In this instructional video, the presenter walks law firm bookkeepers through best‑practice trust accounting. The guide begins by urging new bookkeepers to consult the specific state or local bar rules governing client trust funds. It then explains how to establish a dedicated trust bank account and mirror it in QuickBooks with a trust liability parent account, using nested sub‑liability accounts for each client and matter to create a clear ledger. The speaker details how to prepare for bar audits by populating the bar’s required PDF reports with the detailed sub‑account balances rather than generic QuickBooks reports. A step‑by‑step method for diagnosing out‑of‑balance trust accounts is provided, emphasizing balance‑sheet reviews, month‑by‑month (or week‑by‑day) filtering, and correcting improper transfer entries that bypass liability accounts. The video also covers the necessity of three‑way bank reconciliations—manually or via the LifeFlow tool—to keep trust records accurate and audit‑ready. Throughout, the presenter stresses the importance of setting up correct structures from the start, using the bar’s reporting format, and leveraging the Law Lab courses for deeper learning.
Chapters
I wanted to talk to you about best practices with trust accounting, because we've had a lot of discussions in the Law Lab about this, and I think that it's a topic that can be addressed over and over and over again, especially if you're new to legal accounting and new to retainers and trust accounting and, and all of that. And I think it's just not a bad topic to review every year. So with trust accounting, you really have to follow— if you're brand new to this and you're just getting a client that's a lawyer, and you're like, oh my goodness, I know there's trust accounting, and I'm not really sure what to do or how to go with it. The first thing you really need to know about this is that you need to look up the local or the bar rules for the area where your lawyer practices law. So that could be just the state bar rules, but it could also go deeper than that. So really Find out what's necessary, and you'll learn that in the State Bar rules and read it. There's documents. There's a website that you'll be able to log into, like here, the Florida Bar. Just Google it. You'll find it. And then once you get into that area to read about the laws and the rules, you know, take some notes, maybe drop some of that information into like a ChatGPT, ask it to summarize it so you can and tell it you're a legal bookkeeper and you want to summarize the bar rules in what, what's necessary for the work that you do. Now, overall, overall arching rules, it kind of blanketly for everybody is that if there's a trust account, there has to be a trust bank account. It's a special bank account. The attorneys have to open that account up at certain banks. Not every bank has them, and they have to be kind of approved by the bar, the ones that are necessary. And the monies are moved into that account. So to even open the account, so you get the funds when the, when the attorney opens the bank account, they take money out of their operating, they put it into trust. And one of the places I see a lot with bookkeepers that are unfamiliar with law firm accounting is that they, they move, they put a transfer in, which, God, I wish they would take the transfers out of QuickBooks because it just wreaks havoc on files. Especially with law firm files. So you have to show this as a trust liability account. The money that is held is the same as, like, if you work for a contractor. The contractor is— gets an upfront deposit. They're going to do a brand-new kitchen remodel. They get an upfront deposit before they even start the work, and they put that in a liability account for whatever reason, just kind of like a security deposit. Same thing. You put it in, and you actually— in that case, you could give it back. And the same thing could be— Yeah. True with the retainer. You could request it. The law firm could request a retainer, and then in the next breath, they have to give it back for whatever reason. The case or matter gets canceled, or they don't use the whole amount. So, and so money debits into the bank account, the trust bank account, and it credits into the trust liability account. The way I like to see it held in law and, and aligned in QuickBooks is client funds held in trust. The matter is the client name for the law firm's client is Linda Artesani, and then underneath that is estate planning. So that's my matter. So it goes trust liability parent account, client matter. So it's sub, sub, sub of the sub. So that's how you should lay that out, and you want to lay that out all the way through with all your clients. You should be able to collapse that account. The money in that account should equal the total amount of the bank account. So all the pooled money goes into one bank account. But for the bar purposes, you need to know what's each and every account has inside it for balances. And then the bar will actually— if you've ever been through an audit, what the bar will do is they'll actually say to you, I want to know what was behind X amount of dollars that was in your bank account in the month of February, uh, 2024. And that's what they're auditing. And then you need to show a little accounting of every single amount that equals that balance in that account. Mm-hmm. That's trust accounting. Super simple. The way you lay it out with the sub-liability accounts is extremely important. It's important because you need to be able to track that money, and using sub-liability accounts is going to give you that ledger look that you're going to need when you're showing the records to the bar. Simple. And then you're able to take those little ledgers, and when they send you their report, you're going to fill out their report in their PDF or fillable PDF, and you're going to have that detail Always, if you're filling out something for the bar, you want to make sure you use their, their reporting. Don't go just sending them reports from QuickBooks. They want their amounts inside of their forms. So just know that if you're ever at an audit, don't try to go half, halfway and quickly give them what they want. They don't give you much time to get these records prepared. This is why it's important that we do this from the setup, the get-go. Now, if you're working with a trust account that's out of balance, you know it, you pull the balance sheet up, you collapse up the, the trust liability. Account just to the parent level and you look at the trust bank account and they don't equal, how do you figure out where to start and where to fix it? Because that's what the kind of clients you get in the middle— in the beginning of the year, they come to you and they're like, like, should get them all year, but they come to you and they're like, oh, my account doesn't balance. I know it. I don't know how to fix it. So in order to— a way to fix it is you're going to go into the, the, their records, pull up a balance sheet, do all dates, total it by year, find the year it went off, then filter it down to month. Find the month that it went awry where it doesn't balance. Those two accounts don't balance. The liability account and the bank, bank account don't balance. Go through the months, figure it out. Sometimes in bigger accounts, I filter it down to the week and sometimes a day when I'm trying to find something and the, and the amount is there, but it's off. Transfers back and forth. That's a normal place you're gonna see people do book in transfers, because QuickBooks and the bank feed goes, hello, it's a transfer. You move money out of one bank to the other. In, in legal accounting world, that doesn't fly. It doesn't work. So you have to have the transactions booked in properly. And if they're not proper and you're booking transfers, it's never gonna balance because you're doing asset to asset. You're never hitting a liability account. And so it will never balance. This is the stuff we go over in the Law Lab. This is the stuff that's in our course. So if you're interested in learning about what we have in our courses, this is stuff that's in our course. So if you want to learn more, and I'll try to go more deeply into this and in future videos, but I just wanted to at least give you this high level is first, lawyer, look up the bar rules, know the rules inside and out, set up the records to get the records perfectly aligned, and then follow the rules. Do the bank reconciliations, do the 3-way bank reconciliation, which is a whole different report that you have to do yourself manually or through LifeFlow, the one we created that's a little bit more automated. And then, um, you'll have the records you need, the necessary records. So I hope this little bit of a video is helpful. We've got so much content here. So please search and look for the content either under Artisani's blog or this blog. There's a lot here. And, uh, join our group if you wanna learn more. And until next week, we'll see you all next week. Bye now. Bye.
