We received a phone call from a law firm wanting to know if we could help them with what is referred to as “job costing”, or how much are we spending on a “case” and how much is remaining in the “retainer” account?
Two questions must be answered: do you budget for these cases and, if you do, do you budget in sections, such as Case Review, Pretrial, Trial, Post Trial? And are the budget amounts in hours and dollars?
This firm budgets just in Case Reviews and Trials.

Of course, we can help them out, and here’s the game plan:

  1. Make sure you have a “Direct Labor” or similarly titled account in the
    general ledger
  2. Create a sub-account to the Direct Labor account that is composed in
    this way:
    Phase
    Case
    Client
  3. This results in account number 10210002, where the numbering system translates. The first digit equals:
    1 = Case Review
    2 = Pretrial
    3 = Trial
    4 = Post Trial
    The next 3 digits represent the case number for this client (021)
    The next 4 digits represent the client number (002)
  4. The employees will use the Plus & Minus electronic timesheet to record their times according to the case and section of the case they are working on. Those accounts show up in the drop-down menu.
  5. Those hours and the total costs and billable amount for those hours will accumulate in the Payroll records.
  6. Every day, while enjoying their morning coffee, the persons in charge can see a Dashboard of reports on their screens, observe how much labor hours, labor cost, and billable revenue that particular case has accumulated, and compare the billable revenue to the amount in the Retainer account. You can compare the budgeted hours and dollars to the actual amount to see the variances.

When it’s time to do the payroll, the hours are already in the payroll system and you are prepared to record those costs in the general ledger. The payroll costs get automatically added to the general ledger.

If you have “indirect costs” for this case and its sections you can use the same sub-account format to the account called “Indirect Costs.”

When it comes time to invoice the client you can use the same sub-account structure to your revenue accounts so that each case can have its own Income Statement.

And that’s how you run a law firm!! Or an engineering firm. Or an accounting firm. Or any firm that sells professional services.

Contact us if you want more info.

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