there are times when attorneys need to make an invoice before receiving a payment what happens
if we provide a service before getting paid well the client still owes the money and the attorney
still earned the money therefore you should still make an invoice but the results in your books and
records will be different of course income from legal fees would go up because if you're making
an invoice you earn the income but it would not be the unearned retainer fees that decreases in
this case if you do it that way then unearned retainer fees would not be correct so you have
to be careful to do it differently in a case like this income from legal fees would still go up but
it would be a different account called legal fees receivable which represent represents what
the attorney actually earned and will receive in the future and if you make an invoice and
never got paid for that invoice it is this account legal fees receivable that will go up because it
represents what is earned and not yet paid legal fees receivable is an accounts receivable type of
account let's add it to the chart of accounts before we do our first transaction from the
main menu click lists chart of accounts from the bottom left of the chart of accounts window click
account new then in the bottom center of the new account choose account type window come down here
and choose accounts receivable notice QuickBooks specifically tells you an accounts receivable type
of account is money customers owe you on unpaid invoices click continue and confirm that in the
add new account window accounts receivable is the account type the name of the account will
be legal fees receivable legal fees receivable click Save and close and now we have a second
accounts receivable type of account in the chart of accounts and that's the one we will use when
we make invoices before receiving payments now let's look at an example February 17 we have to
create invoice number 5 for candy Charles for a legal service provided on that same day February
17 and the service was worth $900 she did not yet pay can do is the money we can print the
invoice for candy but make sure when you make the invoice that you choose the legal fees receivable
account so we click invoice from the icon bar we choose the customer candy Charles as our
client we go forward in time to February 17th of 2017 of course QuickBooks remembers were up to
invoice number 5 and because we don't track our income we only have one item for legal fees now
the most important thing that you have to look at at this moment is up here a moment ago this
field was not here in the invoice window because a moment ago we only had one accounts receivable
type of account now we have two so QuickBooks put this field here and we're going to choose this one
legal fees receivable because the invoice has not yet been paid when we click Save and close we can
look at the trial balance and we can see League income from legal fees has still increased by
the $900 we earned but legal fees receive shows up for the first time as $900 if you want to be
sure that the $900 is also included in income from legal fees you can double click the total
and look at every transaction that's included in the income from legal fees account and when you
go all the way down you can see this $900 for February 17th is included now you may well ask
what is the result in our client records well if we look at the open invoice report we can see that
this invoice is standing alone as the only thing making a balance for candy and it must be still
unpaid because it's on the open invoice report so the other clients have a negative balance
because they have not yet used up their payments but candy has a positive balance because she has
not yet paid the invoice the more interesting report in this case is the client balance detail
because notice originally Candy's balance was negative but little by little Candy's balance
went positive because we kept doing so much work for her that we did so much work that she did not
yet pay for some of the work done it's very very important that you watch how to receive payment
against an invoice that has never been paid let's imagine on February 25th candy paid Ross half of
what she owes for the February 17th invoice that means she paid us $450 and let's imagine
she paid with check number 1 - 1 - make sure you choose the legal fees receivable account so how
do we do this well we open the payment window we choose candy the client we put the date that she
paid February 25th and of course we put the check number of the check that she paid now we're going
to put the $450 and on the left of your keyboard when we push the tab key QuickBooks will place
the checkmark in the only open invoice because QuickBooks assumes that it's being applied to
that invoice it's the only one there but the most important thing you have to double check
before you click Save and close is that the correct accounts receivable account is chosen
since invoice number five was put into the legal fees receivable account that means when you apply
a payment to invoice number five you also choose the legal fees receivable account now click Save
and close and when we look at our trial balance you can see legal fees receivable has decreased
from nine hundred to four fifty you can double click and you can see that it was nine hundred
and then on the 25th candy made a four hundred fifty dollar payment decreasing the balance to
450 you will also notice that if you look at the open invoice report only four hundred fifty out
of the original nine hundred is still open on the open invoice report and if you want to see
more information about this 450 and this invoice number five double click and then you can click
reports transaction history and you can see it was nine hundred but then on February 25th we
applied a four hundred fifty dollar payment to this invoice the most interesting part of
this entire situation is really shown on the client balance detail notice her balance was
negative then it became positive now it's going closer back down to zero as she pays