Accounting for professional disbursements from client POV

[Arthur Vandelay]

If a client of a law firm, say, receives invoices from that law firm broken down between professional fees and disbursements made on behalf of the client, is it sufficient for the client to simply add the invoice to accounts payable and book the whole amount as legal expenses or do the disbursements need to be split out? Or perhaps it depends on the specific nature of each disbursement? Unfortunately all the material I've found online seems to cover the subject from the vendor's, that is to say the disburser's, perspective.

 

[kirby]

You have to split things out because the lawyer invoice can have more items than just legal services. For example, by agreement the lawyer may pay $10,000 to someone to establish a deposit account in your name with your approval and then bill you for that. So that is an asset for you, not a legal expense.

 

[Arthur Vandelay]

You have to split things out because the lawyer invoice can have more items than just legal services. For example, by agreement the lawyer may pay $10,000 to someone to establish a deposit account in your name with your approval and then bill you for that. So that is an asset for you, not a legal expense.

Thanks. I was already splitting out the kinds of transactions you mention, where there would be some change to the balance sheet other than to Accounts Payable, but is it also necessary to split out non-legal expenses paid by the lawyer: bank charges, government fees and the like? One issue I have is that the invoices in question are not in the primary accounting currency, which means different exchange rates from one item to the next, if the items are all split out. And there are a lot of them!

 

[kirby]

No need to separate out the related expenses. Else you would have a "Lawyer's fees" account and a separate "Lawyer's expenses" account. Just record all of that as 'Legal Expenses"