How to Record the Acquisition of a Law Practice (Purchase of a Book of Business)
Accounting for the purchase of an existing sole practitioner's firm, specifically allocating value to the 'Client List' and 'WIP'.
| Account Name | Type | Debit ($) | Credit ($) |
|---|---|---|---|
| Intangible Asset - Client Relationships/Book of Business | Asset (+) | 200,000.00 | - |
| Accounts Receivable / WIP (Acquired) | Asset (+) | 50,000.00 | - |
| Goodwill | Asset (+) | 50,000.00 | - |
| Cash / Note Payable | Asset (-) / Liability (+) | - | 300,000.00 |
💡 Accountant's Note
When Firm A buys Firm B, the 'Client List' is the primary asset. Under ASC 805, this is a finite-lived intangible asset that must be amortized over its expected life (the 'churn' rate of the clients). Any WIP (Work-in-Process) acquired is also recorded as an asset at its estimated fair value. The excess of the purchase price over the fair value of assets is recorded as Goodwill.
Practitioner & Systems Framework
💻 ERP Architecture
The 'Client List' asset should be amortized monthly. The acquired WIP should be carefully tracked to ensure that when it is eventually billed, the revenue is not 'double counted'—it should clear the acquired asset account.
⚠️ Audit Flags
Valuation of acquired WIP. Auditors will scrutinize the 'collectability' of old hours being bought from another firm.
📄 Required Documentation
Purchase & Sale Agreement (PSA), Valuation report for the client list, and the list of open matters transferred.
Automate this entry with the JEH Accounting Suite
Stop doing manual entry. Our VBA-powered ERP automatically generates your ledgers, Trial Balance, and Financial Statements.
No Subscriptions. Own your data.
Expert Analysis by Qusai Ahmad
General Accountant Supervisor & IFRS Specialist
Specialized in SAP GUI automation and Middle Eastern tax compliance. Building digital tools for the next generation of finance leaders.
Related Journal Entries
Discussion & Community Questions
Loading comments...