I recall from my audit days that most law firms use a modified accrual basis of
Modified Cash / Accrual Accounting
Answers
Are you talking from an income tax perspective?
From a
Scott
Good question-there is also the dimension of rev rec that may be relevant. Accrual based performance metrics would be far better indicators of firm performance.
Hi Scott / Hi Len,
Definitely prefer accrual basis. For some background, when I came on board our outsourced accountants were recording everything on a cash basis. Got rid of them and we now accrue everything with the exception of sales. Only reason we've not made the switch on the revenue side is it would require large reserves (our sales are highly contingent).
The scenario brought to mind that law firms often use modified cash / modified accrual, though I think they have far less uncertainty surrounding revenue than we do.
I am debating if it is worthwhile to make the change vs. leaving it as is. No one is asking at any level nor has an issue with status quo. Just my
Anon
Can you clarify--are you now at a law firm or at some other professional service firm?
Are your billing rules and processes that complex/contingent that you do not regularly collect what you bill (e.g. large negotiation adjustments after issue of bills)?
Filed Under:
Accounting