End-Of-Year Client Ledger Clean-Up

Welcome to Accountants LawPod, where accounting professionals and law firms converge, hosted by Lynda Artesani, Sarah Prevost, and Stephen Libhart.

Hi everyone. Well, we just came back from a week of speaking, participating with our accounting professionals at Intuit Connect. What do you think, Lynda? It was you and I. Uh, Steve had to lay low this year and take care of a lot of client work, so Yeah, it was me, you, and Tiara.

Don't forget Ti. She was with us. Thank God.

Oh yeah, Tiara was with us.

Yeah. Yeah, it was different. It was different than last year, which last year was not that great. It was kind of messy. The food wasn't good. It just didn't seem like it knew— it didn't seem like it had a direction to it. This year definitely felt like it had a direction, but it also felt— it felt more executive. The people that were there were from larger firms. It seemed like they had more clarity on what they were their driven purposes, which if you looked at their only announcement, really, I mean, they had a little— really wasn't full of here's the new tech this year. It was more we have a new suite, which is actually a bunch of other products that they purchased added on to a product that they already had that they're going to improve on, which is QuickBooks Online Advanced, and they're calling it Enterprise Suite. So that was kind of their big, I'd say, announcement at first for changes for next year.

First software change. The elephant in the room was the Saison Gazarzi.

That was something.

Apology, which has been written about.

Oh yeah. So just so in case you don't know about it, 'cause you've been living under a rock somewhere, there was an ad that came out with Intuit that said, fire your tax professional and they're gonna beat the price. So they sell a service of doing your taxes through TurboTax for businesses now. And it was fire your tax professional. And that didn't land well with—

Very blatant.

Oh yeah, it was black and white. And it didn't land well with tax people. Kind of like how we felt when QuickBooks Live came out. You know, it was kind of insulting that now you're a software company and you're going to sell accounting services and compete with us. The same thing, only they're actually to a worse, a worse or a worse extent because now you're telling everybody, you're telling them flat out, fire this person. And hire us, which I thought was really bad messaging on their part. And Sasson came out and said he apologized for it because it starts at the top, which his words were, if you really, I would love to hear it like on a recording to know exactly like what he said and to understand where he was. I think you'd really need to hear the words again to really kind of dissect what it was. Yeah.

Agreed. So in that moment, there was a lot of emotions for some, others were fine with it. A lot of articles now have been written about it, but overall I will say the community, the accounting community, we appreciate the time together. There was, I went to several sessions where I did really enjoy. I wish I could have stayed longer in a few of them, but got pulled away for other things. And then our session was, for us enjoyable. We, we always, uh, as you know, Steve, we did it with you the prior year.

Right.

We always enjoy that kind of stuff. And we had the opportunity with our colleague Terrell. Um, so yeah, but now, you know, this is all like new stuff, right? New software coming out here at year-end. And part of what we're going to probably talk about today is going to go into year-end cleanup of client ledgers. And that's what we had on the docket to talk about. So it's interesting because we're learning software during this period of time, but it's also a heavy lift for us people think it's our quiet time. It's our lift to get things buttoned up, tightened up. So what do you got, Steve? What do you, what do you—

Well, I think if you're, if you're listening to this podcast today or watching, get your notebook out and take some notes because you're going to get a lot of checklist items that you can use to really make your year-end much easier in-house so that your accounting side can help you out even much more. You know, looking at, especially in the legal industry, checks that haven't been cashed, are posted on the books. And so going in and looking at the reconciliation reports and verifying which checks are still not cleared out there, double-checking your, you know, simply as going into your chart of accounts and looking at the ledgers in there.

And so making sure that you didn't add— like Lynda and I see sometimes a whole bunch of new things that we're like, wait, why?

Yeah. Yeah. It's, you know, just really taking a look or having your accounting support have a checklist of things that you both agree on to go through, looking at your client lists, looking at payables, you know, are the payables ledgers correct? You know, do they have minuses in them and, you know, different things like that. So it's a good time of year to clean everything up so you're not scrambling at the first of the year when you're wanting to get your file over to your tax preparer.

I mean, those are—

When you're looking at the— when you look at the reconciliations and looking at what's uncleared, any checks that are outstanding that have been like, that are old, that are 2022, 2021, 2019, that have just been sitting uncleared. They have a responsibility to try to reach these people. Right. And if they don't, they have more responsibility to send that money to the state. And there's a lot of steps involved with that. So that's part of compliance. And I think that how many times you get a new client and you look and you're like, wow, look at all this stuff that's here. Also going, I think going through the, the client liabilities is important because a lot of times you'll see 5 cents, 2 cents, 39 cents, $5. And that's just a matter that's been closed for several years and there's money sitting there that belongs to the client. There should be an effort to make, made to get that off the books, to get that to zero, get that money to the client. Are they gonna cash a check for a penny? Hmm, maybe not.

And then what do you do? I also think of other things. So client ledger, obviously the books, but you know, we wanna look at like, All right, you're probably goal planning potentially or thinking about what the new year will bring.

This is a great time to budget.

It is. And the new compliance requirements. So you have employees, we have to look at what if you're offering health benefits, 401(k), 401(k), what is your state saying and what is it that we have to meet depending on what tier, what level you're at for federal and state level requirements, multi-state requirements. Another thing, In conversation with a lot of our clients outside of this is what we look at. It does the employee handbook need to be updated in some format? Not saying that it all has to happen at this year end, but I think having it on this planning chart of some sort, or some sort of list that you keep for yourself to ensure that— what can we do to help you out? What metrics do you need to support that conversation as your accounting folks. And then the other piece too is, is there additional training that needs to happen? Because software changes so much. We just saw a whole bunch of new changes, a whole bunch of new screens that are going to be popping up in just QuickBooks Ledgers alone, a whole suite of reporting. Now we know from our own experience that that stuff gets rolled out and it gets buggy, so it bogs down the systems in other ways. It's just part of software development.

One of the cool things we saw, Sarah, was how you could have with Enterprise Suite, you could have multiple accounts on that that are linked. So if you're doing a transaction that affects a different company file that the, you know, somebody owns multiple files.

Oh, you're multi-entity is what you're referring to.

They can make a journal entry in one and it actually affects the other one. It does the reverse journal entry in the other, which is really cool.

Oh, nice. Yeah.

Yeah.

So if some of those attorney firms that own multiple properties, you know, you've got your law practice, but then your side hustle is you own a bunch of business buildings, which we all know that that's kind of what some people do. That could be of benefit to you in managing those properties.

Yeah.

If we could back up to Lynda's point on the checks that are cashed, a lot of the regulatory agencies require that you show a reasonable effort and prove that you did that to get the money back to the recipients. So in other words, They'll need copies of letters you've sent to them, notes saying that you've tried to call them, you know, whatever efforts that you made to get them to cash the check. And then if you can't, you turn it over to the state and then they've got those notes and they decide what to do at that point in time. But you get it off your books at year end.

Unclaimed property.

Unclaimed property.

I think it's not just a year-end thing. I think there might be a way to balance it through your due diligence of other ways. But it's just a— I think it's like another effort attempt. Some of these, what we call year-end checklists, are truly us taking yet another effort attempt at these that we've tried throughout the year, because nothing's worse than not getting responses, then trying to be able to support you during a critical time that, as you know, the mass volume of other people are trying to get to, right? Like, everybody wants their books ready, whether they file or not, by a certain deadline day. So honoring the respect of the relationship, I think, is also a big thing too, right? We've been through that before a few times, Lynda and I have.

And another thing too, though, we've been part of the process of going to a client and this is the list and then having to aggregate the list together and the checks are out there and now you're going to void them all because now you're giving the money to the state to divvy it back out to the client. If they still hold the check and they decide to cash it and it's 2, 3, 4 years old and they bring it to the bank, sometimes the banks catch it, cash it. You can put a stop payment on it. The stop payment is only good for a certain period of time. So know that those are some of the things you're going to be faced with, especially if it's trust checks, right? You're going to be really careful about that.

That is so true. Okay, so I have a question for you all just on the unclaimed part. I did this after we had a time that we, the three of us, talked about it once. I don't know when it was, uh, it was episodes back, um, and So I went in and sure as heck, I used to live in Washington State and there was an escrow check for me that was never, I never received. I must have moved away.

No forwarding. Oh, and you found it in unclaimed money?

I found it in unclaimed property.

Wow, good for you.

It was a nice little chunk, a nice, you know, $2,000 and change chunk that was my money. And you know, that was a long, long time ago.

Oh, we have like $30,000 sitting in the state of Rhode Island that has been trying to get it back.

Yeah.

And it's been a nightmare hiring an attorney. The challenges, they don't wanna give the money back even though it belongs to Mike's dad, my husband's dad, and he's now deceased. It's a big to-do. And I'm like, I think they've kind of finally just given up on it 'cause it's not coming to fruition for anybody. And the lawyer wasn't doing his job and it's just been kind of a nightmare there. So yeah, sometimes it's easy to get, I mean, I got money out of Florida. I had $25 somewhere for some kind of a class action suit and I got that in, 2 seconds to fill out a form online. But Rhode Island is a little bit different story dealing with state.

Yeah, it's interesting though. So kind of to that light, Steve, as you brought it up before, but there are multiple things that you do in a year end. I'm sure that you're in preparation for your 1099 season coming up.

I was just going to bring that up.

Yeah, you're making sure all of your parents have their nails done. Oh, you had to bring that up? I did. I know.

It's time.

I know, what do we got? Sales tax stuff, payroll tax stuff, ensuring that all of these things are met.

And your payroll stuff.

Your end payroll stuff, which, you know, with a holiday, I would need to plan ahead. So to all of us out there that are in the accounting world, is making sure where those pay dates are for those, those dates. You know, you— some people have calendar year switches on health insurance. They literally it flips like that moment. So that's also a big thing because you want to make sure you've got premium deductions correct for employees if these are non-integrated spaces. There's a whole slew of things that you could go through, but I, I think the approach too is part of your year-end is a way to look— yes, you're looking at the historical validate, but you're looking ahead. And how do we help you with these figures and numbers to help you plan ahead if you have growth, if you want to sustain those are key integral pieces of looking at, you know, a 12-month trailing of a profit and loss, let's say, of the—

It's messy leaving those lists open. And, you know, it's messy to— you want to have clean books.

Yeah.

You want to keep records clean for your client. I mean, it's important things. So not forgetting that. I mean, when we get clients at the beginning of the year, I'm always amazed at what we see that are left behind on the books that are not Cleared off from a prior year close that never happened to the, to the tax return.

Or like, we use this time— that's a good point. I don't know if you do this, Steve, but we use this time sometimes to reconnect with the tax person to make sure, do we truly have everything booked right before we close the books for 2024?

Invite them to take a look at the books right now because this is their slow time.

Well, we might have had errors in there. Entries from previous year. We need explanation.

Yeah, it's a good time for them to look at it too, because, you know, there's still time to maybe spend some of that money pre-end of the year so they can get the expense in. So it's a good time for the tax person to look at it as well as us to have the eyes on it, to talk to the client, say, this is where you're sitting right now as we finalize the year. Do you want to do this, this, or that? That might be something you might be thinking about.

There might be planning on, okay, what is the money that I'm like If I were to close it today, let's say not the business, but close the books today, what is my tax obligation to that personally? If they're doing your personal and business together, that's because some people, you know, as our mentor has always said, equity is king.

Take a look at your cost receivable ledgers. Take a look at your accounts receivable. You know, attorneys out there, you're using a lot of different billing platforms. It's a good time to tie those two together, meaning QuickBooks and your billing software, you know, again, using cost receivables as an example, or if, if a client's paid you and there's $13 left on their ledger and receivables, are you going to bill them for it or write it off? You know, get those things cleaned up before year end.

That's a great list to clean up because we see that all the time where there's just this little bits of money left over. Maybe somebody paid the bill without paying the change or something like that.

Right.

Get it cleaned up so it's nice and pretty.

We see that a lot too. You brought something up to mind, Lynda, which I love that Steve is bringing this up, but sometimes you have a bill sitting there but you recorded the payment as a different format. It got paid on a credit card versus paid out of the checking, or now you got double-counted expenses because you've like recorded these waiting for them to clear. They've never cleared. There's other ways to look at uncleared, so there's just like a plethora of ways to to basically audit your—

Or another fun one at year end, looking at the unapplied cash payment income account. That's always fun. If they dated the payments before the actual invoice date, you might wanna do a little bit of cleanup there. It's kind of time to do that if you have to do that. So yeah, that's another good list to clean up. Don't be surprised by it. Actually go in and, you know, you should be looking at your financials at least monthly anyway, but if you're not, it's a good time to start to look at your records to make sure that things are in alignment and look good. Like Steve mentioned, really at the top, Is there any negative payroll liabilities? Those are lists that you'll see on the, on the balance sheet.

Oh, that is such a simple and easy way to make mistakes is on the payroll liabilities. Go back and tie that back again.

Yeah.

Before you're in.

The other thing too is asset purchases that are made throughout the year, that they're properly recorded. You have all the documentation. Sometimes that happens. What's been sold? What's— it's hard to know. Like I was doing a property tax thing and I had seen stuff come through, but I was like, I didn't know what you got rid of in your assets. Like old historical.

Right.

You're in a legacy firm too. I think of your cubicle thing, Steve, that you're talking about. We measured the cubicle for cost. Okay, what happens when you purchase new things for the little cubicle, new walls, any improvement, tenant improvement stuff that has occurred?

Well, you know where I see a lot of things mixed up there? Is on IT invoices from their IT support. They'll bill the client, they'll bill the attorney for a computer, which on that invoice then should be parsed out and put as a fixed asset so it can be depreciated. But then they also have labor costs in there. So that's contract labor. And then they have sales tax and they have all these things. And so many times I've seen law firms just book that invoice as contract labor and they lose the benefit of depreciating that, you know, furniture, fixture, and equipment item off of that invoice. So really taking a look at all those invoices, hopefully you've got them attached to the documents in QuickBooks, you know.

Or someplace for you to see it, right? Someplace to have your eyes on it. Yeah. Yeah. But gosh, you made me think of something else too, and it just slipped past me. But I do think it's like a little micro review. I don't want to say audit because we're not That's not our area of expertise is audits, you know, like, but it's like a little micro review of every little section as best as possible. And there's— oh, I know what it was. It was also owners. Sometimes this happens to us. We use the wrong card inadvertently, so we end up using our personal card for business expense. No rhyme or reason to it. It's just the accidental moment that's happened. It's happened to me. I'm on a shopping site and I'm like, oh no, Amazon, I've used the wrong card. I can't go back. Yeah. But it's figuring that out to help make sure that that gets captured appropriately.

Mileage. Going through the list of distributions to a client as well, because a lot of times—

Yeah.

They— you want to bring that up to their attention that way they're not shocked at the end of the year and they're like, what is this? Especially if the year is closing, you're bringing that to their attention. Like, want to go through it now and make sure that it's accurate, but also because that's taxable to them. So they need to know how much they've been drawing out of the business or, and/or spending on themselves personally. To have an idea of where that's going to land them when they make that final payment and estimated taxes. So I think it's important to have them look at and review. There's just a lot to do at year-end. I don't know, every year I think I'm like, I'm trying to get on all these things and be so prepared. And every year I still feel overwhelmed in January. It doesn't ever— I've not ever had in 26 years of doing this on my own as a business owner, I always still feel that big fat overwhelm and I really want to be on top of it. I hear about people who sit back and put their feet up and they're happy. I don't know, because, you know, we get a lot of new clients too, and I think that adds to the drama of it.

It does. Well, you know what else too is to warn clients that, you know, are asking you to do some last-minute scope creep or additional projects or whatever. And you have to warn them, if you don't get me all this data, please don't bring it to me in January because that's my busiest month of the year. And so I may not be able to circle back around on this project till February or March, you know, and you have to be honest with them so that they're, they're included in that process and they respect what you're trying to do for them.

You know, we need to be proactive, though, because if we're not proactive, nobody's going to be. And I think like Sarah was saying about even with the assets, you want to get the details on the asset uploaded as an attachment so that the tax person has hands and eyes on it because they're going to ask a bunch of questions. Why not eliminate the questions coming?

Exactly.

Leave the details, put the, just the receipt, and if they bought a car or whatever, put that in there so they have that at their fingertips. It's not a bad time of the year because especially if you use Intuit Payroll, downloading the tax returns and putting them in another place is always a good practice. Get them outta QuickBooks even though they're in there and it's very convenient to have all the tax returns there. It is still a good practice to take them out and put them someplace else so that you have them handy. And doing—

That's like with—

That job is, Pain. Yeah.

And within QuickBooks, it's not like with Agosto or a different platform, but I think it's true though, Lynda. It was like having the backup to the backup. Make sure you have a copy of all the bank statements. I mean, how many times have we gotten into a cleanup for someone and then that firm owner is like, I can't— I don't have access to these statements any longer. So we've learned Yeah, we've learned a lot in these last, I'd say, 2 years of just a lot of, you know, data security. Honestly, the last session I attended at Connect, or the last 2 at Intuit Connect, I learned a lot about how compensation modeling needs to be. Now, you need to make sure you're compliant, but not everything has to be maybe equal because every employee's got different needs. So it could be, it could be equal in the sense of offering it to the same salary buckets or the exemption buckets, but different in the sense of what are the things that mean something more important to other people. And there's just like a whole slew of ways of dicing this up and looking at this. But when we talk about year-end for us as accounting professionals to an owner, it's a big, huge bucket. It is not one thing. It is not putting a bow tie on it. You're living and breathing entities for us. We're doing everything we can to stay in lockstep with you.

So— Well, and if you have that client that you've asked every month throughout the year to have a financial meeting with you and they kind of ghost you on that, it's a good time to pick up the phone and call them and say, this is your last chance.

Yeah.

This is the last hurrah.

Do this before year end to get this done.

Yeah, yeah.

You know, and it's gonna benefit you. It's not because we just wanna pick at you.

You know. Absolutely. Yeah, I mean, I, I, I'm getting like right now, just as a tip, um, I'm making plans with certain tax offices that we work with, uh, for buckets of clients. They're not with the client meeting, it's me talking about all the, the ones that we hold with you. I just want to make sure the mutual clients we work on together, it might be 10, 20, I don't know, I want to be able to look at all of those with you and go through my questions first. Because maybe there's something I'm telling you as a tax individual that is better suited for you to talk with the client about, not including me in it. That's fine. Just you have a different perspective, and I value that relationship.

So a lot of the tax— different tax people ask for different documents too. It's just interesting to me. So if you have somewhere— we tell the staff, you know, when you're working with a new tax person or the existing one, keep special Give them what they need before they ask. So when the year rolls over and you've got everything reconciled, just give them the little packet. We already know they've asked 3 years in a row for the same things. Have it ready so they don't have to ask. Get it to them before they ask for it.

Mm-hmm.

And that way, you know, we can get everything to be tied up and closed and locked down. Use the password protect, get all that in place so that nothing can be changed once it's been given to the tax person. But Yeah, I mean, everybody starts out the year, usually January 2nd or so, they start calling, I'm going to have my records on time. And then we get the fire hose blown at us. And then, then we find out in August that they never did it. And the tax person never did the work. It's like, oh, you made my life a living, you know what?

We might be lucky this year. Looking at the calendar, January 1st is a Wednesday. So I'll bet you lots of attorneys will take Thursday and Friday off this year.

Oh, you're thinking of calendar days. I'm thinking of things like also my brain is going like a rocket ship right now of, you know, you got your profit share stuff that you want to accrue, but you're paying out in the new year. That impacts how we're going to do this.

And we also have to look out for the people who drain their bank account at the end of the year and what's happening cash flow-wise.

Great point.

Yeah, we all had that happen.

So much. There's so, so much.

As a legal bookkeeper out there, don't be surprised if they give themselves compensation and divvy it out 3 ways and leave nothing in the bank account. And then the insurance bill comes out January 4th or 3rd, and then what are we going to do? There's not enough money in there. So we know that's true.

So true.

And we've seen that, right? We always have to plan. We plan for year-end, but we plan for the extra couple months too.

Yeah.

If that's your thought process, It is unfair to people like us who are helping you pay the bills, do the billing and all of that stuff. That is an unfair position and you need to leave stuff in the kitty for at least overhead expenditures so the stress isn't on everybody. I think people need to get used to that kind of model and it's sad when I see it fully down to nothing. Nothing for a good— Yeah, that's not a great, it's not a great way to start the year. It's one that I, I detest and actually I'll say the words, I hate it. Yeah.

Yeah.

Yeah. So anyways, wow. We had a lot to talk about on this topic.

I hope everybody got that written down because that's a lot of stuff.

A lot of notes there. A lot of notes. Yeah.

But thank you for the lively discussion. That was great.

Absolutely. Thank you so much.

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Woo-hoo! I'm tired now after that, all the work we have to do.

I know, all of a sudden I'm like, oh gosh, I better start looking at everybody's books.

Oh, he did. He just meowed. You enjoyed the topic. Okay, one hand out for yes.

Okay.

Well, thanks, Walter. All right, bye-bye everyone.

Bye everybody.

Bye.