bill my client, create a draft, and you can actually see what it's going to look like. So I'm creating a draft invoice to the client, and it will show up. If I pull this up, you'll see that it's here. It's just test expenses. There's no actual time here on this invoice because it's my example, right? This is my dummy file. Remember that. So looks like he's got quite the matter balance here of $109,000. So it's a big matter. But this invoice only totals $442. And you can see here that this These are the expenses that were captured. So that way you can see how this works and how simple it is. So now if you add Dext to that, Dext would be at the point where this receipt gets uploaded into Dext, and then I would backcode it to Hessington Oil acquisition matter, put it to advanced client costs. And if you do this enough, you can have it actually recognize that anything court call will come into advanced client costs, and then it's just hitting the matter line and then it will push in. I like using Dex because you can actually message your client and use the app in that fashion. So it works pretty well. That's basically all you need to know about advanced client costs when you're talking hard cost. The direct costs, the fixed costs, those are the ones that are a little bit more really specific to a client, and they're fees that the law firm is paying. Remember, this is coming out of their operating account. The law firm is paying these fees And then they're billing that back to the client and recouping it. So they're getting reimbursed. Now, what if the attorney— when this happens, the attorney actually decides to use the IOLTA checkbook to pay for the filing fee? Well, if that happens, now you don't have an advanced client cost situation because you're taking the money right out of the matter. So that would just get tagged to the matter. It would never hit advanced client costs. You just want to reduce the money in the retainer because you're using it to pay a cost. So I hope that helps. If you want to learn more or you have like a messy direct client advanced cost account and you need help fixing it, it's an account that should be reconciled, reach out to us. We're more than happy to help you. If you're an accountant or bookkeeper and this is kind of new to you and you'd like to join our group, it's called the Accountant's Law Lab and we'd love to have you. There's a few links in the post for you if you want to check it out. On that note, I hope you all have a wonderful, wonderful week. Bye now. Bye.