Legal Trust Accounting in QuickBooks Online The Easy Way and the Hard Way Legal Billing Made Easy
In order to maintain client trust and meet your ethical obligations as a lawyer, you must maintain confidentiality and keep sensitive client data—including when working with client information as part of your law firm accounting. This means taking steps to ensure data security (using legal accounting software that maintains robust security standards can help with this). Managing Interest on Lawyers’ Trust Accounts (IOLTA) in QuickBooks Online can be challenging, but it’s a critical responsibility for law firms. The good news is that with the proper QuickBooks Online workflows and safeguards, you can keep your IOLTA in order and in compliance. Reconciliations of trust accounts are an extremely important part of trust accounting.
Ensuring Compliance with Trust Accounting Rules
Check out our books for lawyers, or give us a call and we can help you get started. First and most important is knowing what your regulations and reporting requirements are for client trust accounting for your state. Check your state bar association for rules governing client funds, and read them thoroughly. You need to understand the types of reporting requirements that your state mandates, and make sure that you follow these to the letter.
QuickBooks Online and LeanLaw…The Power of Two
This type of account for US law firms is designed to keep client funds separate from a law firm’s business or operating accounts. Then, on the category line, choose the appropriate client’s trust liability sub-account under “Category.” This decreases that client’s trust balance (liability) and reduces the bank account by the same amount. For the payee, select who the money is going to (e.g., the court, the client themselves, a vendor). In the description, note what it’s for (e.g., “Filing fee for John Smith case – paid from trust”). This way, QuickBooks records that you spent, say, $300 of John Smith’s funds on a filing fee – John’s trust sub-account will go down by $300 and the IOLTA bank account will drop $300 accordingly. Always double-check that you assign the correct client’s sub-account for any trust expense, so you don’t accidentally dock the wrong client’s balance.
Lawyers can free up more of their time to care for—and dedicate their time—to clients’ needs and bring in more revenue for their firms. Manage multiple trusts and operating accounts with CaseFox conveniently, If you maintain multiple attorney trust accounts with your bank, you can mimic all those accounts in CaseFox. When you withdraw funds from your bank account, make the same entry in CaseFox. This way you don’t have to maintain separate ledgers for trust accounting. Implementing a formal process for requesting and approving new trust accounts can help make this situation more manageable.
How does Clio work with QuickBooks?
No separate steps of writing checks and receiving payments; LeanLaw orchestrates it in the proper sequence behind the scenes. This not only saves time but also ensures that nothing falls through the cracks (you won’t forget to actually move the money or accidentally double-pay an invoice, for example). TrustBooks has simplified the intricacies of trust accounting such that I can focus more on my client’s needs and less on law firm administration. The software is extremely user-friendly and accessible, and support is just an email or phone call away.
LeanLaw’s deep quickbooks trust accounting for lawyers integration with QuickBooks Online means that your law firm accounting software and QuickBooks Online are no longer out of balance. You don’t have to sync because LeanLaw syncs automatically in real time. Once you have your accounts established, and you know the rules and regulations, your halfway home.
In response to this, some attorneys keep their flat fee amount under $2,000. Others charge an “intake fee” at the start of the case and the remainder of the flat fee is kept under $2,000 to be exempt. Switching from outdated tools like PCLaw or cumbersome manual Excel sheets can be daunting due to the data transfer process.
- That includes always being able to account for the money in the trust account, and giving a detailed statements of transactions for each client.
- One possible solution is to indicate that the invoice has been cleared and reverse the transaction during the reconciliation process.
- It’s the foundation of proving you’re handling the account correctly.
- This level of automation ensures no delays or omissions in recording deposits – a common area where firms might slip if doing it all manually.
Basic accounting principles for law firms
- If such were to happen, penalties are severe even to the point of suspension of licenses or disbarment.
- If done correctly, the client’s trust sub-account decreases by the fee amount, and your operating bank increases by that amount, while your income from the invoice is recognized as usual.
- It’s unclear whether or not charging such an “intake fee” doesn’t count as part of this limit.
- Aside from being a rule, good records are your best protection if any question arises.
Syncing Clio and QuickBooks simplifies legal accounting for everyone at your firm. With this feature, you can transfer funds from a client’s trust account to a law firm operating account for seamless transaction and accounting. Trust accounting was never made so easy but with CaseFox you can achieve it all. However, in some jurisdictions, you can’t even practice law without having an account—even if it’s for pro bono work. It’s common for law firms to operate one or more pooled trust accounts depending on the nature and needs of the practice. The next step to maintaining an accurate and compliant trust account is setting up the account correctly at your financial institution.
For the latter, one method is to run a Transaction Detail by Account report, filter it to the “Client Trust Liabilities” parent account, and group by Account to see each sub-account’s total. Alternatively, if you have sub-accounts per client, a simple balance sheet will already show sub-totals by sub-account. The total of all sub-accounts should equal the parent account total, which should equal the bank balance.
It’s not just a compliance formality – it’s your chance to catch and correct mistakes proactively. Trust account reconciliations are often scrutinized by auditors, so retain copies of the reconciliation report each month (QBO lets you print or save a PDF of it). In fact, many law firms are required to have a report each month showing that the trust’s general ledger and bank statement were reconciled. It’s the foundation of proving you’re handling the account correctly.
Management or its designee should have the ultimate approval over who can open and close trust accounts. Trust accounting could become a headache – and significant risk – if law firms don’t take the necessary steps to set up proper oversight and controls of the trust accounts. That includes always being able to account for the money in the trust account, and giving detailed statements of transactions for each client. If you want to see the summary of all the clients balances for your trust account, you click the chart of accounts showing a list of liability sub-accounts. There are many people online that are offering free advice on how to setup QuickBooks® for client trust accounting. I have read many of them, and almost all of them are missing steps, or just off the mark completely.
At the end of each month, when you can confidently say “the trust account is balanced and every penny is accounted for,” you’ll feel a huge sense of relief. It’s one of those behind-the-scenes tasks that doesn’t directly earn revenue, but it protects your revenue (and license!). Many find the sub-account method sufficient, but those who prefer not to clutter the Chart of Accounts with many sub-accounts might rely on using the Customer field + a single liability account. Either method, as long as it’s executed correctly, can work – just don’t mix methods without understanding it, or you could double-count. QuickBooks Online is a cloud-based accounting software developed by Intuit, designed to help small and medium-sized businesses manage their financial operations effectively.
Whether you’re a solo practitioner or a growing firm, embracing this tech-forward approach means more than just cleaner books. It means enhanced financial clarity, unwavering confidence in your compliance, and the capacity to scale your legal practice with ease. Stop juggling spreadsheets and start leveraging smart automation to build a truly stress-free and profitable legal business. And that’s trust accounting in QuickBooks Online without the help of LeanLaw.
LeanLaw (as we’ll discuss) and other software can automate generating a three-way reconciliation report. Good documentation makes audits or even simple client inquiries much easier to handle. QBO’s audit log will record any changes to transactions, which is helpful, but the clarity of descriptions is up to you. Many firms also keep a manual or Excel log of all trust transactions as a backup, but if you use QBO carefully, that may be redundant. Still, exporting a monthly report (like transaction detail by client) and saving it can’t hurt. The most frequent scenario is that you’ve done work for the client and now need to pay yourself from the client’s trust money.
Comments are closed.