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Introduction

CosmoLex offers an easy way to keep track of and bill your matter-related expenses. Since CosmoLex contains fully integrated accounting, those matter-related expenses can be one of two types – Hard Costs and Soft Costs.

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Difference Between Soft and Hard Costs

The information provided here serves as a general guide to appropriately book matter-related expenses within CosmoLex.  If you need additional assistance, please contact your accountant to determine how your firm should handle hard costs vs soft costs.

Soft Costs

Soft Costs (or Indirect Costs) are “in-house” items that are generally part of the firm’s overhead, and a piece may be attributed to the firm’s client. For example, a firm may buy a packets of paper for copies, then when a client needs copies the firm may bill the client at $0.25 a copy. Other examples include postage, long distance phone calls, mileage, etc. 

Hard Costs

Hard Costs (or Direct Costs) are items in which you paid an amount out of pocket, and are now seeking direct reimbursement. They are directly linked to a particular transaction, such as filing fees, postage, expert witness fees, court costs etc.

If you do not plan on using CosmoLex for business accounting at this time, you should enter all expenses as soft costs. If in the future, you wish to enter the associated transactions, you can link your existing soft costs to direct transactions, thereby creating hard costs.

Difference in Accounting

Expense Portion of the Accounting

  • Soft Costs are already listed as an expense on the firm’s Profit and Loss. It is not a “new” expense and does not affect P&L or Balance sheet.
  • Hard Costs are new expenses. It affects one of these following options:
    • Option 1: Profit and Loss when posted as “Reimbursable Client Costs (Expense)”
    • Option 2: Balance Sheet, when posted as “Advanced Client Costs (Asset)”

Income (Reimbursement) Part of the Accounting

  • Soft Costs are posted to the “Inhouse Reimbursed Client Costs”. It impacts the Profit and Loss by increasing income (which offsets the expense).
  • Hard Costs
    • If the expense was posted as in Option 1 above, reimbursement is posted to “Reimbursed Client Costs (Income)”, which offsets the “Reimbursable Client Costs (Expense)” on the Profit and Loss
    • If the expense was posted as in Option 2 above, reimbursement is posted to  “Advanced Client Costs (Asset), reducing the amount on the Balance Sheet.

Importance of Tracking Costs Separately

Tracking reimbursable costs separately provides the firm with an accurate accounting of revenue received that offsets expenses on the Profit and Loss (Option 1 as listed above). This may reduce the net income of the firm in a given tax year. Option 2, as listed above, provides an accurate value of Assets on Balance Sheet.

Soft Cost Expenses

Add From the Global Add Shortcut

Use this shortcut, from any screen in CosmoLex, to easily enter soft cost expenses for any matter

1. From anywhere in the program, click  Global Add Shortcut on top right of screen and click  Expense (Soft Cost)

Add From Matters Tab

Use a shortcut on the matters tab to launch a Soft Cost Expense Card for any matter

1. Start at Matters tab, click once to select desired matter 

2. Click Soft Cost expense shortcut on right-hand panel

Add From Matter Details Tab

Enter soft cost expenses while working within an individual matter

1. From Matters Tab, double-click on desired matter or select matter and click Details

2. Click the Billing Tab

3. From Time/Expense, click  Add Expense and select Soft Cost

Add From Activities Tab

For a quick way to enter soft cost expenses to any matter, launch an Expense Card from the Activities section.

1. Click Activities Tab

2. From Time/Expense, click  Add Expense and select Soft Cost

Complete Soft Cost Expense Card

Use this section to understand all of the available fields on your Soft Cost Expense Card

Select Matter

You will have to select your desired matter when entering time from the Global Add shortcut and Activities Tab.

Enter Info

  • Timekeeper (Required) – Select the person charging the expense. Their initials will be listed next to this item on the invoice
  • Date (Required) – The date the expense occurred. The default date will be today’s date. 
  • Expense (Required) – Here you must enter an expense. You can select from the drop-down list, or simply type directly into the field. If you want to customize your drop-down list for expenses, Customize your List Items
  • Description – The detail of the expense that occurred. 

Amount

  • Quantity – the quantity of this expense. This will default to 1.
    • Example: If you are billing $0.25 a copy for 50 copies, the quantity here would be “50”
  • Rate/Price – Enter the amount of the expense.
    • To standardize rate or prices for commonly used expenses, Customize your List Items
    • Example: If you are billing $0.25 a copy for 50 copies, the Rate/Price here would be “0.25”
  • Value – Calculated based on the Rate/Price and Quantity. This is the amount you will be billing your client, and that will display on the invoice.
    • Example: If you are billing $0.25 a copy for 50 copies, the value here would be 0.25 x 50 = $12.50

Advanced Settings

Billing Info Tab

  • Billing Status – How you wish to/not to bill your client for this soft cost expense
    • Billable – This is the default option. This means it will appear as part of the unbilled balance and appear on your next invoice.
    • No Charge – This is for items which you are completing free of charge as a courtesy for your client, but you want the value to be shown on the invoice. For example, Value: $200  Charge: $0.00.
Important

When entering ‘No Charge’ Expenses, make sure the Account field is set to 6620: Nonreimbursable Client Costs

    • Unbillable – This is for items that you want to track for internal reasons, but will not be billing the client for, and do not want them listed on the invoice 
  • Hold – Check this box if you wish to place this expense on hold. That means the next time you invoice your matter, CosmoLex will not include this expense. When you’re ready, edit this Soft Cost Expense and un-check this box to be able to bill it.
  • Flag – You can flag this expense with a priority level, for billing.

Notes Tab

  • Notes – Enter internal notes for this expense. These notes will not appear on the invoice or anywhere for the client to see.

Tax Tab

  • Tax – Check the box here to make this soft cost taxable. Once you have checked this box, the tax in your firm settings will be applied.
    • If all expenses should be taxable, set your tax settings on the firm level under Setup > Firm Settings, Financial Settings. See more information about Tax Settings
    • If all expenses for an individual matter should be taxable, set your tax settings on the Matter level, by editing the matter and updating Tax Settings for Sales Tax

Save

When ready, click Save to add the soft cost expense to this matter

If instead you want to save this particular soft cost expense and enter more soft cost expenses, click Save and New

Edit Soft Cost Expenses

If Expense Card status is “Entered” meaning it is not yet included on an invoice

1. Find desired Expense Card. Start at Matter Details > Billing tab > Time/Expense 

2. Select Expense Card and click   Edit 

3. Make desired changes. Here, you can edit the matter and other details on the Expense Card.

4. When ready, click Save

If Expense Card status is “Billed” meaning it is already part of an invoice

1. Find desired Expense Card. Start at Matter Details > Billing tab > Invoice 

2. Select the invoice and click  Edit 

3. Find your Expense Card, and click edit to the right to edit the Expense Card

4. When ready, click Save

5. To recalculate the amount, and update the invoice, click Generate Invoice

Delete Soft Cost Expenses

If Expense card status is “Entered” meaning it is not yet included on an invoice

1. Start at Matter Details > Billing tab > Time/Expense

2. Select Expense card and click Delete

If Expense card status is “Billed” meaning it is already party of an invoice

1. Start at Matter Details > Billing tab > Invoice

2. Select the invoice and click  Edit 

3. Un-check hard cost expense

4. To recalculate the amount, and update the invoice, click Generate Invoice

5. Expense Card will now appear as “Entered” or unbilled and can be deleted as shown above. 

Hard Cost Expenses

Add From the Global Add Shortcut

Use this shortcut, from any screen in CosmoLex, to easily enter soft cost expenses for any matter

1. From anywhere in the program, click  Global Add Shortcut on top right of screen and click  Expense (Hard Cost)

Add From Matters Tab

Use a shortcut on the matters tab to launch a Soft Cost Expense Card for any matter

1. Start at Matters tab, click once to select desired matter 

2. Click  Hard Cost expense shortcut on right-hand panel

Add From Matter Details Tab

Enter soft cost expenses while working within an individual matter

1. From Matters Tab, double-click on desired matter or select matter and click Details

2. Click the Billing Tab

3. From Time/Expense, click   Add Expense and select Hard Cost

Add From Activities Tab

For a quick way to enter soft cost expenses to any matter, launch an Expense Card from the Activities section.

1. Click Activities Tab

2. From Time/Expense, click  Add Expense and select Hard Cost

Add From Bank Account

You can retroactively create a hard cost expense by posting a transaction on your operating bank, then linking it to the matter.

Some firms use this if they have a bookkeeper or accountant that works strictly with the Accounting section. That person can enter transactions through the operating bank and assign them to their respective matters. Another reason you would add hard cost expenses this way, is if your firm incurred a cost and and you later decide that it will need to be posted to a particular matter.

1. Create a withdrawal transaction in your operating bank. Don’t know how? Learn more here.

2. After you’ve completed the transaction, check the box for “Post as a matter expense”

3. You’ll need to select whether this is an existing or new expense card and complete the rest of the information, as shown below.

Complete Hard Cost Expense Card

Transaction Section

Use this section to record the out-of-pocket expense you are making from your Operating Account. This can be a check, wire, or other type of outgoing transaction. Because CosmoLex has fully integrated accounting, the default account (Chart of Account) here will be “Reimbursable Client Cost”. 

To change your default for this account field, go to Setup> Firm Settings section > Accounting tab (learn more about Accounting settings)

Expense Section

This section is the expense card that is being created on the matter, and manages the reimbursement portion of the hard cost. An amount is not needed, as it should equal the amount of the transaction. If you are seeking to enter an expense that does not equal the same amount of an ongoing transaction, you may be looking to enter a soft cost. 

  • Choose:
    • New Expense Card (default) – brand new expense being linked to the matter. Simply continue to fill out the rest of the Expense section.
    • Existing Expense Card – used when entering a transaction that should be linked to an existing soft cost expense. After you select the correct matter, choices will begin to appear for existing soft costs that match the transaction information entered above. When an existing soft cost expense is chosen, the rest of the expense section will be completed for you. Skip to the end and Save.
  • Select Matter – You will have to select your desired matter when entering time from the Global Add shortcut and Activities Tab.
  • Expense (Required) – Here you must enter an expense. You can select from the drop-down list, or simply type directly into the field. If you want to customize your drop-down list for expenses, Customize your List Items
  • Timekeeper (Required) – Select the person charging the expense. Their initials will be listed next to this item on the invoice
  • Billing Status – How you wish to/not to bill your client for this soft cost expense
    • Billable – This is the default option. This means it will appear as part of the unbilled balance and appear on your next invoice.
    • No Charge – This is for items which you are completing free of charge as a courtesy for your client, but you want the value to be shown on the invoice. For example, Value: $200  Charge: $0.00.
      Important

      When entering ‘No Charge’ Expenses, make sure the Account field is set to 6620: Nonreimbursable Client Costs

    • Unbillable – This is for items that you want to track for internal reasons, but will not be billing the client for, and do not want them listed on the invoice 
  • Description – The detail of the expense that occurred. 

Save

When ready, click Save to add the soft cost expense to this matter

If instead you want to save this particular soft cost expense and enter more soft cost expenses, click Save and New

All set! The hard cost expense is a great example of how accounting and billing work together in CosmoLex. With this one step, you are:

  • Entering your business transaction
  • Linking the expense to the matter
  • Making an entry on your general ledger (for a matter cost)

Edit Hard Cost Expense

Editing a hard cost expense can involve several steps, especially when changing the amount. This is because a Hard Cost Expense is essentially a combination of a transaction on an operating bank account (accounting), and an expense card on the matter (billing). You’ll want to approach it by first deciding what about the hard cost you are trying to edit, and then following steps accordingly. 

Because this expense is directly connected to a transaction, you may come across difficulties if the transaction has already been reconciled.

To learn more about operating transactions, and how to edit those that have been reconciled, see:

Add and Manage Operating Transactions

Understanding Transaction Status

Editing Matter on Hard Cost Expense

You may not change the matter on a hard cost expense. You will have to delete the expense on the current matter and add a new hard cost expense on the new matter. Skip to Delete Hard Cost Expense. 

Editing Timekeeper, Date, Expense title, or Description

If expense status is Unbilled (not included on an invoice yet)

1. Start at Matter tab, double-click desired matter or select matter and click details*

2. Click Billing Tab

3. From Time/Expense, select desired hard cost expense and click  Edit

4. Make desired changes

5. When ready, click Save

*This can also be done from the Activities Tab > Time/Expense or from the Accounting Tab > Select Bank > Edit Transaction > Edit Expense Card

If expense status is Billed (included on an invoice that is not yet paid)

1. Start at Matters tab, double-click desired matter or select matter and click details*

2. Click Billing Tab

3. From Invoice tab, select invoice and click  Edit

4. Click “Edit” for desired hard cost expense

5. Make desired changes

6. When ready, click Save

7. Click Generate to update invoice

*This can also be done from Activities Tab > Invoice

Editing Payee, or Account (COA)

1. Click the Accounting Tab, and double-click on the bank account where hard cost expense is recorded

2. Click once to select desired transaction, and click  Edit

3. Make desired changes and click Save

Editing Amount

If Expense status is Unbilled (not included on an invoice yet) 

1. Click the Accounting Tab, and double-click the bank account where hard cost expense is recorded

2. Click once to select desired transaction, and click  Edit

3. Click Unlink Expense Card – this will unlink this transaction from the hard cost expense on the matter. 

Important

Unlinking a transaction from an expense card does not delete the expense from the matter. It simply changes that matter expense from a hard cost expense to a soft cost expense.

4. Click once to select transaction again, and click  Edit

5. Change the amount of transaction

6. Click “Post as Matter Expense” and complete expense card information again

7. When ready, click Save

8. Click Matters Tab, double-click desired matter or select matter and click Details

9. Click on Billing Tab

10. From Time/Expense tab, select old expense (incorrect amount), now a soft cost expense, and click Delete

If Expense status is Billed (included on an unpaid invoice)

1. Click the Accounting Tab, and double-click the bank account where hard cost expense is recorded

2. Click once to select desired transaction, and click Edit

3. Click Unlink Expense Card – this will unlink this transaction from the hard cost expense on the matter. 

Important

Unlinking a transaction from an expense card does not delete the expense from the matter. It simply changes that matter expense from a hard cost expense to a soft cost expense.

4. Click once to select transaction again, and click  Edit

5. Change the amount of transaction

6. Check the box for “Post as Matter Expense” and complete expense card information again

7. When ready, click Save

8. Click Matters Tab, double-click on desired matter or select matter and click details

9. Click Billing Tab

10. From Invoice Tab, select desired invoice and click  Edit

11. Ensure the “Include Matter Till” date is changed to today’s date

12. Check the new hard cost expense and un-check the old one

13. Click Generate, to update invoice

14. Click Time/Expense Tabselect old expense (incorrect amount), now an Unbilled soft cost expense, and click  Delete

If editing a hard cost expense that has already been reimbursed (is on a paid invoice)

1. Start at matters tab, double-click desired matter or select matter and click Details

2. Click Billing tab, then click Invoice

3. From Invoice tab, use advanced search to find Paid Invoices

4. Select the invoice, click  Action, and click Unfinal to unfinalize your invoice. This will allow changes to be made to the invoice.

5. Select the invoice again, and click  Edit

6. Un-check the desired hard cost expense from Invoice

7. Click Generate to update invoice. This will unlink the payment connected to the invoice and move the payment amount into an operating retainer for the matter. This also changes the hard cost expense status to Unbilled

8. Follow steps above to edit amount for Unbilled Hard Cost Expense

9. Go back to Invoices on Matter. Invoice in question will now be listed as unpaid. Select invoice and click Invoice Payment Using > Operating Retainer

10. Apply payment from available credit.

All set! Depending on the changes made to the Hard Cost Expense, you may need to complete the transaction by applying an additional payment to the invoice, or by issuing a credit memo for any amount left in your Operating Retainer.

Delete Hard Cost Expense

Because a Hard Cost Expense bridges Billing and Accounting, deleting this type of expense must be done from the Accounting section.

If Expense status is Unbilled (not included on an invoice yet)

1. Click Accounting tab

2. From Bank tab, double-click desired bank account

3. Select desired transaction and click  Delete

4. A message to confirm deletion of the transaction will appear, click Yes

5. A warning message letting you know this will also delete the linked expense will appear, click Yes

All set! The transaction and linked hard cost expense is now deleted from your bank account and client matter.

If Expense status is Billed (linked to unpaid invoice)

1. Click Accounting tab

2. From Bank tab, double-click desired bank account

3. Select desired transaction, and click  Edit

4. Click “Unlink Expense Card”

5. Select transaction again and click  Delete

6. Go to Matters tab, double-click desired matter

7. Click Billing Tab, then click Invoice Tab

8. From Invoice Tab, find invoice containing expense card

If invoice only contains this item, select invoice and click  Delete

If invoice contains this item and others, select invoice and click  Edit. Then uncheck the hard cost expense to remove from Invoice. When ready, click Generate.

9. Click Time/Expense tab, select unbilled expense (now soft cost expense) and click  Delete

All set! Your hard cost expense has been deleted

Updated on October 17, 2018

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