OK - not sure if this is the kind of question I can ask here. At a glance it looks like most people here are actual accountants trying to pass the cpa. I have a much more basic question. Like a sophomore question.
I am being sued and the lawyers say it is a probable that I will lose $100. So I credit an account called est. legal liabilties and I debit lawsuit expenses for $100 each.
I think I am cool so far.
Then the lawyers get us off cheap at $80 though. All examples in my acct book and t accounts that I can find on-line assume that the lawsuit was settled for an amount equal to the estimate. This is what I think I do but I am not sure:
credit cash for $80 to pay the settlement and debit legal liabilities for $80 dollars.
This leaves me with a a $20 credit balance in my liability t account and $100 debit in my expense t account. I think I should just debit the liability for $20 and credit the expense for $20.
Can I do that? Is that allowed? that seems to easy.
Thanks for any help
I am being sued and the lawyers say it is a probable that I will lose $100. So I credit an account called est. legal liabilties and I debit lawsuit expenses for $100 each.
I think I am cool so far.
Then the lawyers get us off cheap at $80 though. All examples in my acct book and t accounts that I can find on-line assume that the lawsuit was settled for an amount equal to the estimate. This is what I think I do but I am not sure:
credit cash for $80 to pay the settlement and debit legal liabilities for $80 dollars.
This leaves me with a a $20 credit balance in my liability t account and $100 debit in my expense t account. I think I should just debit the liability for $20 and credit the expense for $20.
Can I do that? Is that allowed? that seems to easy.
Thanks for any help