Legal bookkeepers debate whether to use customer-sorted or sub-liability accounts when syncing Clio trust balances to QuickBooks. Sub-liability accounts offer clearer visibility and better audit trails, though QuickBooks Online Advanced costs $250 for its chart of accounts limit. Xero integrates differently and works fine with the customer method for smaller firms.
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This week's video, we're gonna discuss pretty much something that's debated by many legal bookkeepers. In fact, it's debated quite often in our Facebook group, in our mastermind group. It's whether or not you should take that extra step when you use Clio and actually push the details out of the trust header account and show that accordion-like view of all of the accounts all the sub-ledgers for your clients. So this debate arises often between legal bookkeepers. Some old school ones are like, no, hard and fast. They don't connect Clio to the books and they completely just use the customer view and they sort the report by customer and then somehow they figure out the balances and make sure that it aligns with the Clio software. So we run that ledger report to see what the balances are. Mm-hmm. So as part of the Accountants Law Lab Mastermind group, we do aim to shed some light on this topic and provide recommendations to bookkeepers so they understand why we, we actually take the extra step to reclass it down into the liability account and not leave it up in the trust header. It's actually really a decision that you would make with a couple of options you want to look at. So the first option is, is, is Clio connected to QuickBooks? That's a good reason why you want to start to push this view in. Because if it's connected, it is gonna go into the trust liability account, just the generic header account. All the transactions will be pulled in there. And then you're going to have to sort that report. You have to click into that detail and then sort that report by customer to see the balances. And then you're gonna have to align that with the Clio ledger report. So it's a little more difficult to see when you do it that way. So if your client has a lot of open trust matters, Maybe they're a collection attorney, maybe they're a family law firm, maybe they're estate planning law firm with really aged transactions that go on for many, many years. This is where we would recommend if they're using QBO to definitely make that accordion-like look and make the sub-liability accounts. And I can hear people screaming right now saying, well, why would you want to do that? You're going to make the person have to pay for QuickBooks Online. online Advanced because once they hit that $250 threshold of the Chart of Accounts, they're gonna have to pay extra. Well, the reason why we wanna do that is A, usually the law firms can afford to pay for that software. It's not that expensive. And B, there's a lot of features inside Advanced that we use all the time on our law firm clients. So if you skimp on the software, you don't get the features. For example, if it's a bigger firm, with a lot of matters, you want the user— you want the userability. You want to have— be able to fine-tune the users. The other reason is that when you have software like that, you want to be able to use the workflows that are in place for firms that have— maybe they probably have a lot of accounts receivable or uncollected accounts receivable. So you've got that workflow of accounts receivable that you can really automate that. It's just got a lot of flexibility. And really, when the— it comes to the users, it's been— it's been a game changer for us. With the larger firms. So the importance of sub-liability accounts is our recommendation leans towards implementing that sub-liability accounts. I've actually done it on even the smaller firms because I want to see that visibility. If there's ever an audit, I don't want to be showing them a customer report. I want to show the— show the bar the ledger that they're going to ask for. Because in reality, when you take that money and you, you take that money for a retainer, it is a liability. And making that sub-liability section will give you its own individual register. So if you have to fill out that form, it's going to be really easy to do. And at a higher level on the balance sheet, you're going to see all your client names. You're going to see the balances right there. Beautiful view. Where if you do it with the trust— The— if you do it with the customer method, you don't have that visibility. So on that up Then that approach, I definitely recommend just taking that extra step. It doesn't take that long to do, to create the liability accounts and just reclass them. So all you have to do is reclass them. We even have some clients that use Clio because none of the software actually make different practice areas in QuickBooks. You get that report out of the software, but sometimes clients want to see it on their P&L and we've actually had to go in and push that with the reclass too to kind of separate the different practice areas. So we've done that as well. There's also another reason why maybe you don't wanna do that, and that's when it comes to Xero. So Xero has a totally different look than QuickBooks Clio. So Xero Clio, you can use the customer method because the way the software works. So if you're really looking to not have to do that extra work, to do that extra action of fanning it out and you are a Xero user, you really can stay with the customer method because it gives you a way with the visibility of the customer list to be able to see that same look that you get if you push it to the sub-liability accounts in QuickBooks. It's quite interesting how that works. I, I've seen it. Sarah's shown me how this works and it does work beautifully. We don't have to go through that extra action with Xero. You might want to consider if a client is a solo, look at how many matters they have. If you want to handle it and try for a few months to handle it that way, you might find it becomes overwhelming and it's worth the, extra steps to take it and move it down. Helps you find errors really quickly, helps you see if there's something negative. Remember when you use Clio software, if a client goes in and changes something on an invoice, sometimes it throws a, a second transaction over and you'll find that transaction in the undeposited fund account. For the most part, that's where I find them. And we have to clean that up all the time. So because it's a one-way sync of software, sometimes you get duplicate entries, which is Probably the reason attorneys always go, oh, I don't connect my Clio to QuickBooks. Probably for that reason. But you really want to integrate the software. It makes for a very, a very beautiful workflow where you can get that 3-way bank reconciliation. And I think connecting Clio to QuickBooks is a smart thing. It's also a very complex kind of a step you have to follow and do it the right way. Again, that's something we teach on the Law Lab. Maybe I'll do an article or a video about that as well. So the question, the big question is A, should you connect Clio to QuickBooks? And B, should you do the reclassing and make the sub-liability accounts? And on that note, I would say yes and yes. I love the Clio-QuickBooks connection. I think it's a beautiful workflow. If you're using Xero, you don't have to do it. So I hope that helps you make a choice in your workflow. Of course it's a choice. This is my opinion and From my experience of doing the work, it's really up to you how you want to do it. But if you're a new bookkeeper, I highly recommend our method. I think you won't be sad. You'll be happy you did it and took that extra 5 minutes to reclass the items down so you get that right look that you're looking for. On that note, I hope you all hit the subscribe button if you don't want to miss a video, and we'll see you all on the next video. Bye now.
