A Guide to Handling Advanced Client Costs for Legal Bookkeepers
Jun 16, 2025As a new legal bookkeeper, managing advanced client costs (ACC) for your attorney client is a critical task that ensures accurate financial records, compliance with trust accounting rules, and smooth client billing. Advanced client costs refer to expenses an attorney pays on behalf of a client, such as court filing fees, expert witness fees, or travel expenses, that are expected to be reimbursed by the client.
This post will guide you through the process of handling Accounts Receivable (ACC), highlight various client experiences, emphasize the importance of reconciling the ACC account, and provide an example of writing off unrecoverable costs.
Understanding Advanced Client Costs
Advanced client costs are funds an attorney advances for a client’s case, recorded as a receivable in the firm’s accounting system. These costs are typically tracked in a dedicated ACC account (an asset account on the balance sheet) and are distinct from the firm’s operating expenses. Proper management of accounts receivable (ACC) ensures that the firm is reimbursed for these costs, maintains accurate financial statements, and complies with ethical obligations, such as those outlined in state bar association rules for trust accounting.
To illustrate the importance of proper ACC management, let’s explore two contrasting client scenarios:
Client: Jones Law Firm
Imagine an attorney, Phillip Jones, who hasn’t systematically tracked ACC. They pay for client-related expenses (e.g., $500 for a court filing fee) out of the firm’s operating account and either forget to bill the client or lump the cost into a vague invoice line item. This approach leads to several issues:
- Financial Loss: Without tracking, the firm may absorb costs that should be reimbursed, reducing profitability.
- Inaccurate Records: Mixing client costs with operating expenses distorts the firm’s financial statements, making it hard to assess the actual cost of cases.
- Client Disputes: Clients may question vague or undocumented charges, leading to billing disputes and strained relationships.
- Ethical Risks: Failing to track costs properly can violate trust accounting rules, especially if client funds are involved.
For a new bookkeeper, stepping into this scenario requires implementing a structured ACC system, categorizing past expenses, and working with the attorney to identify reimbursable costs for invoicing.
Additionally, since there was a messy system or no system in place, a firm discussion with the tax professional will be needed to understand best practices for navigating this new workflow and how it was handled in the past with your client's tax return. A cut-off date would need to be established for the old method of tracking.
Client: Harris Law Firm
Now consider an attorney, Matthew Harris, who tracks ACC using billable expenses and billable income accounts, rather than a dedicated ACC account. In this setup, when the attorney pays a $300 expert witness fee, they record it as a billable expense (increasing an expense account) and simultaneously create an invoice to the client, recording the amount as billable income (increasing a revenue account). While this method tracks costs, it has drawbacks:
- Balance Sheet Oversight: Billable expenses and income accounts don’t appear on the balance sheet as receivables, making it more challenging to monitor outstanding client reimbursements.
- Reconciliation Challenges: Without a dedicated ACC account, reconciling costs becomes cumbersome, as expenses and income may not align perfectly due to timing differences or partial payments.
- Reporting Complexity: Financial reports may overstate revenue or expenses, as billable income is recognized before the client pays, potentially distorting the firm’s financial health.
For Harris Law, a bookkeeper should transition to using an ACC account to centralize cost tracking, improve balance sheet accuracy, and simplify reconciliation. This involves reclassifying existing billable expenses into the ACC account and ensuring future costs are recorded correctly. This must be done with care, taking into account the closed tax periods. Check with the tax accountant to understand how these two accounts were reported. This switch to using the ACC account will need to be managed with care.
The Importance of Reconciling the Advanced Client Costs Account
Reconciling the ACC account is a critical step to ensure accuracy and compliance. The ACC account should reflect all costs advanced on behalf of clients that have not yet been reimbursed. Regular reconciliation—typically monthly—verifies that the account balance matches the sum of outstanding client costs. Here’s why reconciliation matters:
- Accuracy: Reconciliation identifies and corrects errors, such as duplicate costs, missed invoices, or incorrect payment applications.
- Compliance: State bar associations often require attorneys to maintain accurate records of client-related expenses, especially when trust funds are involved. Reconciliation ensures compliance with these rules.
- Financial Clarity: A reconciled ACC account provides a clear picture of receivables, enabling the attorney to assess which clients owe money and plan their cash flow effectively.
- Client Trust: Accurate tracking and billing build client confidence, reducing disputes and fostering long-term relationships.
To reconcile the ACC account:
- Review Transactions: Pull a detailed report of all transactions in the ACC account for the period.
- Match to Invoices: Verify that each cost has a corresponding invoice sent to the client.
- Check Payments: Confirm that client cost payments are applied to the ACC account, reducing the balance.
- Investigate Discrepancies: If the account balance doesn’t match outstanding invoices, investigate unrecorded costs, misapplied payments, or write-offs.
Writing Off Billable Expenses Unrecovered Costs
Sometimes, an attorney cannot recover advanced client costs—for example, if a client refuses to pay, the case is lost, or the client becomes insolvent. Writing off these costs removes them from the ACC account and records them as a loss to the firm. Here’s an example of how to handle a write-off:
Scenario: The attorney advanced $250 for a deposition transcript fee on behalf of a client, which was recorded in the ACC account. The client’s case was dismissed, and they are unable to pay the invoice. The attorney decides to write off the cost.
- Create a Journal Entry. Debit: Billable Expenses recovered – $250
This increases the firm’s expense account, reflecting the loss.
- Credit: Advanced Client Costs – $250
This reduces the ACC account, removing the unrecoverable amount.
Lastly, note the reason for the write-off (e.g., “Client unable to pay due to case dismissal”) and obtain the attorney’s approval for audit purposes.
- **Update Client Records**: Mark the invoice as written off in the accounting system.
Date: 5/30/2025
Debit: Bad Debt Expense $250
Credit: Advanced Client Costs $250
Memo: Write off unrecoverable deposition fee for Client XYZ, case dismissed.
Best Practices for Managing Advanced Client Costs
To set yourself up for success as a legal bookkeeper, adopt these best practices:
- Use a Dedicated ACC Account: Record all client costs in a single asset account for easy tracking and reconciliation.
- Integrate with Billing: Ensure costs are promptly invoiced to clients, with clear descriptions (e.g., “Court filing fee, Case #123”).
- Leverage Accounting Software: Tools like QuickBooks or Clio can automate ACC tracking, invoicing, and reconciliation.
- Communicate with the Attorney: Regularly review outstanding costs and discuss potential write-offs or collection strategies to ensure timely resolution.
- Stay Compliant: Familiarize yourself with your state’s trust accounting rules to ensure proper handling of client funds and costs.
Handling advanced client costs is a foundational skill for legal bookkeepers, requiring attention to detail, a straightforward process, and regular reconciliation to ensure accuracy. By learning from scenarios like Jones Law firm (no tracking) and Harris Law (billable expenses), you can implement a robust ACC system that protects your attorney-client’s finances and reputation.
Reconciling the ACC account ensures accuracy and compliance, while knowing how to write off unrecoverable costs, like the $250 deposition fee, keeps the books clean. With these tools and practices, you’ll be well-equipped to manage ACC effectively and support your attorney-client’s success.
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