I concur with David. The clients I have who are lawyers treat the transaction as in A when it comes down to recoverable disbursements that are not incurred as an agent.
I don’t believe the purchase of company supplies (minutes books, corporate seal etc) is on account of agency. It’s irrelevant whether the lawyer charges a markup on the company supplies they purchase for the client. It really isn’t much different than the auto mechanic who purchases oil and a filter for your car and charges you for parts and labour. I mean what about postage, telephone, and courier charges that get billed to the client’s file as recoverable disbursements? What would you be doing with the HST and the expense for the courier, Canada Post, and telephone?
At one time “most” of the agency disbursements were paid directly from the lawyer’s trust account, although nowadays around here with Ontario’s Teranet Registration system more of these agency disbursements are being paid from the lawyer’s General account, and then get transferred from trust when the account is rendered.
I have seen a couple of systems, one a little more elaborate than the other;
Clients Disbursements Advanced - Expense Account
HST paid on Expenses;
Clients Disbursements Recovered - Income Account
Advanced System (agency disbursements separated from non-agency disbursements);
Clients Disbursements Advanced - Expense account (non-agency expenses)
HST paid on Expenses
Clients Disbursements Recovered - Income Account (non-agency expenses)
Agency Disbursements Advanced - Asset account
Under this method, recoverable Agency disbursements paid from lawyer’s General account get posted as a debit to this asset account and all recovered or billed Agency Disbursements get posted as a credit to this account when the client’s account is rendered. Technically speaking any debit balance in this account means are still agency disbursements advanced on behalf of a client that have not been recovered. The agency disbursements advanced and collected that go through this account do not hit the lawyer’s income or expense statement nor the HST return of the lawyer.
PCLaw and other bookkeeping type software for Canadian law offices do a decent job of tracking clients disbursements to specific client files.
Anyway… here is GST/HST Policy Statement P-209R for what it’s worth.