Paul W. Carlson, CPA (00:00):
Hey, this is Paul Carlson, CPA with Law Firm Velocity. This video we're talking about a workflow for immigration law firms that provide immigration services for corporate clients. And the idea of the process is we want to remove the reimbursements received from the corporate clients from the firm income statement. And we also do not want to see the charges that the firm advances on the firm income statement, that we want to move all of the advanced costs and the reimbursements to the balance sheet. One, it ties a little closer to IRS tax code and it also makes the income statement reflect only legal fees, and we don't have a mix of legal fees and cost reimbursements on the income statement. So the process is for, again, corporate firms. And in corporate immigration, the law firm will typically write a check for an application fee or other hard costs out of the firm operating account.
(01:00):
And then the firm goes ahead and will bill or invoice the client for the legal fees, plus all the application fees when the work is complete. This process does not work when costs are prepaid by the client. There's a gray area here where if the client is prepaying costs, they may need to go into trust, but either way, this would be a completely different process. And then we're going to suggest some significant changes to the firm's accounting processes, that certainly make sure that the firm's CFO and tax professional understand what changes are being made before you go through this. So how this works is, we change a couple settings in CosmoLex, and then when the cost is recorded in CosmoLex, we post it as a hard cost. And then once we make that setting change, the cost now appears on the firm balance sheet, and we're actually going to click in the CosmoLex year in a second to see this.
(01:59):
When the client invoice is created, the cost stays on the balance sheet because it hasn't been reimbursed. And then when we finally receive payment from the client, the cost is just simply removed from the balance sheet. So if we're writing a $1,200 application fee to Homeland Security, we pay the cost, it goes on the balance sheet, we bill a client, nothing happens. And when we receive payment, the cost is removed from the balance sheet. So the only thing that appears on the income statement are legal fees. All right, so let's jump over to Cosmo. So here's the setting that needs to be changed, and this is under firm settings accounting, that we want. We changed the default account for client costs posted to matters.
(02:46):
And so, we want all costs charge into matters to go to an advanced client cost account and other current asset. So this is the change that you make that pulls these off of the income statement. And to see what this looks like on the firm balance sheet when we have costs that the firm has paid, has not been reimbursed, they're on the balance sheet as an advanced client cost. So let's look at how we record these. So we enter as a hard cost. And then, if you write your checks manually that you can just write the manual check, put the detail here, or if you want, you can start to complete the check information, select to be printed. And then CosmoLex will go ahead and walk you through the process of printing those client checks.
(03:37):
When you invoice, billing process is the same, that we just need to create an invoice for that advanced client cost. The trick here is, when we make this hard cost entry, that will automatically feed and appear as an amount to be included on an invoice. That in the past, if you've not been doing this, see here, sometimes firms will record advanced costs just as another expense, not even attach it to a matter. And then when they do the invoices that they make an invoice by creating one line item for the service and one line item for the cost, that when you enter this charge through the system, that it will automatically appear as a billable item in the invoicing process.
(04:27):
And then the rest of this just works like usual, that when we receive the payment from the client, we just go ahead and record that as regular payment. All right, and so let's jump back to this Word document. So again, this process only works when the firm pays the cost first. Then we send an invoice to the client for the cost and the client reimburses us. If there's a different process where we receive the money from the client in advance, we need to do something very different. So just watch which workflow you're working with. All right, thanks.
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