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Join us on our storybook adventure as we flow through a full cycle of a bill. You will find yourself fully informed on accounting basics such as money in, money out, trust accounting and how to maintain a healthy cash flow.
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Clio Cloud Conference 2014SEPTEMBER 22 – 23, 2014 · CHICAGO, ILLINOIS
Clio Cloud Conference 2014 #ClioCloud9
Accounting Basics: The Life Cycle Of A Bill
Carla Caldwell
Follow Me On Twitter!@carla_caldwell
Who Are We?Carla Caldwell Xero – Director of US Education
Nav Gill, CPA CandidateClio – Staff Accountant
Adrian Pape, CPAClio – Senior Accountant
Clio Cloud Conference 2014 #ClioCloud9
What Are We Going To Talk About?
1. Lifecycle of a Bill
Invoicing, Cash Flow
2. Trust Accounting
Basic Rules + Tips
Clio Cloud Conference 2014 #ClioCloud9
1. Lifecycle of a Bill
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Day 1
Balance SheetCash In Operating Bank Account $1000
Accounts Receivable $0
Total Assets $1000
Bank Loan $1000
Equity $0
Total Liabilities & Equity $1000
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Day 1
Income StatementBilling Revenue $0
Total Revenue $0
Rent Expense $0
Telephone and Utilities Expense $0
Disbursement Expense $0
Total Expenses $0
Net Income $0
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Day 2Rent Expense = $200
Phone Bill = $100
Changes to Balance Sheet:Cash in Operating Bank Account Decreases by $300
Changes to Income Statement:Rent Expense Increases by $200
Telephone and Utility Expenses Increase by $100
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Day 2
Balance SheetCash In Operating Bank Account $700
Accounts Receivable $0
Total Assets $700
Bank Loan $1000
Equity -$300
Total Liabilities & Equity $700
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Day 2
Income StatementBilling Revenue $0
Total Revenue $0
Rent Expense $200
Telephone and Uti liti es Expense $100
Disbursement Expense $0
Total Expenses $300
Net Income -$300
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Day 3
Let’s Make Some Money!
Invoice A Client for $1000 (Flat Fee)
Changes to Balance Sheet:Accounts Receivable Increases by $1000
Changes to Income Statement:Billing Revenue Increases by $1000
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Day 3
Make Color Copies for a Client = $300
Changes to Balance Sheet:Cash in Operating Bank Account Decreases by $300
Changes to Income Statement:Disbursement Expense Increases by $300
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Day 3
Balance SheetCash In Operating Bank Account $400
Accounts Receivable $1000
Total Assets $1400
Bank Loan $1000
Equity $400
Total Liabilities & Equity $1400
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Day 3
Income StatementBilling Revenue $1000
Total Revenue $0
Rent Expense $200
Telephone and Utilities Expense $100
Disbursement Expense $300
Total Expenses $600
Net Income $400
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Day 4
Receive a retainer from two clients:$400 from Client ABC$600 from Client XYZ
Changes to Balance Sheet:Cash in Trush Fund Bank Account Increases by $1000
Retainers Account Increases by $1000
Changes to Income Statement:No changes
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Day 4Balance Sheet
Cash In Operating Bank Account $400
Trust Fund Account $1000
Accounts Receivable $1000
Total Assets $2400
Bank Loan $1000
Retainers on Account $1000
Equity $400
Total Liabilities & Equity $2400
#ClioCloud9Clio Cloud Conference 2014
Day 4
Income StatementBilling Revenue $1000
Total Revenue $0
Rent Expense $200
Telephone and Utilities Expense $100
Disbursement Expense $300
Total Expenses $600
Net Income $400
Clio Cloud Conference 2014 #ClioCloud9
2. Trust Accounting
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ABA Model Rules of Professional Conduct
Rule 1.15:
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separate from the lawyer's own property
complete records of such account funds
ABA Model Rules of Professional Conduct
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ABA Model Rules of Professional Conduct
Comment on 1.15:“A lawyer should hold property of others with the care required of a professional fiduciary.“
Fiduciary – from the Latin “fiducia”, meaning “trust”.
Clio Cloud Conference 2014 #ClioCloud9
What is a Trust Account?
Money held in trust for another partyExamples: client-advanced fees, settlement
proceeds, awards held for disbursement,
…sometimes a retainer
Trust Accounting
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Chicago, Illinois 2013 Attorney Discipline Report
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Chicago, Illinois2013 Attorney Discipline Report
Type of Misconduct Disbarred Suspended Other
Fraud 24 52 17Failure to Communicate 10 29 12Improper management of client funds
11 15 14
Unauthorized legal fees 3 9 3
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7 Survival Skills For Operating a Trust Account
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They can be pooled, but you need to maintain individual records.
1. Keep Client Balances Separate
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Don’t use client funds to pay firm expenses.
2. You Can’t Spend What You Don’t Have
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Before you incur further expenses on an account, you need to request additional
advances.
3. There’s No Such Thing As A Negative Balance
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Prepare for delays between advances and expenses, especially when dealing with
checks.
4. Pay Attention To Timing
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Client trust fund balances need to be monitored on a regular basis.
5. You Can’t Play The Game Unless You Know The Score
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When the case is closed, all funds are either earned or returned.
6. The Final Score Is Always Zero
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You need to have the appropriate documentation in place to support the trust
balance.
7. Always Maintain An Audit Trail
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Trust Accounting…Clio does this!
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Trust Account Listing
Trust Account Ledger
Billing Safeguards
Statements of Account
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Key Takeaway
Make sure you segregate client funds, and keep strong documentation!
(Use Clio.)
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Visit the Clio Smart Bar!
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Xero is in the building!
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Join us after a 10 Minute Break for Reporting,
Interest Calculations, and More!
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Thank you for listening – ask me anything!
