Unallocated Fee Income Account

You may be asking yourself, what the heck is this Unallocated Fee Income account anyway?  Shouldn’t any unapplied payments from clients be deposited to an IOLTA account?  Well, yes and no.

Typically, until payments are applied to a client bill, they are still considered to be the client’s funds and should be held in a short-term liability account such as Client Overpayments until applied or held separately in an IOLTA account if the funds will not be applied for an extended period of time. 

In cash-basis accounting, when a payment is applied to a client bill, the fee income associated with that bill will be recognized and allocated among the timekeepers as well.  When a payment is received for a bill that has been set up with a project or subscription fee (“flat fee”) arrangement, the process is slightly different.  When a flat fee payment is received (usually at the beginning of a project), Centerbase does recognize the income at that time, even though not all the work has been completed when the payment is received.  However, the income from these payments will be recognized in a separate income account called Unallocated Fee Income.  This allows the income to be recognized immediately, while keeping it separated from the Fee Income Account until the timekeeper allocations are processed. Upon completion of the project and after all time and expense entries have been made, the timekeeper allocations will need to take place in order to allocate the fees among all the timekeepers that worked on the project.  It is also at this point that the flat fee income that has been living in the Unallocated Fee Income account will move to the Fee Income account.

Let’s take a look at an example.

To set up a project fee arrangement, click on the gear next to Matter Actions and choose Fee Arrangements.

Either change the initial fee arrangement by double clicking it or Add a new fee arrangement.  If adding a new fee arrangement, a date will need to be entered to indicate on what date the previous fee arrangement should end.  Select Project or Subscription as the Category, enter the flat fee Amount to Bill, enter the total Number of Bills that will be issued for this project and add a line description.  Notice that this is also where the default unallocated fees account is set for the flat fee.

Generate and post the flat fee bill.  You will notice that the generate bills screen is slightly different than it is for hourly bills.

When the flat fee payment is applied to the bill, your general ledger transactions will be:

After all time and expense entries are added to the matter and the project is complete, the timekeeper allocations will need to be processed.  Enter the date that the flat fee arrangement began and the date of the last billing entry. 

Now when we review the flat fee payment information, we can see that the fee has been allocated to each timekeeper on the project.  Note that the allocations on flat fee bill payments cannot be modified.

On the date the timekeeper allocations are processed, the following entries will be made to the general ledger:

Centerbase has moved the flat fee payment from the Unallocated Fees Income to the Fee Income account.

Also see Accounting and Allocations for Flat Fee (Project or Subscription) Arrangements.