Discount vs. Waiver
In CosmoLex, a discount is intended for amounts you choose to deduct at the time of invoicing, e.g. a goodwill discount. This discount is posted to the General Ledger as an adjustment to income. A waiver removes the remaining balance from the client receivables. The amount does not post to the General Ledger. While not an accounting write-off (since reporting is on a cash-basis), the amount appears on the Invoice Discounts/Write-offs Amount Report.
How to Apply a Discount
How to Apply a Waiver
NOTE: CosmoLex does not have a workflow process for bad debt for income accounts because all accounting activity is reported on a cash basis. More detail below.
Posting Bad Debt
Fee Income On an Unpaid Invoice (in Whole or Part)
IRS Publication 535; Chapter 10 governs business bad debt.
“You can claim a business bad debt deduction only if the amount owed to you was previously included in gross income. This applies to amounts owed to you from all sources of taxable income, including sales, services, rents, and interest.”
Cash basis accounting; revenue is recognized when received; expenses when paid, i.e. the financial statements are not impacted until an invoice is paid (revenue) or a check is disbursed (expenses). Most law firms use cash basis accounting; therefore you cannot claim a bad debt deduction for fee income amounts owed to you because you never included those amounts in income; however, you can claim bad debt for client costs that are not recoverable because the amount has posted to your accounting system.
If you want to include an allowance for bad debt, please consult your accounting professional.
Posting Bad Debt
Create a Journal Entry
Unrecovered Expenses On an Unpaid Invoice (in Whole or Part)
- Go to Accounting > Journal Entry
- Credit “1700; Advanced Client Costs” or “6610 Reimbursable Client Costs” for the amount of bad debt.
- Debit 6751 “Bad Debt Expense” for the amount of bad debt.
- Save journal entry.
Unrecoverable Fees And/Or ExpensesThough bad debt cannot be posted for fee income, you can clear the invoice with unpaid fee income from your receivables, by waiving the remaining balance as follows:
Waive Invoice Balance
- Go to Matter > Matter Details > Invoice > select invoice; or Activities > Invoices > select invoice
- Action > Waive Invoice
- You can waive all or part of the remaining amount, then save
- Go to Reports > Collection > Invoice Discounts/Write-offs Amount
- Choose appropriate filters > Date Range/Client Matter > Generate Report
“Charge” is total invoice prior to any discounts/payments
“Paid Amount” is amounts paid outside of any discounts or waivers
“Posted Discount” is the discount amount on invoice which have received payment
- If some payment was received - this is the waived amount.
- If no payment was received - this is the original discount amount