After taking a client to court the settlement is paid directly to the lawyer. If we settle for $1000 on a particular client the lawyer will take his $300 and send us a settlement check for $700 to apply towards the clients account. How do I clear the $300 balance on clients account considering it was paid by client at settlement, it was just kept by lawyer for his fees. I don't know what to debit and what to credit.

Thanks
Donna

You would…

Dr. Cash 1,000
Cr. A/R – Client 1,000

Dr. Legal Fees/Expense 300
Cr. Cash 300

You can write the above 2 JE as just 1 entry, netting the cash amount. I just broke it out so you can see it more clearly.