Is Trust Accounting Hard?
If you just landed your first attorney-client, you may be struggling with some of the terminologies: think IOLTA, what the heck is that? Trust Accounting, is that an IOLTA? And what are the best practices around trust accounting?
The Perfect Structure is where pivotal in successfully tracking the individual trust ledgers. We like to see parent account trust liability and sub-matters as client ledgers as sub-accounts. It is automatic in the LeanLaw product; it's an extra manual process in Clio. But it helps you with the transparency of records. Below is a snippet of what it should look like:
When you start talking about trust accounting, it gets scary because you know it is the big compliance piece of the work when working with attorneys. It has to match to the penny. If it doesn't, you're not compliant. Noncompliance can end up causing or triggering an audit of the law firm's books. Nobody wants an audit.From some feedback from our members in our group, The Accountants Law Lab (ALL), we find that the complexity arises when finding that starting point in balancing the client's books.
Find a Starting Point
Do you go back to the very beginning of the opening of the trust bank account? Or do you find a good point where it was matching three ways? That's the million-dollar question. And how do you find that place where it all aligned?
Accountants Law Lab Tip
The best place to start is running a balance sheet for all the years the trust account was open. Group it by month and collapse it down to see the balance in the total liability account vs. the bank. Look to see where the balance is super close or spot on. That may be your starting point. Maybe you don't need to go back to the beginning. Here's an example of that balance sheet:
I hope this post takes away a little bit of a mystery surrounding trust accounting. Next week I'll dive into some of the things that caused the trust account not to balance. I'll provide a few scenarios as I think that that will help you figure out how to correct the problems.
If you are confused about hard costs or soft costs and work with attorneys, join us in our group The Accountant’s Law Lab.If you are an attorney and feel you need some extra help from a professional accountant, call us today!
If you are an accountant or bookkeeper and need help learning about indirect costs, Join our private mastermind group, the Accountants Law Lab.
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