Clio 5 Steps to Easy(Ier) Legal Accounting

8/19/2019 Clio 5 Steps to Easy(Ier) Legal Accounting

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5 Steps to Easy(ier)

Legal Accounting

J O S H U A L E N O N


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CLIO.COM

5 STEPS TO EASY(IER) LEGAL ACCOUNTING

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Introduction• State Bar of Georgia’s Standard Chart of

Accounts for Smaller Law Offices (PDF)

• Law Society of British Columbia’s Online

Learning Centre Chart of Accounts (PDF)

You can’t add too many valid accounts to your

chart o accounts. Make sure you take an

expansive view when building this chart to get

everything needed to track your firm’s finances.

Step 2: Pick an accounting tool

Now that you have a chart o accounts, pick a

tool to use or tracking your firm’s finances.

There are many considerations that should

impact your decision. Ease o use, integration

with your practice management system,

and ease o inormation sharing with your

accountant should all be weighed.

You should also review whether the

accounting tool can handle cash basis

accounting or accrual basis accounting.

The main difference between the two systems

is when to recognize revenue. While many

small firms can get by on cash basis accounting,

recognizing revenue only when they receive it,

larger firms should use accrual basis accounting.

Accrual basis accounting recognizes revenuewhen it is earned and is a standard principle

o accounting. I you want to work with

an accountant, you will need to use accrual

basis accounting.

Create a chart of accounts

Pick an accounting tool

Determine profitability of firm

Implement best practices for trust accounting

Schedule reviews of time entry, billing,

and accounting

Step 1: Create a chart of accountsA chart o accounts is a listing o the accounts

available in the accounting system in which

to record entries. The chart o accounts consists

o both balance sheet accounts (assets,

liabilities, stockholders’ equity) and income

statement accounts (revenues, expenses, gains,

losses). Gather all o your various accounts

is necessary to begin getting the ull value romyour accounting tools.

Many law firms don’t realize how many

accounts need to be tracked to accurately

reflect their firm’s value. Here are some sample

chart o accounts that can serve as guides or

building your own chart o accounts.

Every lawyer knows that money matters.

It pays to take account o your accounting

systems. In our Legal Accounting webinar,

cohosted by Carla Caldwell o Xero, and

Omar Ha-Redeye, we reviewed five easy

(or rather, easier) steps that lawyers will want

to use to get an accounting system in place:

http://www.clio.com/http://www.gabar.org/committeesprogramssections/programs/lpm/upload/mca.pdfhttp://www.gabar.org/committeesprogramssections/programs/lpm/upload/mca.pdfhttp://www.gabar.org/committeesprogramssections/programs/lpm/upload/mca.pdfhttp://www.learnlsbc.ca/sites/default/files/LSBC_SF_AccountingSystems_ChartofAccounts_AppendixC.pdfhttps://support.goclio.com/forums/20814659-Xero-Integrationhttps://support.goclio.com/forums/20814659-Xero-Integrationhttp://help.xero.com/us/#faq$BK_FAQ28http://help.xero.com/us/#faq$BK_FAQ28http://www.accountingcoach.com/blog/cash-basis-accrual-basis-of-accountinghttp://en.wikipedia.org/wiki/Revenue_recognitionhttp://en.wikipedia.org/wiki/Revenue_recognitionhttp://landing.goclio.com/LegalAccountingWeb-E.htmlhttp://campaign.goclio.com/xero/http://www.omarha-redeye.com/http://www.omarha-redeye.com/http://campaign.goclio.com/xero/http://landing.goclio.com/LegalAccountingWeb-E.htmlhttp://en.wikipedia.org/wiki/Revenue_recognitionhttp://en.wikipedia.org/wiki/Revenue_recognitionhttp://www.accountingcoach.com/blog/cash-basis-accrual-basis-of-accountinghttp://help.xero.com/us/#faq$BK_FAQ28http://help.xero.com/us/#faq$BK_FAQ28https://support.goclio.com/forums/20814659-Xero-Integrationhttps://support.goclio.com/forums/20814659-Xero-Integrationhttp://www.learnlsbc.ca/sites/default/files/LSBC_SF_AccountingSystems_ChartofAccounts_AppendixC.pdfhttp://www.gabar.org/committeesprogramssections/programs/lpm/upload/mca.pdfhttp://www.gabar.org/committeesprogramssections/programs/lpm/upload/mca.pdfhttp://www.clio.com/


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Also, many law firms may need to shif to

accrual basis accounting i pending legislation

is approved.

Once you pick a tool, enter your chart o

accounts and you’ll be on your way to a better

understanding o your firm’s financial position.

Step 3: Determine profitability

of firm

The inormation rom your chart o accountswill help determine many financial acts about

your firm going orward.

You should easily be able to create income

statements and balance sheets or your firm

rom your accounting tool.

The income statement is also called the

profit/loss report. It subtracts the expenses

and losses rom the revenues and gains over

a measured period o time. Law firms want

their income statement to end with positive

numbers. Positive income means that a firm

is running profitably.

A positive outcome on an income statement

does not mean that the irm is collecting

the revenue. Collections would be measured

in a statement o cash flows. Firms must monitor

both income statements and cash lows toremain viable.

Step 4: Implement best practices

for trust accountingClient unds should be stored in a trust account

until they are earned or distributed.

Law firms should review their jurisdiction’s

trust accounting rules to make sure they set

up their accounting procedures correctly.

Exact trust accounting requirements vary

with the jurisdiction, but a good accounting

tool should help with assigning and trackingclient unds by associating them with both

a matter and a client. This should make it easier

to maintain a ledger or clients and matters that

tracks transers, receipts, balances and more.

Accounting sotware also helps with

monthly reconciliations and ile storage.

One tip many law irms can beneit rom is

to scan and store bank statements, cancelled

checks, and monthly reports as PDFs in their

accounting system. For example, both Clio

and Xero can store files online, associating them

with clients and matters. This makes them easily

producible in the event o an audit or dispute.

http://www.clio.com/http://www.americanbar.org/advocacy/governmental_legislative_work/priorities_policy/independence_of_the_legal_profession/mandatory-accrual-accounting-for-law-firms.htmlhttp://www.americanbar.org/advocacy/governmental_legislative_work/priorities_policy/independence_of_the_legal_profession/mandatory-accrual-accounting-for-law-firms.htmlhttp://www.americanbar.org/advocacy/governmental_legislative_work/priorities_policy/independence_of_the_legal_profession/mandatory-accrual-accounting-for-law-firms.htmlhttp://help.xero.com/us/#Report_ProfitAndLosshttp://help.xero.com/us/#Report_ProfitAndLosshttp://en.wikipedia.org/wiki/Statement_of_cash_flowshttp://www.americanbar.org/groups/interest_lawyers_trust_accounts/resources/directory_of_iolta_programs.htmlhttp://www.americanbar.org/groups/interest_lawyers_trust_accounts/resources/directory_of_iolta_programs.htmlhttps://support.goclio.com/entries/20033282-How-do-I-record-a-Retainer-Deposit-or-Pre-Payment-add-funds-to-Client-Ledger-https://support.goclio.com/entries/20033282-How-do-I-record-a-Retainer-Deposit-or-Pre-Payment-add-funds-to-Client-Ledger-https://support.goclio.com/entries/21519844-Multiple-Document-Uploadshttp://help.xero.com/#FilesUploadhttp://help.xero.com/#FilesUploadhttps://support.goclio.com/entries/21519844-Multiple-Document-Uploadshttps://support.goclio.com/entries/20033282-How-do-I-record-a-Retainer-Deposit-or-Pre-Payment-add-funds-to-Client-Ledger-https://support.goclio.com/entries/20033282-How-do-I-record-a-Retainer-Deposit-or-Pre-Payment-add-funds-to-Client-Ledger-http://www.americanbar.org/groups/interest_lawyers_trust_accounts/resources/directory_of_iolta_programs.htmlhttp://www.americanbar.org/groups/interest_lawyers_trust_accounts/resources/directory_of_iolta_programs.htmlhttp://en.wikipedia.org/wiki/Statement_of_cash_flowshttp://help.xero.com/us/#Report_ProfitAndLosshttp://help.xero.com/us/#Report_ProfitAndLosshttp://www.americanbar.org/advocacy/governmental_legislative_work/priorities_policy/independence_of_the_legal_profession/mandatory-accrual-accounting-for-law-firms.htmlhttp://www.americanbar.org/advocacy/governmental_legislative_work/priorities_policy/independence_of_the_legal_profession/mandatory-accrual-accounting-for-law-firms.htmlhttp://www.americanbar.org/advocacy/governmental_legislative_work/priorities_policy/independence_of_the_legal_profession/mandatory-accrual-accounting-for-law-firms.htmlhttp://www.clio.com/


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Step 5: Schedule reviews of time

entry, billing, and accountingLaw firms should not only set up an accounting

system, they should also schedule periodic

reviews o their accounting inormation.

The requency o these reviews should be

dependent on your firm’s needs. Here are

some types o scheduled review that firms

may implement:

Following these steps will help set up your

firm to get an accurate image o your finances.

Firms can easily run reports on successes and

barriers in their cash flows.

Take the time to set up a proper accounting

system and master your firm’s finances.

• Daily – individual lawyers review theirdaily time entries for completeness

and accuracy.

• Weekly – administrators review weeklysummaries to make sure that firm billing

standards are being met.

• Monthly – administrators and managinglawyers review trust account information

and complete reconciliations as part ofbilling cycle.

• Quarterly – managing lawyers reviewtheir firm’s profitability, running income

statements, balance sheets, and

statements of cash flow at least this

frequently. (These reports will also help

solos prepare their quarterly self-

employment income tax payments.)

• Annually – managing lawyersreview the annual period to determineprofitability and to prepare for annual

tax filings.

Clio is the practice management solution

that plays nice with your accounting soware.

Try Clio now for free at: www.clio.com

http://www.clio.com/http://www.goclio.com/sign-up/?utm_source=Whitepaper&utm_medium=whitepaper&utm_campaign=Whitepaper_LegalAccountinghttp://www.goclio.com/sign-up/?utm_source=Whitepaper&utm_medium=whitepaper&utm_campaign=Whitepaper_LegalAccountinghttp://www.goclio.com/sign-up/?utm_source=Whitepaper&utm_medium=whitepaper&utm_campaign=Whitepaper_LegalAccountinghttp://www.goclio.com/sign-up/?utm_source=Whitepaper&utm_medium=whitepaper&utm_campaign=Whitepaper_LegalAccountinghttp://www.clio.com/


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CHART OF ACCOUNTS

ASSETS TYPE ACCOUNT DESCRIPTION

CURRENT ASSETS Operating Bank Account

Petty Cash

Accounts Receivable

Advanced Client Costs

Work in Progress Fees

Prepaid Expenses

FIXED AND OTHER Real Property

ASSETS

Furniture

Depreciation


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LIABILITIES

SEGREGATED LIABILITIES

TYPE ACCOUNT DESCRIPTION

CURRENT LIABILITIES Bank Loan / Line o Credit

Accounts Payable

Business Credit Card

Payroll Tax Liabilities

LONG TERM Capital Loan

LIABILITIES

Equipment Loan


TRUST BANK IOLTA or Pooled

ACCOUNTS Trust Accounts

Separate Interest

Bearing Trust Accounts


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REVENUE

EQUITY


Capital

Retained Earnings

Equity Account:

Owner #1 (et al.)

Profit/Income

Distributions or Year

Drawings or the Year:

Owner #1 (et al.)


Fees Earned

Disbursements Recovered

Interest Income

Other Income


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EXPENSES


OFFICE Office Rent

Parking

Real Estate Taxes

and Insurance

Utilities

OFFICE OPERATIONS Telephones

Photocopies

Computer Equipment

Practice Management

Platorm

Sofware Subscriptions

Supplies


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EXPENSES continued


PROFESSIONAL Travel & Related Expenses

COSTS

Proessional Dues

Continuing Education

Proessional Liability Insurance

PROMOTION Entertainment

Promotion & Advertising

OTHER EXPENSES Bad Debt, Fees

Bad Debt, Disbursements

Write-offs,

Unbilled Disbursements

Recruitment Cost

Other Taxes and Similar Costs

Miscellaneous Expenses


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COMPENSATION


Secretarial

Word Processing

Paralegals/Clerks

Lawyers

Employee Retirement Benefits

Employee Training

and Education

Other Employee Costs

Other Non-Owner Employees

Documents

Clio 5 Steps to Easy(Ier) Legal Accounting