Trust accounting for legal firms can be challenging for some, but it is critically important that you follow the rules and guidelines to keep yourself out of trouble.
Here are some key tips for trust accounting in your law firm:
- Separate accounts
- Everything should be tracked to a client. Set up a general “admin” client for bank fees, checks, etc to be coded to.
- Ensure you deposit operating funds into the trust account to cover bank fees, check purchases, etc.
- When working with your accounting software, ensure you set up subaccounts. This may seem a little excess and for some industries, I would agree. However, when it comes to working with law firms and trust accounting, it is worth it. If you have ever been through an audit of the account, you will understand that trust accounting is a beast that has to be well cared for.
- Some will set up separate bank accounts for each trust account; however, most use 1 trust bank account with subaccounts to track the details.
- In QuickBooks we typically set up each client as a customer, so we can in effect have good “job costing” components on the monies coming and going from all bank accounts. Secondly, we will typically set up the Trust parent account in the General Ledger and then set up subaccounts for each of the trust clients. If you are using loans for cases, I’d encourage you to set up the Case Advance loan account as the parent and then each client you are advancing funds for as a subaccount. This makes for easy tracking and easy reconciling. It may seem a little clunky, but believe me, it works.
Here are a couple of great resources for more on trust accounting:
Trust accounting can be a little tricky for your law firm, but it is imperative that you learn how to do it correctly.