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Accruals and unbilled amounts

End-of-Year Reconciliation of Spending Against Accrual

At the end of each fiscal year, final accruals are recorded. Sometime into the next year, firms will post their final invoices for services rendered in the prior fiscal year. These invoices are charged against the accrual recorded for the prior fiscal year and not applied against the current fiscal year, so long as the invoices do not exceed the accrual recorded for the prior year. However, if the law department did not accrue for the spending that actually occurred, the law department will have to apply the spending that exceeds the final accrual against the current year's spending budget.

Example

The law department has a calendar fiscal year, and at the end of December 2012 recorded the following accruals for the Shriber & Handy law firm:
Matter ABC accrual: $100,000
Matter XYZ accrual: $100,000
In January 2013, Shriber & Handy submitted the following invoices (which were approved by the company for payment) with a service period end date of December 31, 2012:
Matter ABC invoice: $90,000
Matter XYZ invoice: $115,000
Consequently, the Remaining Accrual Balance for each of these matters for Shriber & Handy is:
Matter ABC Remaining Accrual Balance: $10,000
Matter XYZ Remaining Accrual Balance: -$15,000
Thus, the law department will have to address the fact that it under-accrued for Matter XYZ by $15,000.
note
Companies have different policies about how they handle the under-accrued matter. Sometimes a company can apply an over-accrual in one matter to an under-accrual in another. Some companies will do this balancing across all matters and all firms, while for others the balancing might be limited to within an organizational unit or division.

Reconciliation

The Accruals module enables law departments to mostly automate what was once a difficult and manual process. The Tracker Coordinator or other user with all matter access should run the Accrual Report for the final accrual of the fiscal year and review the data for the Remaining Accrual Balance. If the Remaining Accrual Balance is a positive number, the spending has not exceeded the accrual. However, for any accrual in which the Remaining Accrual Balance is negative, the spending exceeded the accrual, and the company will have to decide whether to charge the spending against the current year budget. The balance of over- and under-accruals is handled by company policy.
Applying spending for services in the prior fiscal year against the current year's budget
Assume that in the example above, for Matter XYZ the company must apply the $15,000 excess spending against this year's current budget. Two memo entries must be made in Matter XYZ:
Memo Entry #1: Billing Period Start Date: 12/1/2018
Billing Period End Date: 12/31/2018
Date Approved: [Date the original invoice was approved]
Amount of Memo Entry: -$15,000
Memo Entry #2: Billing Period Start Date: 1/1/2019
Billing Period End Date: 1/31/2019
Date Approved: [Date the original invoice was approved]
Amount of Memo Entry: +$15,000
The net effect on spending of these two memo entry invoices is $0. However, $15,000 has been from 2018 into 2019.The new Accrual Report shows that the Remaining Accrual Balance for Shriber & Handy in the XYZ matter is $0.

This article applies to:

  • PRODUCT: Legal Tracker
  • Audiences: Company