TRUST ACCOUNTING WITH QUICKBOOKS

Here is a detailed answer from another post from Account-Sims:

http://community.intuit.com/po...

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.

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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,

Laura D

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.