Advance Client Costs is a temporary contra asset account. The account is suppose to be used when the firm makes a payment for a client that will be billed to the client and later reimbursed. The most classic case of this would be Filing Fees - a firm will send out a check to the court on behalf of their client and pass that fee down to their clients.
Below you can see an image with all the journal entries made at each step of the process.
Blue - entries from creating a new check that has a billable line item with Advance Client Costs
Green - entries from creating an invoice with the billable expense from above
Red - entries from getting payment
Firm's also have the opportunity to expense the fee into their Filing Expense account, rather than the Advance Client Cost:Filing Fee account. However, the fundamental difference between using an Advance Client Cost account Vs. an Expense account is the statement is has effect on:
When using the an Advance Client Cost account there will be no effect on the Profit and Loss Statement as the accounts affected are those that are on the Balance Sheet. On the other hand, using an Expense account there will be an effect on the Profit and Loss Statement but not the Balance Sheet because Expense accounts show on the Profit and Loss Statement.
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