Seven Essential Steps for Bookkeepers to Clean Up a Law Firm's QuickBooks File

Hi there. My name is Linda Artesani from the Accountants Law Lab. So welcome to the video on cleaning up a law firm's books in a QuickBooks file. As a bookkeeping expert, I understand the importance of accurate financial records and smooth operations at a law firm. It's essential for our clients that we have good clean records, especially if we start to analyze the data later. Well, that was a hard thing to say. The data later, you'll find that if you don't have clean books, it's gonna be very difficult to give your client good metrics going forward. Keeping track of finances can be tedious, especially when dealing with a disorganized data file or error-ridden financial records. A skilled bookkeeper can help clean up the law firm's books to ensure accurate financial records. That's our job. And I can tell you from experience that I've seen lots of records where the client did their own work or the bookkeeper wasn't experienced in law firm work and is sometimes similar patterns. But sometimes I always say to Sarah that sometimes I think I've seen it all and then sometimes I really haven't seen it all. So just know that that's there. Our first step in the cleanup is to really verify the chart of accounts. You want to take a good glance at it, give it a cleanup. We know from the day-to-day work, we actually have a preset chart of accounts that we, we use at our firm, and we know when we look at a lot of these files, it could be just the boilerplate that came with QuickBooks Online, and you want to really go in there and clean it up and make it more law-specific. So that's the first step when I clean up a client's file is just to go in there and clean up any duplicates, any accounts with people's names on it. It's, it's incredible what you see, or vendor names on the chart of accounts. You just want to clean that up so that the records look more presentable to a tax professional. The next step I've encountered is I've seen a lot of— is still in realm of the chart of accounts where the bank accounts aren't really named very well. And it can get— it can be very confusing. So you could have bank accounts, and then you can have trust liability accounts. And when you're looking at the headers, you want to know what you're in actually in an asset of the bank account, or you're actually in the other current liability accounts. You want to name them properly. I've, I've encountered a few unique names along my work with attorneys and law firms, and it's essential to use a consistent, consistent naming conventions and put— just put the 4 digits of the bank account either in the front or in the name. Just know that QuickBooks truncates it when you're on the banking screen. So you want to make sure that that number is visible. It's going to help save you time as you do the bookkeeping. You're going to be able to see that you're in the correct bank account when you go to reconcile. It's going to save a lot of Lot of headache there. I like to put the account name first because of that truncation. And bank accounts should be separated by type. So there's a parent category for the operating and a parent for the trust account, trust bank accounts. And I name it operating bank accounts, trust bank accounts, and then list them underneath. So you might have multiple trust bank accounts, but you want to have them underneath the parent. So in the end of the day, when you're rolling up the trust liability to see the total that's in there, you want to be able to roll up all the trust accounts and then look. And obviously, as you go through, you want to separate the trust liability accounts by bank account. So if you figure out that one of the bank accounts is off, you'll be able to just look in that little subset of trust liability accounts to be able to find the issue where there's a problem. It just— it's going to make it help you. This step really ensures that each account is classified correctly. Our next step in cleaning up a file is error correction. So we need to identify any errors in the QuickBooks file and, and look for any discrepancies. And this is really— you can see a lot of this just going through the chart of accounts, going through our balance sheet. I start with the balance sheet, going through the balance sheet, And looking at the accounts, look for negative accounts. It's always a red flag. And once you get past the trust part, you can really start to see that there's some things that just don't belong. I saw the other day somebody had created an account called like Scrap Account. Like, what is in the Scrap Account? And it was just what you think. It was scrap, scrap transactions. They didn't know where to put it. That was a unique one. But you will see that sometimes on files, and you really want to look Fixing any of these data entry mistakes, addressing any discrepancies, especially when it comes to the bank— banking. You want to do bank reconciliations. If they're not done, or you know they're not done properly, roll them back and start over. Sometimes it's easier to do that, clean it up and re-reconcile, because reconciliation doesn't really take that long. My next step in a cleanup is usually a cleanup catch-up situation, and the next step is transaction recording. So If you had to roll it back, you're gonna have to put the transactions back. But once you've got the errors corrected, you want to record the transactions in, in the right categories accurately. And we use the reclass tool for a lot of this if you didn't roll them back. But it's also a really helpful tip to kind of go through and at a high-level glance. You can't move everything out of that reclass tool, but a lot of the functionality you can do in the balance sheet and the profit and loss. So know that you can reclassify there. Each transaction has to be assigned to a correct account. And it's essential to ensure that the expenses match the— they match the correct categories and you have the income properly stated. If there's an external software, you're probably going to have that only that one legal income account, but you'll be able to get the data on practice area inside that external software. external legal software. My next step is bank reconciliation. To maintain accuracy, we must reconcile all bank accounts in QuickBooks, and that includes the Advanced Client Cost Account, which is not a typical one that you would reconcile because you're going to be looking for a bank statement. This one's not going to have a bank statement, but it's essential if you're working with law firm books. If you see reconciliation discrepancies, you're going to find that right away. You want to go into that report. reporting part of the, the accountant's briefcase, the top. Look to see where you're at and the bank reconciliations, and just move from there. The history of the bank reconciliations is gonna tell you a story. If you've got an issue, you're gonna be able to see where that issue lies. You're gonna see where the problem is with— through the bank account off, as well as clicking into the reconciliation. Sometimes it is visible unless something's been completely deleted. My next step is the unapplied cash payment income and the unapplied cash bill payment expense. Those accounts are definitely something that you want to look at. I know I've written articles on this before in the past. Looking for date— this is all date-driven. So you're going to see these accounts show up. It could be that you've recorded a payment without an invoice, a customer payment. Customer payment came in, no invoice. Same thing if somebody created a bill, made a bill payment, and then deleted the Bill, you got the same issue going on. You wanna see the dates and make sure the client isn't changing dates or entering things backwards. That's what's gonna cause this problem. And you wanna make sure the dates make sense. So you usually don't receive a customer payment before it's been invoiced. The invoice happens, the payment happens, the bill happens, the payment happens. That's the flow, the workflow. And if it's backwards dated, you're gonna see these unapplied accounts. The next step is running those financial reports. So inclusive of those is the balance sheet. I love to run comparables and the profit and loss. Same thing, run the comparables, look at it by month, check out the details. Does you— do you see fluctuations? It's really critical to look at those financial reports because they provide an overview of the law firm's financial health. It enables the business owner to make informed decisions. For example, if you're looking at the profit and loss, you might want to analyze the revenue and expenses and look at it month over month. It's going to give you a good, clear picture of what's going on in the firm. If you're like us and you specialize in this legal industry, you can have multiple businesses you can compare it with and really enhance your legal, your knowledge, your bookkeeping knowledge of the legal industry. And that last step, very, very important documentation. It's Last but not least is proper documentation. It's, it's really crucial for supporting all the transactions. So you want those receipts attached. You want the receipts for the advanced client costs attached. You want the receipts for the overhead if you have them attached. This is where Dext comes into play and makes that life really easy because now you've got all those receipts housed in one place, but you've also attached them to the documents. Anytime you run up a report or a financial calculation on compensation, attach it as you break out those transactions, as those distributions go out by attorney, you want to have documentation of that. So if you follow these 7 essential steps, bookkeepers will ensure that the law firm's books in QuickBooks are accurate, organized, and up to date. A well-maintained QuickBooks file really provides essential and valuable information to help your client be more informed and help them make good financial decisions. If you enjoy this article and you wanna learn more, we'd love to have you in the Accountant's Law Lab, our group, mastermind group. We meet every Friday. I'd love to have you join us. We also have a free Facebook group if you'd like to join that as well. And if you're really liking dipping your toes and working with attorneys and, and law firms, we've got a course for that to get you fast-tracked and ready to go. On that note, I hope you all have a wonderful, wonderful week. Bye now. Bye.