A step-by-step guide for accountants cleaning up messy law firm QuickBooks files. Back up first, then reconcile bank statements, fix the chart of accounts, use the reclass tool to catch mis-categorized entries, and handle trust accounts carefully. Set up ongoing maintenance routines so the books stay clean.
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This video is going to walk you through a pretty lengthy article that's attached to this video regarding reviving a client's books. And really, it's a step-by-step guide to cleaning up messy books for your law firm client. And I can tell you firsthand that in this article that I've written that's attached, I'm gonna walk you through cleaning up the law firm's books in QuickBooks. And help you regain control over messy data and allow you to be able to clean it up in a way that the client's gonna get good metrics back to help them run their firm. That's really the reason why we do this. But the other reason we do this is for compliance purposes, for tax purposes, for compliance with the American Bar Association or the local bar association. And also, if you have correct and accurate records, your client is going to pay the right amount of taxes per year. I've had a few clients come by my way that have maybe not had that kind of recordkeeping and found that they actually had paid more in taxes than they should have. And no one wants to do that. So I'm going to give you a few signs that you're going to know when you open up a client or a new client or potential client's file. How do you know that the books need to be cleaned up? I think the first place to kind of dive in is to hop into the file. And I always go right to the accountant tools and look at the report options tab. I like to see when were things last reconciled. You can ask the client that in the discovery call, but a lot of times they have no clue or they'll think it's up to date and it might be, but it might not be in a, in a perspective of the books for a law firm. So you might see it's reconciled, but then you might find there's a big giant balance in the reconciliation discrepancy. Report, and then that means it's really not balanced. So you want to look at what's been reconciled. Are there any unreconciled transactions? Is there inconsistent categorization? Are the categories wrong? Do you notice that there is perhaps an unruly chart of accounts? That's the first thing you can kind of look at and gauge to see if the person that was doing the work before you actually knew law firm accounting. A lot of times we run into it where there's just this hodgepodge of chart of accounts that don't make any sense for the type of industry that we're working in. So as you start to clean up the file, first you should do, if you've got an engagement with a client and they've hired you, I always try to back up my file, whether it's backing it up with the accounts, the QuickBooks Online Advanced module. I actually like to use Rewind because you can rewind the time. And it's $5 or something like that a month, maybe $7. And you can just reconcile it so that if you ever had a dispute or a problem along the way, you could always undo it and give the client back the books they had before you started working in it. So that's a good best practice. And then you want to really look at how's the books being presented? I, I really think if you can write a checklist or even create a short video as you're starting to look through the books, if you're doing a discovery call or a scope Looking at the scope of the work, making that little video is just so important as you present it to the client, maybe present it with the quote. They'll understand the volume of problems that are in the file and how they can clean it up. And actually kind of walk them through in their own file what you're going to do. First, I'd ask to see the bank statements and kind of validate that the numbers on the balance sheets match the bank statements that you were presented with. So ask for the last time they've reconciled, ask for the last good bank statements from the last time they reconciled. And you want to really compare the transactions. I think if you use the accountant's tool and the reclass tool, if they've been using the vendors and the customer names, you should be able to group them by name and then look at the categorization really quickly. So if you see Amazon's been booked to equipment rental, then you know there's a problem. If you see parking has been booked to office supplies, there's a problem. So really quickly you're gonna be able to target that there's a problem in the file and really start to look at how cleaning this up is going to be and how much cleanup that you're gonna have to do. Looking at the reconciliations is great. You might have to unravel them. We've even had to undo all the bank transactions, put them back in the bank feed and start over. Sometimes that's easier and faster and quicker and less expensive for the client. But know that that's some of the options you may have. You might have to start a whole new file, get a whole nother QuickBooks file so the client can continue to work. If it's a major cleanup that you're gonna have to really do this gigantic scope of work. Maybe you gather the balance sheet, dump it in for beginning of the year, get the bank feeds connected, and just redo the file. Sometimes that's the best option. Oddly, sometimes that's the best option. It's, it's usually cleaner, and it's also easier for you to clean up and keep things correct and work while the clients still continue to work because they have to still do business while you're cleaning the file up. So starting with the chart of accounts. It really just review what's there existing. See if there's any duplicates. It's an easy sort button to see that. Look at the type and the account type. If they are really aligning with what they really are. All the trust accounts should be trust account type. You should be able to rename and recategorize fairly quickly. Sometimes it can be a bigger body of work depending on what your client's using. Also, you can remove any unused accounts. Job supplies. You don't really use that in the law firm, but that might be one of the canned ones that comes with the default chart of accounts. So you want to go in there and start to look at those and then maybe clean those up. Then you want to go in and reconcile, do all the reconciliation, the recategorization, the reconciliation, and then maybe you have to delete or merge duplicate entries. This is a big factor if you, your client uses Clio or any software that just pushes in with a one-way sync. Client can make a change in the software and it pushes in and it doesn't change anything in QuickBooks. It just throws an additional transaction over. Mm-hmm. So know that you're gonna have to take a look at that and maybe clean that up. Sometimes it's just sloppiness on the client's side where they're putting in bank deposits, but they're not actually— and they're recording customer payments with to an invoice. If they're doing that and they're not grouping them for deposit, you're gonna see a big balance in the undeposited funds account and you don't wanna see that. That's another hotspot that I like to stop at and look at. And then after you review them all, you wanna really go through, sort by the name, look for accuracy. Kind of categorize them all correctly, make any adjustments. If you feel like there's some adjustments that need to be made on the profit and loss, sometimes it's just a matter of trying to fix some old balances from the past. And you might want to make a prior year, prior year account so you could put it in, make it another expense, put it at the very bottom of the trial— Profit and loss. Put it at the bottom of the profit and loss so that way the tax accountant will see it. And then ask you what this is for. And it could be just getting some really old balances. I've seen some PPP balances that have been on for a few years. They're already paid and forgiven. You might want to talk to the tax person. Just put it in that account and talk to the tax person. The tax person may have taken that off the records already, but the client didn't do any adjusting entries. Are the books tied to the tax return? If they're not tied to the last tax return, that's another place that you want to— stop and do. You want to align them so that your starting point going forward matches what was told to the government, what the balances are. That's a not-so-easy task, but a very vital task to make sure you handle. Then you want to run the reports. And running the reports for accuracy, you're gonna need to do the 3-way bank reconciliation. So this is kind of a high level. I mean, getting into cleaning up trust is a whole nother animal, and it's a lot more work, and it's sometimes, uh, it takes a little bit of investigation. Especially if it goes over a course of many years where tax returns have already been prepared. You want to really look at doing that as a separate body of work almost and just kind of get the cleanup done and maybe look at the past aligning of the trust in another scope of work. And then going forward, you want to maintain a clean QuickBooks file. You want to keep regularly reconciling those accounts. You want to make sure that they stay categorized properly. And if you have staff working on the file, you want to sit down and talk to the staff. And let them know that this is what was there in the past. So you're not gonna rely on the past. You're gonna go with what you know going forward. So cleaning up books that are messy for a law firm can be challenging. Don't forget that advanced client cost account needs to be reconciled. And that could be a whole nother article on its own or video on its own. But remember, these are important steps to really keep a regular, clean file for your clients so they remain compliant with taxes, compliant with the Bar Association, and they're able to— Mm-hmm. Navigate the waters of growing their firm with the right information. If you like this video and you'd like to learn more, join us at the Accountants Law Lab. We have a Facebook group that's free and a mastermind group if you want to join us and really start to work forward in some collaborative meetings. I hope to see you there. Bye now. Bye.
