TRUST ACCOUNTING WITH QUICKBOOKS
does anyone use Qbooks for TRUST ACCOUNTING? IF
yes, please explain. thank you
does anyone use Qbooks for TRUST ACCOUNTING? IF
yes, please explain. thank you
Here is a detailed answer from another post from Account-Sims:
There are a few specific challenges with law firm accounting:
_Tracking advanced costs correctly when paid out of the Operating account
_Billing for those advanced costs to the client
_Tracking and billing for time, using as much or as little detail as required by the particular firm
_Tracking and billing for miscellaneous costs (phone, fax, copies, etc) that are not directly billable to the client ( $ for $ )
_And, most importantly, tracking and reporting the trust accounting to meet the requirements of the state/bar
For the trust accounting, you need to be able to answer the following 'tests' -
1) Does the trust bank account balance match the trust liability account balance?
2) Do you have a report listing each client's trust balance, the total of which equals the trust bank account balance?
3) Do you have a detailed ledger, for each client, which shows the specifics of the ins and outs of the trust monies?
All of the above can be accomplished using QuickBooks, but specific procedures (see below) need to be followed and reports need to be created to meet the required standards.
Trust accounting in QuickBooks is a little tricky and needs to be tracked using specific procedures in order to get good reporting for the Funds Held in Trust (escrow) detail by client.
Here is my general procedure for tracking trust accounts in QuickBooks -
Deposit the retainer/settlement check into the Trust/Escrow bank account, using a Funds Held in Trust (Escrow) liability account with the client name in the name field. I do this directly in the Make Deposit form, but you can enter a sales receipt, using an item which points to the liability account.
Then, write checks for any (non-law firm) disbursements of those funds, using the Funds Held in Trust (Escrow) account on the expense tab of that check - with the client name in the name field on that line. Or, if you want the detail of how those disbursements are made, create separate items, all pointing to that account, to indicate what that 'paid out' is for - Insurance, taxes, fees, etc.
Then, if applicable, invoice the client. . .for the professional fees (time or flat fee billings) and any advanced costs (previously paid out of the operating account) as separate items. . .
Then, cut a check from the Trust/Escrow bank account to the law firm, using the Funds Held in Trust (Escrow) account on the expense tab of that check - with the client name in the name field on that line.
Then, 'Receive payment', using the client name, and attach that payment to the open invoice.
Then, deposit the funds into the operating checking account, either directly from the payment, or via Undeposited Funds.
I have created a group of memorized reports to show the client trust activity and balances to use when reconciling/reporting client balances and/or the bank statement.
_I do not (usually) use items, invoices, or sales receipts for any activity directly involving the trust funds (although sometimes it is needed/useful, but needs to be setup and tracked specifically).
These are two completely separate areas of your business and the transactions need to be recorded as such. . .so much so that some law firms track their trust accounting in a separate QuickBooks file (although I don't see the need for that myself).
Note: There is no way to automatically show the trust balance on an invoice. You can, however, create a custom field, or enter a line in the description field, to notate the remaining trust fund balance. The amount will have to be manually entered on each invoice. If you put the amount remaining in the memo field, it won't print on the invoice, but will show up on statements and in the customer center.
Review the above procedure(s) step by step and confirm that this meets your state's regulations and reporting requirements.
If you still need help, I suggest that you contact someone directly for assistance.
You can search www.findaproadvisor.com if you want someone local.
Also - many of us work remotely and can be contacted via the info on our websites or profiles.
I hope this helps,
I pay bills from the client trust account for vendor expenses the client incurs during the life of their case. Here's how I enter invoices and pay bills for client expenses - using their funds in trust:
1. Enter Bills. A/P Account is "Accounts Payable - Trust Account". Account is the client funds held in trust liability account. The Customer:Job is the client.
2. Pay Bills. A/P Account is "Accounts Payable - Trust Account". Payment Account is Trust Bank Account.
This seems to properly allocate everything, but the one problem I see is that when I go into the client funds held in trust liability account window (where I see a history of transactions for a given client), the payee is the client and not the vendor. What am I doing wrong? The vendor is properly entered in the Enter Bills and Pay Bills windows, and the vendor entry also appears in the trust bank account, but does not appear in the client liability account under payee - unless I double-click and open a specific entry. Please advise if this can be changed. Thanks.
I don't use a/p for client vendor bills.
However, try this:
On the client ledger report, modify it to include Source Name.
Does this give you what you need?
Thanks, LauraD. That works, but I was hoping there was a way for the vendor to show up as the Payee automatically. And, BTW, what do you use in lieu of a/p to pay client vendor bills? Am I okay, accounting-wise, by using this a/p account to pay bills? Seems like everything goes to the right place. Thanks again.
I wouldn't put the bills into QuickBooks - just write disbursement checks.
If you need to track the a/p, that is another situation.
However, whatever your method, you need to be sure that you are able to report the trust activity according to the regulations of your particular state/IOLTA requirements.
our trust account is used to hold on to funds for the benefit of the client - it is not used as a retainer; any checks written against the funds would be for the benefit of the client and disbursed pursuant to their requests. how is this handled?
You would use the same procedure.
I have set up Rep Payee files and it works great.
The only basic difference is this:
I would suggest creating items for the various types of paid-outs (all as double sided items pointing to the liability account) so that you could run reports which would total rent, utilities, child support, etc.
LauraD - I've read your suggestions for how to handle trust accounting on QB, but do you actually have to write a paper check from the trust account to the law firm? I would like to be able to input the attorney billable hours for the trust client and then create an invoice, and then somehow get the invoice paid thru the trust Liability account and get the funds transferred from the Trust bank account to the Firms Main bank account. Is there anyway to do this easily? I don't really want to mess with A/P and bills.
svbc, since the attorney's time is not a cost incurred by and paid from the Trust, directly, then you can handle the earned fees this way:
Create an invoice for the time, from a timesheet, perhaps.
Create a Credit Memo for the client using an Other Charge item that is linked to the Liability account. This might be an item you already have and use for a Sales Receipt when first processing a trust amount into the trust bank account.
QB offers to apply this credit to the open invoice.
Now you can do your electronic bank transfer, from Trust to operating. The invoice is proof you earned the fees. The Credit Memo is proof the liability was applied to the amount due.
Running AP and paying it right away is unnecessary. You can just use Write Check.
Whether using Write Check or Bill, on the line entries for the data, for the Customer field, this is where you select Client's name.
If you are paying from the trust account, you then need to show you earned the liability amount. So, on this same form (Check or Bill) on the Expenses tab, you can enter a line for posting the same total from the Trust Liability account and then the next line is the same amount, as a negative, posting to Income (earned). You can use the client names here, and make sure there is no checkmark indicating Billable, as nothing is going to be billed.
These last two entries are like a journal entry in that they are a rebalancing from liability to income. Since they offset each other, there is no impact to the payment being made.
However, I like to do it this way:
Create the bill or check, note the charges being paid, select Client, and mark Billable. Pay from the trust bank account.
Invoice Client using Add Time & Costs, and now you have these charges on an invoice for the client. On this invoice, use an Other Charge type of item linked to the Trust Liability account. Enter the amount of the invoice on the next line of the invoice using the Liability item and the amount is negative. This indicates the amount due from expenses is being paid from the liability account (not bank).
This is easily reportable by client name for activity auditing.
how do you track client disbursements from the office account - not really an expense of the business; how do you set up and track payment of disbursements - not really income.
shanley, you would set up items, checkmarking the box that these are "two-sided" items. Both the left side (expense) and the right side (income) should be linked to the same Other Current Asset account named Advanced Costs. If you want lots of item names, set them up all the same, but this allows you to have Court Costs and courier, for better tracking and reporting, if you'd like to see this detail on reports.
Use the items when the firm pays the costs for a matter. Select the client as "customer" and mark it Billable.
When you are ready to be repaid for these costs, create an invoice and select Add Time and Costs. Pick up all these pending charges.
Now the Other Current Asset account has cleared: purchases and this invoice offset each other.
Then, you can accept payment from the Trust account or the client directly, or a settlement share.