How to Setup a QuickBooks Chart of Accounts for a Law Firm

There are some rules that differ by state with regard to how money is received. It’s important to go over these rules with your accountant or bookkeeper. There are rules that differ by state with regard to how money is received. In the event your law firm has an individual Matter Per Client, it may be wise for you to set up the Matters as Customers without using Jobs. If your law firm generally has in excess of one Matter per Client, it is recommended that you use Jobs. The items are automatically added to a customer invoice at billing time.

1. A double entry system, therefore, has two equal and corresponding sides—or debits and credits—and creates a balance sheet consisting of assets, liabilities, and equity.
2. Provided below is a sample of a customized chart of accounts optimized for a family law practice.
3. You can use the Customer Type field on the Additional Info tab to track Type of Matter for purposes of reporting.
4. If you want your firm to stay compliant, be financially successful, and grow, you need to have an accurate and clear bookkeeping system for your law firm to follow.
5. Addressing those compliance issues requires a proper, lawyer-specific chart of accounts.
6. The legal profession is one of those; in fact, creating and maintaining the chart of accounts for law firms aren’t just suggestions; they are requirements.

For example, you must track pooled trust account balances by client, and you cannot commingle operational funds and client funds. Addressing those compliance issues requires a proper, lawyer-specific chart of accounts. QuickBooks software uses “Items” to assist you in the consistent use of the correct accounts when entering transactions.

IOLTA Accounting With QuickBooks and Without

Under the heading of segregated liabilities, your chart of accounts should include pooled trust accounts and separate, interest-bearing trust accounts. Reimbursed Client Costs are expenses to be billed to a client but that are paid from the Firm Operating Bank Account. You will need to setup a double sided service item for each expense that is provided by your law firm https://1investing.in/ and paid by your law firm. Each item should point to Reimbursed Client Costs for both income as well as expense. We recommend you set up separate Reimbursed Client Cost items for any items to be billed to a client at a different rate than is to be paid to a vendor. Using these items will help you accurately bill clients if you are billing within your QuickBooks.

Bookkeeping vs. accounting for law firms

One key tool in managing finances is the Chart of Accounts (COA), a systematic and organized way to record and track financial transactions. Trust accounts are one of the most common areas where legal accounting mistakes are made. Whether you mismanage the accounts, put funds in the wrong account, accidentally use funds, or fail to report correctly, trust accounting errors are a big deal in accounting for law firms. Trust accounting mistakes can lead to penalties, suspension, or even losing the right to practice law. By using sound bookkeeping practices to keep accurate records and consistently review the firm’s financial statements on a monthly or weekly basis, you’ll see your firm’s true financial picture.

Trust accounts hold the client’s money, usually in the form of client fees (typically a retainer), settlement money, or court fees. This prevents commingling with your firm’s funds (your operating account) so you don’t purposely or accidentally spend money that isn’t yours. You earn this money upon the completion of billable work, which can occur during the case as an invoiced bill or upon completion of the case as a final invoice.

By including general retainers in a law firm’s chart of accounts, you can more easily monitor these accounts. Use an accounting solution designed for the legal industry—like Clio Manage’s legal and trust accounting features paired with QuickBooks Online’s accounting software. By using these two softwares together, you can create a comprehensive accounting system for your firm. This means setting up your chart to include as much relevant information as possible. It is critical to check with the Bar Association in your state to see if they allow General Retainers.

Separate general ledger income accounts

If you want to see the summary of all the law firm clients balances for your trust account, you click the chart of accounts showing a list of liability sub-accounts. And if you want to see the detailed transactions for a specific client or matter, you just click on their liability account. If your law firm doesn’t already law firm chart of accounts sample have business bank accounts, it’s time to open them. Most firms will need three business bank accounts at a minimum—checking, savings, and a separate IOLTA or trust account. Without the proper business bank accounts, you risk inaccurate bookkeeping, messy records, and potential compliance violations regarding trust funds.

Then, when the money is paid to the state, the money is no longer owed and the interest payable account will be zero. Both general accounting and trust accounting are necessary for your firm’s success—and integrations seamlessly tie the two areas together. Accounting for law firms lets you collect and analyze information, and make data-driven decisions based on what money comes in and leaves your firm, so it’s worth it to pay attention. The specific accounts and their numbering may vary by company, industry, or specific accounting standards adopted.

Now is the time to setup up preferences for online payments for invoices that are connected to this job. You can use the Customer Type field on the Additional Info tab to track Type of Matter for purposes of reporting. If you want to track additional information regarding the Matter, you can set up Custom Fields on this screen and fill them in here. For every type of income in your income accounts, set up “Double sided service items”. This account will track all payments and deposits of trust funds for your client. Be certain that your bank gets this set up as an Interest on Lawyer’s Trust Account so the interest will be handled properly.

Accounting for law firms is often intimidating—even for seasoned lawyers. While you’ve spent years honing your skills to become a great lawyer, you didn’t learn about accounting or bookkeeping for attorneys at law school. With the growth of business and increased regulatory requirements in the 20th century, the need for standardized accounting practices became even more apparent. Organizations started to develop their charts of accounts to categorize and organize financial transactions systematically. The most basic component of the chart of accounts is the chart itself, which is a categorized list of your accounts. And the transaction records feed into the firm’s balance sheet and income statement.

The service item should point to an expense account being used for the cost, i.e. lease for copier expense. If you point it to the expense account, using the item reduces total expense. Even though your state may have its own unique rules, there are a couple of things you should include in your clients’ chart of accounts in order to easily comply with most record keeping requirements. Additionally, it simplifies the budgeting process and aids in creating reliable forecasts for future financial planning. With streamlined financial management, law firms can optimize their operations, make informed decisions, and demonstrate financial transparency to stakeholders.

As a fundamental guide, the chart of accounts continues to play a vital role in modern finance management worldwide. Once you create an appropriate chart of accounts, your firm needs a complete system for logging time, expenses, and client funds into those accounts. That includes the separation of collected retainers and the proper transfer of earned retainers into the firm’s operating account. Balance Sheet and Income StatementThe transaction records roll up to create your firm’s financial statements.

Your firm’s chart of accounts will have several sub-accounts under each of the top-level groups, often with their own sub-accounts. As we showed with the law firm chart of accounts samples in this post, the exact details of the  chart will vary depending on your firm’s situation and jurisdiction. While it’s important to do your own research (and you may want to consult with your accountant), you can use the samples and the template in this post to guide you. Using technology—such as QuickBooks Online and Clio Manage together—also make this process easier and more efficient.

Simplify your financial processes by integrating the chart of accounts with CaseFox for efficient financial management. By assigning specific codes and names to various accounts, a chart of accounts enables accurate tracking. It also ensures analysis of income, expenses, assets, and liabilities. It facilitates streamlined bookkeeping, simplifies tax preparation, and ensures compliance with regulatory requirements.