A Law Firm Bills You $4,000 For Services Related To Legal Expenses

Answer To The Question

The journal entry is to debit Legal Expenses Account of $4000 and credit Accounts Payable Account Or Sundry Creditors Account of $4000, as the legal firm earns revenue by rendering services to you (client) but the payment is not received from you for Legal Services performed.

The legal services provided by the legal firm are legal expenses for you (client). So, from the point of view of client, legal expenses are debited as these are increased while accounts payable account is credited as the client is bound by law to pay for the services rendered by the legal firm. So, the Liability Account i.e., Accounts Payable Account are increased according to Rules of Debit and Credit.

This journal entry is made on Accrual Basis of Accounting in which a journal entry is recorded whether the cash is paid or not, received or not. When the company incurred expenses or earned revenues, we record in the books of accounts.