Guys, Disbursements when billed do not go into Revenue. Revenue is fees only (plus "soft" disbursement charges such as when a Firm charges for photocopying or charges an amount for file storage).
To illustrate. Say a matter has the following balances at year end:
WIP $50,000
Unbilled Disbursements $30,000
Assume provisioning against WIP is done at a gross level in the Accounts, so ignore it for now. The matter is expected to settle within 12 months so these balances are recorded as current.
The matter settles in the next year after a further $10,000 worth of work and $5,000 in Disbursements. The total bill being issued in this case is $95,000 + GST, so the entries look like this:
Dr Accounts Receivable $114,500
Cr Fees (P&L) $60,000
Cr Unbilled Disbursements $35,000
Cr GST Liability $9,500
Separately there is an entry which moves the WIP from the Balance Sheet account to an account in the P&L called "Change in WIP". This amount will be negative $50,000 in the P&L.
So whilst the bill will result in recognition of $60k in Fees, the P&L impact will only be a net $10k for the additional work done during the year. The other $50k ex WIP has already been recognised in revenue in prior years. And the disbursements billed, to the extent they represent recoupment of external costs, are not recognised in revenue at all.
What happens at a Firm level is that WIP on new matters replaces WIP on billed matters so the "Change in WIP" line ends up being a smaller impact across the year. In a growing Firm it will typically be positive. It's also why looking at provisioning on an individual matter isn't generally relevant - so long as Firm WIP stays the same or increases year to year the overall provision amount will increase. The Mesh case might be the exception to the rule, it's material enough to have an impact.
Gross cashflow from this matter once collected is $114,500, disclosed as $66,000 in Receipts from Customers (this is stated on their Cash Flow to be inclusive of GST), with Disbursements Recovered of $38,500 shown as a separate line. $9,500 is to be paid to the ATO (they don't show a Net GST Remittance separately on their Cash Flow so not sure where they've lumped that).
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