Legal Expense

This account reconciliation is an Expense account type and a List reconciliation type. This type of reconciliation allows you to make a list of the amounts that make up the account balance.

The Description shown above tells you what should be recorded in this account. The Company Policy states what should be included in the reconciliation. Note that the policy specifically states that the purpose of the expenditure should be included. Not just what the expenditure was, or who it was to, but what it was for.

Below is the reconciliation for this account for the month ended 12/31/2010.

Below is the Reconciling Item for the 6/30/2010 entry for Williams & Sonoma. Above you probably remember reading that the policy for documenting activity in this account calls for items greater than $2,000. This item is only for $1,383.32 but it is listed separately from the "other less than $2,000 items" because it is part of a larger litigation issue. The controller has decided it would be a good idea to include this item in the reconciliation so the total cost of the 34th Street litigation matters can be identified.

Remember that the Company Policy is always the MINIMUM that you have to do. Use good judgment and common sense to determine when a little bit more effort will give you much greater returns.

This item has an Open Date of 6/30/2010 and a Close Date of 1/1/2011. In all the other reconciliations so far we have always advised you to wait until the next accounting period to put in a Close Date so you can make sure the item actually cleared through the general ledger properly. Because this is an Income Statement account (as you recall this is an Expense account that is part of the Income Statement, not the Balance Sheet) the way you use the Close Date is slightly different.

The amounts in this Expense account accumulate throughout the year and then - as if by magic - an end of the year entry (usually called a Year End Post Closing Adjustment, in case you want to impress the auditors in your water cooler chats) is made that wipes out the balance and starts over at zero for the new year. If only we could do that with our credit card debt. This also happens with all the Income accounts.

When we put an item into an Expense account reconciliation we already know that the corporate accounting department will make it go away on the first day of the new year. (Actually, it's on the last day of the old year, but we still want it to show up on the end of the year reconciliation. The only way to make it disappear in the new year is to give it a Close Date in the new year - such as 1/1/2011 as we have done here).

The month end report is shown here:

This particular account is reconciled with no Unidentified Difference.

Return to TOP