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What account do you book for disbursement from legal invoice?

We just engaged with a new client - a startup company that occurred tons of legal fee.

In these legal invoices, there are lots of disbursements, such as meals, air fare, phone and etc. Should we book these disbursement as legal expense, or to other account, such as meals & entertainment... 

Answers

Manuel Grotz
Title: Controller
Company: An exchange
(Controller, An exchange) |

The company should book the costs under Legal, typically a G&A expense.

I assume that what you are referring to are the legal bills which break out detail as to meals, travel, etc., not just the legal services fees. Your question deals with how best to book the expenses detailed on the bill received from the legal firm. If you feel it necessary you can break out the legal account into sub-accounts (such as Legal- Service fees, Legal- T&E, Legal- Regulatory, etc.). I think it is important to know what your total legal expense has been as opposed to diffusing it throughout the various departmental expense accounts.

If the expenses you refer to are travel and entertainment, phone utilities, etc. incurred by your company directly (for example, taking the lawyers out to lunch along with company employees), then those costs sould be booked to the various departmental expense accounts (T&E, utilities, etc.).

If you need to keep track of all expenses associated with a project you may want to consider an accounting system that allows for a separate project dimension, not just department and account.

Juan Torres
Title: Sole Proprietor
Company: Juan Torres, CPA
(Sole Proprietor, Juan Torres, CPA) |

I would also consider the potential of these fees being considered start up cost as you indicate this is a start up company. They also may be associated with other assets that are being capitalized or expensed over time, based on the nature of the items the attorney was providing services. Would need to know more detail, however, I would agree as a general rule of thumb with Mr. Grotz recommendations.

Topic Expert
Barrett Peterson
Title: Senior Manager, Actg Stnds & Analysis
Company: TTX
(Senior Manager, Actg Stnds & Analysis, TTX) |

I have always recorded the full invoice - fees and ecpenses to professional services. Use a sub-account if you need to track, but as "meals" which have limitedvtax deductibility in the U.S. these amounts ate an element of obtaining professional services.

Topic Expert
Mark Pieper
Title: Director, SCS Finance
Company: Premiere Healthcare Alliance
(Director, SCS Finance, Premiere Healthcare Alliance) |

I have generally used "Professional Services - legal services" to easily be able to review expenses for legal vs consulting services. It basically depends on how important it is to track these legal expenses. I worked in a very litigious industry where our legal fees were massive and had to be carefully tracked. Unless required for tax treatment I don't think it is advisable to break-out legal services T&E. JEs will really begin to proliferate if you start doing that.

Robert Sheidler
Title: Consultant
Company: Self
LinkedIn Profile
(Consultant, Self) |

There may be a possible issue of whether some of the costs should be deferred, but that really does not relate to the question asked, which seems to be on whether the travel and similar charges on the legal invoice should be broken out from the actual charges for billable time. The answer the THAT question is no. Your client is paying for legal services, and travel and related charges incurred by the law firm's staff are part of that -- it is a matter of the firm's billing structure that they age broken out on the invoice, but it is legal services your client in incurring.

Now, whether any of all of these legal services could be deferred is another question.....

Topic Expert
Shannon Mathews
Title: Controller
Company: Aldrich Services LLP
(Controller, Aldrich Services LLP) |

I agree. In the US the whole cost of the professional service is fully deductible and therefore can be entered as one line item on your financial statement. The majority of the clients I've worked on and places I've now worked for add it all to "professional services".

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

I actually book my professional services by active profession, so accounting services and legal.

Should we have litigation and it's major (like a class action) I make a sub-account/department.

Audits/Reviews also go into a sub-account. This way I can gauge costs more accurately.

Lawrence Lewandowski
Title: CFO, Controller, Director
Company: in-between
(CFO, Controller, Director, in-between) |

Having had this experience in the past, my recommendations would be:
The value of the invoice is recorded to "Legal Expense."
Or, if incurred as part of establishing the business, "Start up Costs."

Richard Tung
Title: CFO
Company: Schnadig International Corp
(CFO, Schnadig International Corp) |

"Legal Fee" is right answer, however, in different categories depends on company situations;
For a start-up, it became an initial cost for the new company;
For a liquidating company, it became a dissolving cost for the company;
For special legal services, such as anti-Dumping legal fee is a other expense in Non-Operating expenses in your P&L statement; Collection legal charge is a "collection fee" in G&A expenses

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