QuickBooks Online for Attorneys: Attorney Reports

The following blog post is designed to help attorneys understand the reports they need to create using QuickBooks Online as their accounting software. The first report is a requirement of the American Bar Association and is a must for any law firm with a trust bank account and manages client funds. We also dive into the typical financial statements that will help you grow a profitable firm.

Attorneys do require a few different reports than what is standard reporting for other client types:

There's a three-way bank reconciliation, and I have gone in-depth on that in other articles. My favorite is this one. Here is also a link to the excel sheet that will give you clarity in determining your three-way reconciliation.

The three-way bank reconciliation

There are three critical parts, and this is part of compliance. You should check your local Bar Association to see if this reporting is required monthly or quarterly. For example, in North Carolina, reporting on trust accounts is a quarterly required report.

To perform this action

  • Take ending balance from the bank statement.
  • Add deposits-in-transit. (Only those funds are actually on hand or deposited but not shown on the bank account at the statement end date.
  • Subtract outstanding checks. (Only those checks that have been issued but which are not shown on the bank statement.)

The result is your actual available cash balance (adjusted reconciled bank balance).

Total Trust Liabilities

The next piece of this is making sure that the balance in the trust liability parent account equals the balance of the adjusted bank. That's your total liabilities of the individual client trusts.

To see this, run your balance sheet as depicted below:

Total Client Sub-ledgers

The third piece is the total of all the individual client balances must equal the total of the trust liability account. At this point, you may be thinking, why wouldn't it? It's the sub accounts that give you the total of the parent. There are many times that that's not the case. Typical problem areas could be that someone created a client trust sub-ledger and didn't sub under the correct parent account, or they forgot to include the parent account altogether. Or perhaps they made a client sub-ledger that's not a client trust type.

What do you do if the client trust ledgers in total do not equal the adjusted bank balance?

Figuring out the differences is the fun part of our job. Determining where it went awry. Here are a few of my top places to look for these inaccuracies:

  1. I will see if any trust transactions are processed through the operating bank instead of the trust bank. You wouldn't believe how many times this has happened. Trust deposits made to the operating bank account will throw off the trust bank account balance from the client's trust liability accounts. When trust funds are received, my recommendation is to be sure that they're always treated as trust funds even if they were deposited into the wrong bank. Record the payment as a retainer booking to the client sub-ledger. Deposit it to the undeposited funds and then make that deposit into the operating bank account.  If you want complete transparency as to what these funds were for from the get-go. Then create a trust bank to the operating bank account transfer to correct the error. Make lots of notes in case there's a future audit. You don't want to forget why this happened the way it did.
  2. Client retainers were not booked in as a trust deposit. I've seen this as well when someone will record the deposit as income. It's not income until the work has been performed. I cannot stress that enough. You must treat any prepayment as a pre-payment. Remember, attorneys have a fiduciary duty to ensure that clients' trust money is treated with due diligence.

Merchant account fees or wire fees are deducted from IOLTA or trust bank. This is a constant annoyance, and it's a workflow issue. We recommend that you set a client up to receive merchant payments through Intuit for any accounts receivable or transactions that only flow through the operating account. And then, we also recommend that any trust account transactions that are paid by credit card flow through Gravity payments.

Why Gravity?

There are so many reasons for my recommendation of Gravity payments, but here are just a few of the top reasons:

  1. FAST Funds are deposited quicker to the client's account.
  2. MULTIPLE PAYMENTS With Gravity, you can make multiple payments for one single invoice.
  3. DASHBOARD Gravity payments have a much better dashboard for us to track the payments. Those two reasons alone make us love Gravity. If you are interested in learning more about gravity payments, reach out to me directly, and I can get you in contact with a good representative of Gravity.

Other reporting

The other reports I recommend for attorneys are just basic financials. I'm talking profit and loss and balance sheet.  I like to produce these reports monthly using QuickBooks, and you can use the report builder, which is a function of QuickBooks Online Advanced.

You can also use Fathom reporting which is a feature that is included in QuickBooks Online Advanced.  Fathom has some fantastic features that would take too long for me to describe here in this article. My favorites are goal setting, auditing, KPI's, and forecasting. It's probably worth your while to get certified in this product especially if your clients are using QuickBooks Online Advanced, which I highly recommend.

Another report that is critical for attorneys accounts receivable aging report. I run the summary aging report and make it my mission when I work with attorneys to help to clear out that 90-day column. It's been my experience that many law firms let their accounts receivable get very old. As an accountant or bookkeeper, you can step in and become the accountant hero by helping them get better with collections. Make it your mission to get them to and only 30 days and less column. 

Many law firms are resistant to using merchant services and credit cards. Having the ability for a client to pay you by credit card increases your collection rate by 39%. There's lots of discussion about fees and not wanting to have to pay them. Again, with Gravity, the costs are deducted from the operating account. You don't want the fees taken out of the trust account ever. Remember, this is not your money. When I have that discussion with the client about accounts receivable and adding paying by credit card, they always want us to develop a creative way to charge the fees to the client. It's much easier to raise your hourly rate a tad to cover those fees. I find that asking a client to pay the credit card fee can become a big friction point with your clients. The endgame is just having them pay. Aggravating the client by making them pay for credit card fees may be a barrier in getting the payment.

Compensation reporting

Attorney compensation will require you to add the class feature to QuickBooks Online. You'll need to track all revenue and all client expenses with the classes. If you are working with a mid-size firm and considering using QuickBooks, I strongly encourage you to add legal software to your app stack. The time savings and the improved workflow will pay for themselves. My recommendation here is LeanLaw or Clio if you need practice management.

Wrap-Up

That is the conclusion of this series on QuickBooks Online for attorneys and law firms. I hope you enjoyed reading it, and if you just discovered this article,  see this article for the first step in getting started using QuickBooks.

If you have managed to get this far, congratulations! If you are an attorney or law firm and still could use some help or maybe review how you set this up, reach out. We are more than happy to help.

Don't know where to start?

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Recommended Resources

QuickBooks Online for Attorneys






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Lynda Artesani

Lynda Artesani is the president of Artesani Accounting. Her firm specializes in working exclusively with the legal industry. She is passionate about helping her attorney clients migrate to modern cloud-based systems and become future-ready.​ ​ She is a Top 100 ProAdvisor, an alumni member of the Intuit Advisory Board and a member of the Intuit Trainer Writer Network. She also runs a Facebook group and a private group called The Accountant's Law Lab. It is a place where members can learn how to work with attorneys and law firms. Lynda lives in Southwest Florida. She is a registered yoga teacher and in her free time, you will find practicing yoga or walking on the beach.​