qbteachmt
Level 15

In a majority of firms, Client costs are held until case income occurs. You would not take them as COGS until then. Hold them as other asset until billing starts; then they move to COGS as income is recognized. Or, as pointed out, you wash them as reimbursed. Various methods apply because it depends on the type of practice, such as if the cases are settled on a Class Action or other general settlement basis (removed accrued other asset advanced costs to COGS at the point of settlement funding) such as an insurance case; if the firm is on routine retainer as Income (not prepayment); if this is a Job Shop (hourly work); public defense or criminal cases; etc. Or, for a divorce and family law practice, the advanced costs are reimbursed as part of the billing, which is broken out into advanced cost reimbursement, and then Fees and other charges as income.

The tax return expenses typically are operating expenses.

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