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I am a new bookkeeper for a small law firm in Ontario. The accountant had set up QBO as follows: Each client has their own liabilities sub account, under the trust liabilities account. Then we record the trust deposit to the trust account, and credit the clients liability account, along with all the information you included in your demo. Now CLIO is synced with QBO and we now receive Journal entries that debit the trust bank account and credit the trust liabilities account. It's supposed to save time by syncing, but I end up needing to delete that journal entry and replace it with a deposit entry. I had been editing the JE by changing the credit to the sub account for the client. The problem is, the JE do not show up on the saved Cash Receipts Journal report. How can I know what is acceptable to the LSO?
What's most important for the Law Societies, is having a unique ledger for each trust client. From LeanLaw's interpretation, your accountant correctly setup QBO to structurally compliant with our understanding of the Law Societies guidance. The challenge is that Clio keeps it's ledger information in it's own application, only sending a single line item to the trust liability ledger. This inherently will create the need to use JE to move items from the top level to a specific client ledger. LeanLaw automates this process, and will sync with the client subledgers. We want to be cautious in directing journal entries as that isn't a known, and acceptable pathway for a LeanLaw client, or an an law firm managing their trust independent of a financial managing tool such as LeanLaw. We're not trying to dodge the question, we just don't want to represent what we don't know. Our advice is to either disconnect the trust activity from Clio and managing independently, reconciling at the end of the month, or seek guidance from the Law Society.
Hey Anthony, my name is Jonathon Fishman, and I am one of the founders and serve as the CEO of LeanLaw. I appreciate your comment and would welcome your thoughts on your topic. Your opinion means a ton to me, and I want to share with my team where you think we need to be cautious and what you see as the main appeal of LeanLaw. Thanks so much for your input.
Why are you using a trust account for retainer? A retainer received in advance of legal service is not a trust account transaction. It should be debited to the operating bank account and credited to unearned retainer fee. At the end of the month, whatever legal service was performed should credited to legal service revenue and debited to the unearned retainer fee. A trust account should be used only for funds received on the behalf of a client not normal operating income for the law firm.
Hello David, our research with both the ABA and the State Bar associations aren't in alignment with your comments. When law firms receive retainers, they must be deposited into the trust bank account as to not co-mingle with operating funds. Only when the services are earned, and ideally an invoice is presented, would you then pay the invoice and move the funds into the operating account. There are some States where you can treat retainers as earned income, but it isn't the norm, both in bar association guidance or law firm practice.
For the Step 4: Payment option, do we need to select the Check option all the time? When applying the payment to the invoice, can I select something like LawPay or credit card payment method, or do I need to select the check?
The check is just a placeholder. It's best to articulate whatever instrument you received the money. If it was LawPay, then, yes, LawPay is what you should identify.
PERSONAL INJURY LAW FIRM: 1. How do you receive a settlement check from an insurance company; 2. How do you account for when you pay for an expense that will be reimbursed from the Trust Account; 3. How do you pay medical providers from the Trust Account after you receive the settlement check and deposit it into the Trust Account?
Hello there. This isn't the best medium to answer your questions as they are complex. LeanLaw can help facilitate all of the work associated with a settlement. LeanLaw will allow for the receipt of the initial settlement payment, ensuring the correct accounting is set up in QBO. Handle the firm's reimbursements for expenses and legal fees, the payment of any liens, and finally, the disbursement of the client funds. Here's a link that explains this in greater detail. support.leanlaw.co/en/articles/1311765-how-to-bill-for-contingent-fee-matters We hope this helps.
If you are a law firm and want to do a surcharge for your clients using credit cards make sure you check your state and bar association rules. There are restrictions and they vary by state.
Thanks so much for this video. I am a property manager and many of the same principles apply to us since we handle rent, repairs & proceeds for our clients. I have also watched several videos and this by far was the clearest most straightforward explanation of how we can properly bill & record our property management fees with the client. My next step is figuring out how to 1099 them.
Glad it was helpful! Most of our client's are law firms but we do have a slew of non legal professional service organizations and property management entities.
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My quick books on line does not have the same options available when I use the invoice, then payment option. I don't have the ability to transfer from within the client.
Hello Richard, you may be confusing LeanLaw features that facilitate the trust transactions within QuickBooks Online. There are aspects of this video that show how to handle these trust activities using LeanLaw in tandem with QuickBooks Online. Let us know if you have additional questions. Thanks for your feedback.
Hello Richard, this isn't the right medium to answer this specific question. Feel free to use our chat tool from our Website (www.leanlaw.co) and our team can better answer your questions.
First you should always check with the state bar association for specific rules for that state. From LeanLaw's perspective, we have seen clients do it in both ways. To your point, using an opening balance as you move the ledgers into an electronic system like LeanLaw and QuickBooks online. The second route would be to transpose all of the transactional information for each trust account. This may not be reasonable for those firms that have many trust accounts. What's most important is that you can put all of the ledger activity together for specific trust account and client. This can be the manual ledgers combined with an export of the new ledgers based on the opening balance. If you were to go there the route of using opening balances, it's usually done after you do your final billing from your previous invoicing tool. That creates a specific ledger of all the trust balances as of a specific day. That ledger becomes your opening balance ledger when establishing those trust accounts in electronic system like LeanLaw and QuickBooks online. Feel free to head to leanlaw.co and use the chat tool to ask additional questions. We're more than happy to be of assistance.
If one is changing from manually recording IOLTA information to a software based system, like LeanLaw, does the inputting of information have to start from scratch or can you input information from past IOLTA statements? Basically, can one record previous IOLTA trust account information before they purchased software?
Hello Shelly, sorry for the late reply. First, you should always check with the State's bar association for their specific guidance. We at LeanLaw follow the ABA and a few of the state opinions. We have clients do it both ways. Some bring over every ledger item for the specific trust account. While this is arduous, it does keep all of the transactional information in one cohesive ledger. A second tactic is to establish the trust ledger with an opening balance. Within that opening balance, you can add a export from the previous method of tracking. Thus, you have the historical transactions available as needed. This tends to be more efficient.
Do you have a tutorial for Quickbooks desktop? I am setting up the Trust Account as a separate account from my checking account and also need to be able to reconcile my bank statement. Thank you.
Hello Tonu, we don't have any information as to best practices in QuickBooks Desktop as we don't support that product. LeanLaw only integrates and works with QuickBooks online. With that said, the accounting principals should apply. Thanks for watching!
This was great I have been waiting for a video like this for years. What do you do with Interest Payments from the IOLTA? Do you make that as a sub liability "IOLTA Interest" as well? Further, what do you do when the bank charges you for wires from the IOLTA? thanks!
You can make a specific sub-ledger for fees and interest as the interest is simple money in/money out. The same happens for the bank fees as it's the law firm's responsibility to cover those fees. I will state that you should always check with the State's Bar association to ensure you are following the specific procedure. The Bar Association will always be helpful in ensuring you have the right information to adhere to the State's rules.
I've been using this same method, but it's creating havoc with regard to my ability to 1099 vendors. I'm a personal injury attorney and we often pay medical service providers out of the client settlement funds held in trust. Even when marking the vendor as track for 1099 payments, quickbooks isn't assigning the payment to any of the appropriate boxes for 1099 purposes, and I can't seem to issue a 1099. Are you aware of any fix for this problem?
Hi Justin, I just saw this video - I'm a freelance bookkeeper for law firms and I use LeanLaw. I just looked into this and I think the issue may be with the 1099 setup. When you go to "Prepare 1099s" on QBO (you can look at this now, even though you're not ready to do 1099s), try this: Go to "expenses", then click "Prepare 1099s" at the upper right, then "continue your 1099s". Once there, you want to hit the "Back" button until you get to step 2, "Accounts." For each appropriate box you need to use, click, and go to "multiple accounts." The liability account you set up should be on the list and you can click that, as well as others. If this doesn't make sense or doesn't work, please let me know.
@@susannatali I hoped that your solution would work, but it unfortunately does not. The issue is that the payment to the medical services providers cannot be marked as a "medical payment" as the category selected when making the payment from a trust sub-account. I have to select as the category of payment, the trust sub-account that the payment is being made out of - I can't do both. The solution to this seems to be having one giant trust account not marked for a particular client in quickbooks. Then I wouldn't need to select each client sub-account as the source of payment in the category selection, and could mark the category as medical payments. However, then I lose the ability in quickbooks to have a trust account funds register for each individual client. It would just be one very large register for all clients' pooled money, and then a memo description of what belonged to each client - which is less than ideal. The work around is maintaining a separate excel file, but then again I'm doing double work. Ideally, Quickbooks would just show in the 1099 filing prep, payments to all vendors marked as track for 1099, and allow me to either issue them a 1099 or not, while manually marking the box which should corresponds to the type of payment made.
I tried this method. However, using this method would never reconcile the customer's balances to 0 in the transaction list per customer report. It will always suggest, we have double the money.
How are you documenting receiving the money? A sales receipt will have a different result from an invoice and a customer payment. When a client pays, I create a bank deposit into my iolta bank account and assign the customer's name and liability subaccount and my transaction report balances properly.
Awesome. As a bookkeeper, I've probably watched over 200 RU-vid videos on QuickBooks Online for various topics. This , by far, was the Best video EVER. Thank you for this.
Thank you thank you! Did you know that LeanLaw Accounting Pros get a free seat on the software, Tier 2 support, and REFERRALS? Check us out: www.leanlaw.co/accounting-partners/
Hello, QBO has just created a limit on accounts you can create in your COA. We are trying to think of another way to set up the trust liability accounting. Do you think invoicing the trust liability accounts could work?
As we assessed alternative methods as to not leverage the chart of accounts, we always ended up circling back to our core beliefs as to how we architected the trust management as it relates to QBO. Here's how we approached understanding the problem: What if LeanLaw moved to a single liability ledger in QBO. We would have to store the ledgers in LeanLaw, thus breaking from our belief that QBO is the source of truth. Technically, it would be very difficult with the QBO API, to represent client/matter trust accounts in LeanLaw. Our clients need a simple ledger as to what they're holding on behalf of their clients. What does our client's current client's chart of accounts look like? What burden is the liability ledgers? When we looked at our client base and assess their chart of accounts, we found that many of the folks had a rather sloppy chart of accounts with many inactive items. Lot's of expenses. Thus, we felt that cleaning the chart might alleviate some of the burdens. What do the Bar Associations state relative to compliance? If you dig into the compliance rules, you will see specific mentions to the handling and reconciliation of the trust money. This would be VERY difficult if you were trying to manage this in QBO by simply tagging an entry to a client with a top level trust liability. Reports would be custom and very difficult for the lay user, and we would worry as to how the 3rd step of the 3-way trust reconciliation, making sure the money went into the right client/matter accounts, would be executed? If we don't have the money in and out in specific ledgers, how do you validate that you accounted for the money in an accurate way? Most folks would go back to Excel and not have the information in one place. Our decision to not change our approach is rooted in the importance of accuracy, data completeness, compliance. Yes, technically there are ways to achieve all of these without the use of trust ledgers, but for the majority of law firms not using our model would result in manual work with a high chance of inaccuracy. Their compliance and accountability to their client are worth the extra cost. Some lawyers won't get that, and focus on spending more money. We expect some churn in LeanLaw, but we would rather err on the side of compliance and be more expensive. Poor handling of trust money is far costlier than the upgraded QBO pricing. In the weeks to come, LeanLaw will be putting better tools in place to close trust matters and make inactive the liability accounts. We need to help there. We also expect to coach our users and accounting partners.
