recording the payment of a retainer to a lawyer

nick25 · ‎February 18, 2021

I would be grateful for your help as I am confused by the other discussions on this topic. If my company writes a check to pay a retainer to a lawyer, I think it should appear on our books as an asset (OCA), because if legal work stops at any time before that retainer is exhausted, the balance is owed back to us. Once the retainer is posted, I would expect to reduce that OCA account with each monthly bill/statement from the lawyer. I would be so grateful if someone would give me step by step instructions to achieve this.

john-pero · ‎February 19, 2021

You are correct that a retainer is a current asset to be used over time. Set up an Other Current Asset account for the retainer. When you get itemized bills from the law firm do this:

1. create a vendor credit memo in the amount of the bill to be paid, posting against the retainer (as long as there is still a balance)

2. Pay Bills - select attorney bill, apply credit.

According to Dana v IRS if you are a cash basis taxpayer you can, at the end of each year, deduct any remaining blanket retainer as a deductible expense in that year and start fresh the next year. Many companies keep a law firm on retainer on an annual basis just in case without specific projects attached. If the retainer is for a specific law issue then you keep the retainer on the books until the task is complete

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asha_kanta_sharma · ‎February 19, 2021

When the company is making payments, we should debit OCA Account and credit the Bank/Cash Account and as and when bills are submitted from the lawyer we should post a JV Debiting the Lawyers Fee/Retainership Fee as you say it and credit the OCA Account to reduce the balance.

Hope this is clear...Thanks

john-pero · ‎February 19, 2021

You are correct that a retainer is a current asset to be used over time. Set up an Other Current Asset account for the retainer. When you get itemized bills from the law firm do this:

1. create a vendor credit memo in the amount of the bill to be paid, posting against the retainer (as long as there is still a balance)

2. Pay Bills - select attorney bill, apply credit.

According to Dana v IRS if you are a cash basis taxpayer you can, at the end of each year, deduct any remaining blanket retainer as a deductible expense in that year and start fresh the next year. Many companies keep a law firm on retainer on an annual basis just in case without specific projects attached. If the retainer is for a specific law issue then you keep the retainer on the books until the task is complete

nick25 · ‎February 22, 2021

Thank you for this. I am grateful for your help!

nick25 · ‎February 22, 2021

Thank you so much for your comprehensive reply, and for the bonus tax advice too!

userann1 · ‎October 15, 2022

Thank you!!! Makes MUCH more sense than the nonsense on a different thread about setting up the retainer as a liability.

@john-pero wrote:
You are correct that a retainer is a current asset to be used over time. Set up an Other Current Asset account for the retainer. When you get itemized bills from the law firm do this:
1. create a vendor credit memo in the amount of the bill to be paid, posting against the retainer (as long as there is still a balance)
2. Pay Bills - select attorney bill, apply credit.

According to Dana v IRS if you are a cash basis taxpayer you can, at the end of each year, deduct any remaining blanket retainer as a deductible expense in that year and start fresh the next year. Many companies keep a law firm on retainer on an annual basis just in case without specific projects attached. If the retainer is for a specific law issue then you keep the retainer on the books until the task is complete

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recording the payment of a retainer to a lawyer