When a law firm provides services and issues an invoice for those services, the law firm is essentially extending credit to the client. Your firm’s accounts receivable (A/R) tracks the amount each client owes for services rendered in the past, e.g. the amount of credit your firm has extended to each client.^[1] (Attorneys can avoid having to extend credit to clients by using evergreen retainers or requiring advanced fee deposits from clients. Also, be aware that you do not track a contingent fee as A/R, and you only track flat fees A/R in certain circumstances.) Basically, your A/R tracks each of your client’s obligations to pay the firm at a future date.

The term [simple_tooltip content=’Asset is any resource owned by the business. For a company, an asset might generate revenue, or a company might benefit in some way from owning or using the asset.’]assets[/simple_tooltip] refers to a law firm’s resources, and includes cash and other items that can be converted to cash at a future date.^[2] Because A/R is converted to cash in the future when a client pays the amounts due on an invoice, A/R is considered to be an asset.^[1] Since most firms require clients to pay for the services rendered within 30-60 days of the invoice date, they typically list A/R as a [simple_tooltip content=’A current asset is any asset which can reasonably be expected to be sold, consumed, or exhausted through the normal operations of a business within the current fiscal year or operating cycle.’]current asset[/simple_tooltip] on the balance sheet.^[1]

References

1. Accounts Receivable an Asset or Revenue
2. Accounting Equation