CosmoLex organizes matter expenses into two distinct categories: hard costs and soft costs.
Tracking reimbursable costs separately provides your firm with accurate revenue accounting to offset Profit & Loss expenses.
Hard costs are also known as direct costs, or direct disbursements.
They are items for which you paid out of pocket and will seek direct reimbursement. They are directly linked to a specific transaction & matter.
- Filing fees
- Expert witness fees
- Court costs
If your firm does not plan to use CosmoLex for business accounting, you should enter all expenses as soft costs. If, in the future, you decide to enter the associated transactions, you can link your existing soft costs to transactions, creating hard costs.
Your firm’s settings under Setup > Accounting determine how these costs are posted per matter billing type.
- Option 1: Reimbursable Client Costs (Expense) – Impacts Profit & Loss
- Option 2: Advanced Client Costs (Asset) – Impacts the Balance Sheet (This is the only option for Canadian firms)
- If the expense was posted as a reimbursable client cost, reimbursement posts to the Reimbursed Client Costs (Income) account, which offsets the Reimbursable Client Costs (Expense) on Profit & Loss.
- If the expense was posted as an advanced client cost, reimbursement posts to the Advanced Client Costs (Asset) account, which reduces the amount on the Balance Sheet.
Manage Hard Costs
To manage your hard costs, see:
Soft costs are also known as indirect costs or cost recovery.
They are “in-house” items generally considered part of your firm’s overhead, a portion of which may be attributed to your client.
- Long-distance phone calls
As a firm, you need to decide how to seek reimbursement for these items. You may choose to absorb the cost and not charge your client, add a % fee to every invoice, or itemize these charges. Soft cost entry is meant for those who wish to itemize. If you wish to charge a % fee, you can add an overhead charge
When the larger firm transaction was entered (e.g. for paper or printer ink) it was already accounted for on the firm’s Profit & Loss. For that reason, this entry does not impact accounting reports.
Soft cost reimbursement posts to the Inhouse Reimbursed Client Costs income account. It increases income on Profit & Loss, offsetting the expense.
Manage Soft Costs
To manage your soft costs, see: