In this instructional video, Lynda Artesani guides bookkeepers who serve law firms through the creation, cleanup, and maintenance of a compliant and functional chart of accounts (COA). She explains the purpose of a COA, outlines the essential account categories (assets, liabilities—including client trust/IOLTA—equity, revenue, and expenses), and stresses the need to keep operating funds separate from client trust accounts. The video details how to track profitability by attorney or practice area using classes, locations, or external practice‑management tools (e.g., Clio, LeanLaw). Artesani presents a step‑by‑step COA cleanup workflow: export the existing COA from QuickBooks, compare it to a preferred template in a Google Sheet, blend the two (optionally with AI), and obtain client approval via Loom or a meeting. She recommends ongoing maintenance practices such as locking parent accounts, monthly reconciliations, consistent coding, and using tools like Keeper, Double, or the reclass feature. Software options (QuickBooks Online, Xero, Digits, Puzzle, TrustBooks, PracticePanther) are compared, with emphasis on integration for trust accounting. Common mistakes are highlighted, including lack of sub‑liability accounts for client funds, vague or overly detailed naming, mixing personal expenses, and outdated or unnecessary accounts. Finally, she advises customizing the COA to each firm’s practice area and KPIs, offers a downloadable COA template, and encourages viewers to comment on their biggest bookkeeping challenges.
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Hi everybody, and welcome back to the Accountant's Law Lab. My name's Lynda Artesani. If you're a bookkeeper working with law firms, you know how messy the books can get without a proper structure in place. A bad chart of accounts can really turn month end into a headache, and it can make compliance a lot harder really than it needs to be. In today's video, I'm going to walk you through exactly how to build and maintain a law firm chart of accounts that actually works. You'll learn the must-have accounts, how to set them up, and then common mistakes to avoid and the best practices that will make your job so much easier. So if you're brand new to this, What's a chart of accounts? It's basically an organized list of every financial account in the general ledger. So your assets, your liabilities, your equity, your revenue, and your expenses. And you can even get down to the nitty-gritty, your other expenses and other income accounts, or even cost of sales. Those sometimes you will see in the books. And then don't forget, a good chart of accounts will help you keep your operating money completely separate from the client trust accounts. And this is important. So you're going to have separate bank accounts and I like to separate them. With, especially if they've got multiple, if they've got one, no problem, just put them in together underneath bank accounts. But if they've got multiple, I like to make a header operating accounts and then put all the operating, maybe they have a payroll, a savings, and then also separate the IOLTA. If they have multiple IOLTA, this is going to be your dream because you're going to be able to see the separate amount and then the total when you're double checking the numbers at the end of the month. You want a good chart of accounts because it's going to help you track the profitability by attorney or the practice area. And this is more in line with using classes and maybe locations or even separating the practice area. A lot of times it's hard to track practice area inside of QuickBooks. If you're using an exterior software like a Clio, a LeanLaw, that's really where you should be tracking the money by practice area. Then you can book it in once a year to separate it out, or once a month if the client wants to see it, using a journal entry to take it all out of the main legal income account. But you can only have one legal income account inside of QuickBooks if you're using the other software, and then you'll have to really get those numbers on by practice area out of your external software. Then having a good chart of accounts is also going to make your reconciliations faster, and it's going to help you stay audit ready and compliant. That's the most important thing as we start to do this work with lawyers. So without it, you can end up with sloppy books. I've seen charts of accounts that have, they look like they belong with a contractor. It can also give you inaccurate reports if it's not built out the right way. And it also can stress out the attorneys asking you questions that you can't answer quickly. I don't know if you've ever seen, there's some charts of accounts out there that are incredibly large and really taken to the level of so many accounts, which are not necessary. So let's break down each core section of the law firm chart of accounts that you should have. So assets. Assets are what the firm owns. Your bank accounts are going to definitely be up there in assets. Accounts receivable, they own that, right? They have billed out and they're waiting for their client to pay. Prepaid expenses, fixed assets like computers and furniture. Sometimes the law firm will own the building, but typically you'll see that in a separate account as an LLC. And then you get into the liabilities. So that's what the firm owes. So you'll see your accounts payable, right? Flip side of accounts receivable. You're going to see credit cards, accounts payable, loans, and more importantly, unearned retainers. So that's your funds held in trust. And that's where that's going to sit on the books. So that's a liability account. Your client is holding these funds and they owe the work. So if you think about it, they owe the work for that. And that's why they sit there until they're earned. Also, you'll find as you get into the equity section, you're going to see the owner's stake. And that's typically where we see a lot of errors in a chart of accounts. It might say that they're, it looks like they're a sole proprietor when you actually know because you have their tax return that they're an S corp. You need to restate those. So that's going to, you're going to see accounts like your owner's capital, retained earnings, partner distributions, all that's going to be housed in that equity section. And then we get into the revenue. You can have revenue, we should call it legal fee income, legal fees earned, flat fee income if you want to separate it, consultation fees. A lot of times attorneys want that separated and you can definitely separate it. Again, if you're using a practice management tool. Or billing tool, you're going to have to do that as an external journal entry to break it out if they want to see that. Typically it's like they charge $150 for 30 minutes. You see that coming in and sometimes they don't really track them that well. But that's something you want to handle in a way that they can see that if they want to see how many consultation fees they had versus how many clients they actually booked in. How many people did they meet with that actually became clients? That's a good metric to find. You can even break this down by practice area if you want to, but like I said before, you're going to need to do that again by journal entry if you're using external software. If not, You can definitely break that down. If you're just a personal injury firm, that's pretty much what your income is. But if they have other practice areas, they can break that out if they're not using external software. But I really even think with PI firms, you should have external software. Expenses, the day-to-day costs, rent, salaries, marketing. Sometimes salaries you will see up in cost of sales. It depends on how the law firm is, how big it is, and how much you want to track it that way. Marketing, software, continuing education. And of course, when you get into the client trust accounts, those are going to be in the liabilities. So don't forget that. That's the big one. That's going to really expand your chart of accounts quite extensively. And it's good to have it that way because you're going to keep track of which ones are active accounts, which ones have been zeroed out, which ones have been closed. It's easier to do it that way. These must always stay separate. Don't forget that from operating. So Here's a simple step-by-step process. I think the best way to tackle a client's account that just doesn't look right is to export out their chart of accounts. So you just go into account list in QuickBooks, export that out, put it in a Google Sheet. Tab 1, your existing chart of accounts. Tab 2, our preferred one. We put our preferred one in. And then tab 3, we blend it. You can even take that spreadsheet with just the 2 columns, toss it into Claude. Or ChatGPT and ask it to make the blended tab for you. So you don't have to think anymore. I like to go through it and look at it from my perspective. And then I go over with the client. Sometimes they're busy. They don't have time to meet. I'll do a Loom video or I'll meet with them and we'll go through. Sometimes if you get a firm that's been established for a long time, you might find that they'll say, I don't need this account or that account. Those have been closed for years, but you can't tell because there's still balances on there. But you want to go through it with the attorney and then have them approve that blended before you dig in and start changing their records. So that's an important step. So always review it with the client and do the cleanup. I like to actually also review it once a year. Take a look at the chart of accounts, see if there's any new accounts that have been added, make sure they have numbers. Just keep it clean and neat. See if somebody actually made something in the law firm that's not supposed to be there. We have a little bit more control on the chart of accounts now, but definitely do that. Take advantage of the new feature where they Lock the parent too. So if you have advertising and marketing, but you've got a few subaccounts, lock out the parent so they can't do it. Same with travel. You can have travel, but you can have lodging and you can have transportation. So you want to have those where people can't book into that parent account. Make sure you reconcile monthly. Be consistent how you code transactions. Use that reclass tool or use Keeper or Double now. Use Double to review it at that high level to make sure that everything's going in the right accounts. Double does a great job at that. And then use subaccounts when you need more detail, but try not to create too many. Try not to let the chart of accounts become unmanageable. That's definitely something we see sometimes where you get this massively giant chart of accounts that maybe has office supplies, Staples, OfficeMax. You don't need that. You can just have office supplies. And if you want to know how much you spent at Staples as opposed to OfficeMax, you can just run a report on the vendor to see that. So you don't have to do all that detail in your chart of accounts. For software, QuickBooks Online is super flexible, has classes. Xero is a great other option. It's more affordable. It's very similar to QuickBooks, not as robust, but pretty good. Then there's other ones out there too. There's Digits, there's Puzzle. There's a whole bunch of other ones you could go for if you don't have the software. You're not going to get the Clio integration except in Xero or QuickBooks. And then there's other ones like TrustBooks and PracticePanther that you could use for software that's attorney-specific. So try to pick one that's going to help you lock down that trust accounting and keeps the trust account really pristine. So here's a few mistakes that I see when people set up a chart of accounts with law firms. They don't use any sub-liability accounts for their client funds. I know you can dump it all into one and sort by the customer. I just don't think that's a great practice. But that's up to you. You can do it if you feel comfortable with that. It's not what the bar wants to see, at least some of the bars that we've done those reconciliations for. In bar audits? Using vague names. So the big one that we see is usually when an attorney sets up their books, they use miscellaneous or they use general office and they throw everything into it. So it's the flip side of being too detailed is they're not detailed enough. There's really not a big place for miscellaneous in a tax return. The tax person's going to ask you for the detail on that. So you really want to not have that account. Also, no personal names on there. There shouldn't be any personal names and you shouldn't mix personal items inside the business expenses. That should always be kept separate. Happens once in a while, use the wrong credit card, whatever, but that's to go in the distributions to the client. Obviously creating too many accounts will make it seem cluttered. And we see this a lot sometimes. There's a certain company that a lot of times the lawyers will use as a coaching that you know it as soon as you see it, that it's a massive chart of accounts that's totally unnecessary. And then if you never review it or update it, I've seen some charts of accounts that say personnel and some old terms that, you know, that's been around for a long time. So avoid these and you're going to save yourself hours of cleanup work later. So every law firm is different. A personal injury firm may need more detailed expenses, more breakdown because they have settlements and they have liens. Family law firm might want to track child support payments or customer payments differently. You're going to see a variety and you can tweak it to what your client needs are. But you just might see other terminology that's specific to the practice area. That's okay. Usually that ends up as a subcategory, but you might want to really look at it and customize it to make sure it works for the lawyer and what they want to track. So understand their KPIs, understand their endgame so that you can work on what you're trying to measure for them. So I think that's important, remembering that every law firm is different, but you can really have a basic set of a chart of accounts and then you can tweak it on the fly with your client. A solid law firm chart of accounts should have a foundation that's clean, compliant, and useful bookkeeping. Get this right and your month end is going to go faster and the reports are going to become more trustworthy. They're going to become more valid. And it's a better way to provide more value for your law firm clients. So start this week, open up one of your clients' current chart of accounts and just take a look at it. Fix those accounts that maybe you see are incorrect or not used properly. Another place that we see too is on the chart of accounts. We see where people will only have office furniture as a fixed asset because that's how it came with the default and people book $200 up there and that's not where it belongs. It belongs in a different account because it's under $2,500. You really don't want to be booking it up into an asset that they're not going to get the amount for over time, right? So some of those other accounting rules you really have to make sure you work with. So if you start this week, download our sample law firm chart of accounts template. The link is in the description below. And drop a comment below. What is your biggest challenge that you face with law firm bookkeeping right now? And if you like the video, please hit like, subscribe, and turn on the notifications. So thanks for watching, and I'll see you in the next one. Bye now.
