We have a number of receivables that we need to write off. Typically, the receivable includes disbursements recorded as Client Disb Clearing (G/L 5210). We are on a modified cash accounting, so the 5210 account, as I understand it, represents costs advanced on behalf of the client that can only be deducted as a business expense if and when it becomes unrecoverable. Now that we are writing off the receivable, we need to find a way to signify that the disbursement can now be treated as a deductible expense. What is the best way of doing that?
Joe BodoffBodoff & Associates, P.C.120 Water StreetBoston, MA 02109-4210www.bodofflaw.com
Joe - the 5210 account is really a clearing account. Yes all your disbursements that are hard costs get coded to their, but in the background PCLaw moves it from that clearing account to the Client Disbursement account. It you are on modified cash basis, then that account is usually 1210 which is an Asset Account on your balance sheet.
When you write off a/r that include hard costs or soft costs, you are asked for a g/l account. You should have a 5000 account (expense account) for client disbursement write offs. Choose that expense account. If you don't have one, make one. The write down will reduce the asset 1210 account and create an expense in the 5000 account. That will create the expense on the date you do the writeoff.
The client disbursement clearing account is one of the most mis-understood accounts and causes many problems when not handled properly. I think you and I have talked about back in 1994 when you started a new set of books.
Hope this helps.
Pat Cunningham, PCLaw CIC, Time Matters CIC
C & S LegalTech Consulting Group, LLC
Do you use the 5000 account to write off both hard and soft costs or
just the costs assigned to 5210?