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Do law firms deal with 'recharges' properly?

Law firms - Recharges

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As we know it has always been the case to treat any recharges for travel expenses, air fares etc as both an income and expense in the accounts where they are passed onto customers.  After the reclassification of what were formerly treated as disbursements in law firms such as search fees and medical reports (subject to their how incurred and who primarily benefitted  - i.e. the solicitor enabling them to provide their services to client or the client), it seems there has been no adaption from how these transactions are recorded.  Most law firms simply have processed recharges as expenses and/or as disbursements but called them 'recharges' on the bill generated to client.  Seemingly neglected to translate/reflect recharges correctly as income at all - i.e. create an income & revenue noiminal account and all the expenditure still channelling through the disbursment control.  I wanted to get some feedback if another accountants are encountering this issue with their legal clients and what if any you have modified in accounting systems to properly record these transactions consistently throughout the records in order to represent them correctly in year end accounts.  Any comments welcome.  Thanks.

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By LostinSuspense
24th Jul 2019 16:34

In my experience, working internally at a large legal firm, I believe travel costs charged on to a client were treated as a separate line on the ledger (& trial balance). The expenses were posted to a travel disbursement ledger line and also to a job report (where the fee earner would review and decide whether to recharge an item on to the client or not.

The bills did say recharge of travel disbursements (or words to that effect) as a separate line, however the firm I worked for were international and did a lot of overseas travel, so probably different from what many would consider as the typical law firm.

But it's hot and I may have misread your question..

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By Ashley Hughes
24th Jul 2019 16:55

That's the overhead (expense) side accounted for.
What about income side of the equation when bills are generated?

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