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nick25
Level 3

recording the payment of a retainer to a lawyer

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.

Solved
Best answer February 19, 2021

Best Answers
john-pero
Community Champion

recording the payment of a retainer to a lawyer

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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4 Comments
asha_kanta_sharma
Level 6

recording the payment of a retainer to a lawyer

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
Community Champion

recording the payment of a retainer to a lawyer

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

View solution in original post

nick25
Level 3

recording the payment of a retainer to a lawyer

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

nick25
Level 3

recording the payment of a retainer to a lawyer

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

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