Understanding the Role of a Bookkeeper: Key Differences with Legal Bookkeeping

Hi there. This week we're going to discuss what does a bookkeeper do. And if you're new and you're thinking about being a bookkeeper, or if you're brand new and you are a bookkeeper but you're just getting your feet wet, I think this video and the supporting article will really help you. Now I'm gonna give you the differences between what a regular bookkeeper would do as opposed to a legal bookkeeper. So there'll be a little bit of nuance into this video, but I think it's going to help you understand exactly the tasks that should land on a bookkeeper's lap And this is gonna be a very high-level, shorter video, but I'm gonna hit— touch upon the different services. And if you want more in-depth on any of these, just let me know. So we'll just start with the basics. I'm gonna assume that you're a bookkeeper using QuickBooks, although you could use Xero. But I, I'm not familiar with Xero as well as I am with QuickBooks. It's— I only use QuickBooks. So if you're wanting to use Xero, you can. I think you could find probably somebody who will help you with knowing how to use Xero. QuickBooks, on the other hand, is a very— it's probably the most popular. It is the most popular one in the United States, and it is popular pretty much worldwide. It is a product that you're going to find most of your clients are in. Now, that being said, our job is to take that data. It's connected bank feeds. So the bank accounts are connected to QuickBooks by the client. And then we are responsible for aggregating the data, downloading the expenses and the income. That's the basic high-level part of our job. What does a bank feed look like? I'm gonna take you there and show you. So bank feeds are fairly easy, but as you can see right here by looking at this test file that Sometimes transactions are already in place in the system. It's where you're going to see these green matches. So you can, you can basically come to this box here and just resort the categorization, kind of group them together. Even though it says it matches to a deposit of 868.15, sometimes, depending on the client you're working with, you might want to validate that that's actually the deposit and the date. So you can see the date was 11/18. The date's 11/18. So I'm fairly confident that one is the correct one. And as you can go through all of these, you can see that these are all basically— most of them are deposits. This is a purchase of hardware, and it's the transaction's already in place. So when you see this green one match found, you don't want to enter Hicks Hardware again because it's already in the system. You actually want to match the bank feed transaction to the transaction that's already in place. So if in this case somebody actually printed a check and gave the check to Hicks Hardware, and so because the check was printed out of QuickBooks, it's in place in the system. So you wouldn't want to replicate that. You don't want to double up the information. The one below that is PG&E, and that is probably utilities, and we can look at that. And it's the bill payment that it's actually connected to. So somebody has already in the system entered a bill, entered a bill payment, and now we're matching there. Okay. This is really high level. You can— I don't know if I have my Write Tool turned on. I really highly recommend getting Write Tool. But you can see there's quite a few transactions here that are already in place that have green highlights, and the dates align 10/8, 10/8. And you can see that the, the transactions are here. I'm gonna try this. So I hit the Shift key. Oh, it worked. And I'm going to accept all these transactions. So I actually had the top one clicked. And then I selected the bottom one with the Shift key down. And when I did that, it did that for all of them. So I can hit Accept and all of those are gonna get put in place. So that's how quickly you can go through bank feeds. Now, like I mentioned, bank feeds are about 85% correct. First thing you wanna do is match to existing transactions. Don't go and add duplicates. So make sure that's part of your work. But then you can see here that there's 2 matches for this payment out to Pam Seats. Or is it? We don't know. So we wanna look at the code. So the bank detail does say Pam Seats right here. And there's a Books by Bessie transaction as a bill payment for that same amount. And then there's an expense for this Pam Seats dated 11/18, dated 11/18. So that's the one I wanna match it to. So that's how you're gonna match to anything that's got multiple. When I did that, you can see here that this transaction's the only one left now. And it says Books by Bessie. So this wants— I want to make sure that this transaction gets matched. So if I go up here, let me move my picture here. If I go up to the spyglass and click on it, I can see the most recent transactions. So for example, here's Books by Bessie, and I can click on it, and I can see that here's a transaction. It's a bill that was entered, and then it was a recording of a payment, number 3. And it was into the checking account that we're trying to match the bank feeds. And here's the match that I just matched it to. If you want to go back to the bill, you're going to click there and it should bring you back to the bill. And then you can see that it was put in that Books by Bessie is their bookkeeper and they're paying $75 to the bookkeeper. So that's what that looks like when you're looking at bank feeds. Pretty important stuff. Definitely something that you're going to need to do as a bookkeeper. That's pretty important. You're going to need to know what categories all these things go into, like a rental. If you don't know where that goes, you're going to want to look and you can see that this says a backhoe rental. Most of the times they don't give you that kind of detail. So you might just have a one rental and then you are going to actually open up another tab and search Google or ChatGPT. That's why I highly recommend getting WriteTool, because WriteTool have— once you connect WriteTool, it's a browser extension. You'll have all these buttons that will show up here. That's a one-click and it will do the search for you. Saves a lot of time. So for the price, it's pretty inexpensive software. Although I know when you're starting out as a bookkeeper, you probably aren't going to want to pay for a lot of software as we don't have a lot of money and we want to try to save on expenses. But in this case, that's definitely a tool that you would want to have in your arsenal. So now you're going through all those transactions, and you're gonna find that there's some that you don't know where they go. And in that case, you might want to start a list or put it into the Ask My Accountant account. This is an account that I renamed Ask/Need Help because I want to— Ask My Accountant doesn't seem to make a lot of sense, but because if the client had a question, they would want to put it in Ask My Accountant. But I'm asking the client because I'm doing the work. So I just call Ask/Need Help, and then I put it in there, and then we kind of can communicate back and forth on that transaction. So it's a pretty cool tip, but that's part of your chart of accounts. So what is a chart of accounts? It's the names of all the categories for your client. Now with QuickBooks, if you're getting a brand new account started, you're gonna get a preloaded chart of accounts. I think they've added where you can get a specialized one. So if you are working as a bookkeeper and you're working with an attorney, you're gonna want that attorney one in the books. Or at least get an idea of what that looks like. I also have a chart of account I'm gonna share with you, a listing for attorneys. This is a smaller one. There's more detail that you can get on some of them, but you want to at least have something that's got some of the accounts that are associated with attorneys that really aren't associated with any other industry. Now, when you are looking at the books, you need to know where the categories are. You need to know where, what categories the transactions go into? Well, that's part of figuring it out. If you're new to bookkeeping, you're going to want to look at the prior bookkeeper's records to see where they put things. You're also going to want to ask the client for a tax return. Tell them you want to tie the books to tax. It's a very good action to do. You could grab a spreadsheet and just put all the, you know, grab the profit and loss, which is a financial statement that you're going to be preparing for your client every month anyway, but you're gonna pull that for the prior year, the year of the tax return, and then just put that on a spreadsheet and then pull the numbers out of the spreadsheet into another column so you can kind of figure out where they align. Some of the accounts you'll see that are profit and loss-based, there's a whole section on the tax return. It's really important to get familiarized with the tax return so you can look at the profit and loss section and look and see how they categorize. And you might see things like C Schedule C, Schedule D. If you keep flipping through the pages of the tax return, you're going to see those sections. And then in it, it might say other expenses, and it will have a list like telephone, office supplies, software. That might all be listed in another section, and that might all— that total might be on the tax return. But you at least have, uh, a way to see what's in those and where they align to and how they connect. Now, when it comes to the Chart of Accounts. I'm going to share my screen. I'm gonna show you what my Chart of Accounts looks like. And then we'll take a look here. So here's a law firm one. I'll go to the top here. So this is a generic one and it doesn't have every transaction. I highlighted in yellow, like a light yellow, the ones that could possibly be on a tax return, buildings and land. Typically with law firms, those things are kind of extracted into an LLC and they don't really have them intermingled with their law firm books. Unless it's an older existing firm, the firm may or may not own the building that they're in, that they're paying rent to, and they might have that on their books. But if you, it's pretty rare that we see that in today's world. Usually the attorneys will buy a building to move into and they'll have that as a separate file for the property. And then you just pay rent to the other company. They'll have a whole nother company name. Now the partner stuff here, the partner equity and the partner contribution distribution, It's really only if the client's in a partnership. And that's the typical entity type for a law firm. It could be, you could see LLP, LLC after the initials. There's a few other ones with law firms. I believe I have another article, another video on different entity structures of law firms. But for the most part, you're going to see that they're a partnership and you would want to have partners. If there's more than one partner, you want to have, you know, Partner A, Partner B with the subaccounts of Partner A contribution, distribution that you can roll up into partner equity as demonstrated here. And then you've got pretty much just a generic different ones that you'll see for almost every company file. The prof— professional dues and CLE is one that you're going to see on a law firm's books for the most part. You might see that on professional dues on others, but you'll want to have that listed here. Mm-hmm. Bar association dues is another one. I like to separate that one, especially if the firm is bigger and there's multiple attorneys. Payroll would only be on it if there is a payroll in the firm. Typically an attorney that's a partnership, if there's no staff and they're paying like paralegals and legal assistants as 1099 employee, 1099 contractors, those would be the ones that are— you would see no payroll on because there is no payroll. The partners in the law firm don't have a payroll unless their partnership is an LLC that has elected to act as a Sub S Corporation. So if the law firm is an LLC acting as an S Corp— I think I said that backwards. If the law firm's an LLC that acts as an S Corp, then you want to make sure that the law firm has the partners on there as shareholders and not as we stated up here, partner equity, which is— this is all the balance sheet part. Like I said, a lot of these, a lot of the files that we run into that we do cleanup on, people don't state that equity section very well. You want to ensure that you do have that properly stated for the type of firm that the attorney is in. Again, this is things that you'll learn as you go. But for sure you're going to want to know how to state it and understand the differences in, in how the law firm is structured. Now, for working with law firms, you want to make sure that you have your income and your, your expenses stated properly. And you can sign up as a bookkeeper to be a ProAdvisor. Get certified in QuickBooks. Very, very important. You get certified in QuickBooks, and then you will have a way to get a free license, a free instance of QuickBooks for your own bookkeeping firm, and then you can add the clients as the accountant, and then that will be listed all like in a hierarchical view of all your clients, and you'll have access to your own books, and you'll have access to all the clients. while you're in there, get certified, get certified in QuickBooks, learn the software, know it inside and out. You don't have to go so far as advanced, although that's not a bad thing. It's not called advanced. It's called Level 2 now. But you don't really need to do that as you're getting started, but at least get certified in the software. And then once you're certified in that software, also take the bookkeeping exam because there's a bookkeeping test in there. So you understand how the bookkeeping works. You understand the big picture. That's one of the things we find a lot of times with bookkeepers is they don't know the big picture. They only know part of it and they don't know the full picture. So when it comes to like a journal entry, they just like, oh, I don't want to do a journal entry. So what are the parts of bookkeeping that you're gonna need to know how to do? So we talked about the bank feed. We talked about the income and the expenses. Sometimes we match. Sometimes if the transactions are existing, you're gonna match them. Expenses you're gonna put in. But if— and usually you'll see that more into the credit card. But also expenses could be matching to bill payments, or, or straight-up expenses. It could also be sales receipts if you're doing client work, matching to sales receipts, matching to bills, invoices, as they're called in QuickBooks. Client invoices, client payments. But when we speak about invoicing for a client that's a law firm client, we call it billing. So that gets a little bit confusing. You, you're going to need to learn the terminology of what is stated in a law firm's scenario working with lawyers. There's a whole nother video and article on that in, in the Law Lab. So you really want to go find that and learn the lingo. That's a big part of it. Now, when we're talking about accounts receivable for lawyers, you're looking at usually they're in an external software that could be Clio, it could be LeanLaw, it could be MyCase, could be PracticePro. Panther, there's 1,000, at least 1,000 different billing software. Sometimes they have no billing software, then it's just straight up QuickBooks. We don't recommend that, but sometimes if it's small enough firm, it's okay, you can get away with it. If it's Clio, you're gonna be matching to the Clio transactions because everything for the customer side in that external billing software, whether it's Clio, LeanLaw, or another software, you're going to be matching to their transactions that are in the books. Then when it comes to the billing for the vendor side, the bills, there's other software out there. QuickBooks actually has the software that you can forward the transactions. So as you're getting the bills in as the bookkeeper, you could forward them into QuickBooks using that unique name. I should actually show you that. And then you could use that as a way to import the visual, import a little picture of the bill, and then attach it to the transaction. Let me go back to QuickBooks here. And just show you. So if you go under Transactions, that's how you get to bank feeds. And then receipts are here. And typically there is a way, as you can see, you can copy the email address or manage the email, and then you can name this whatever you want. As you can say, this is called Craig's underscore Design. You could actually just put the initials here and just set it up. You can send it to anyone. You can kind of fine-tune this here. This is Intuit Assist. It's their AI, and you're starting to see it pop up in different places. You can also drag and drop documents, but I like to forward— just forward them into the system. And then in here you can review what's here, and then you can push them in along the details. So if I had a bill sitting here waiting for me to handle it, I would enter the bill and then it would show up under the expenses side. Under Bills. I'll just show you what a bill looks like here. So if we go— let's see, I want to go to a prior bill. Doesn't look like I can grab one really simply. But if you wanted to see a bill, you can go to a bill payment and then really quickly hop into the bill. And so this is what your bill would look like, and the attachment would land here. So it's a really nice feature, especially when working with law firms. So a lot of times their expenses are going to be expenses that are expenses that are used for the clients. So they're client expenses. You're going to see a category called Advanced Client Cost or Client Cost Advanced. And basically that's the expenses that the law firm pays for despite that they have a retainer and they're holding money on, on the client side. They have this money coming out of the law firm's operating to pay for these expenses. Sometimes they pay out of the trust account. It's a whole different story. So like I said, this is a very high-level video. But I want you to understand that you're gonna see that. And it's nice to attach those pictures, the image of the bill, so that way the client— if, if you're a law firm client, your attorney has a question about a bill, they can just click on the transaction, grab the bill. They're not calling you to find out why is this here? I don't— I see this expenses listed underneath this one client are really high. I'm trying to do my billing. You know, I don't think they're all supposed to be for this client. You can actually click there and see the name of the client on the bill, and that's how you tag it. Which brings me to another topic. A lot of times the attorneys like to use the cheapest QuickBooks, not the best choice. They have to at least be in Plus, and most of them need to be in Advanced because their chart of accounts gets a little bit bigger when you start to list all the trust accounts as sub-liability accounts on the ledger. I have lots of articles on that as well. How to set up the trust account properly. And I probably will do another one in the future, but they're gonna need the bigger file. They're gonna need Plus minimally because you need to be able to attach that client name to the advanced client cost to make it billable, to have it be able to be billable back. Or you're gonna do some of that, handle some of that inside of Clio or LeanLaw, whatever legal software. And you're gonna need to have that ability to tag it to the, the client account. You can't do that in Essentials or Simple Start. There's just no way you can do that. So know that, that, that's part of the workflow and they're gonna at least need to be in those tiered products, which are still pretty inexpensive as far as software goes. So we kind of touched on the income side with the billing, which will come out of like a Clio or LeanLaw and that, that all gets pushed into QuickBooks. And then the client payments are handled outside in that external software, which is different than if you're working as a bookkeeper with a different type of client that might be handling everything through QuickBooks. Say you have a contractor, they're doing their estimates to bills, to bill, you know, estimates to invoices and then customer payments for the whole income cycle. Sometimes you're going to get clients that just straight up just say anything that comes through the operating account is my, is my money coming in from my work and then just book that to income. But with billing with attorneys, you're going to see that the invoicing happens in an external software. That external software should be connected to QuickBooks and is pushing the data into QuickBooks. And then as the invoices come through, which we call bills, they get coming, they come through and then the payments come through. And that's just typically where you're gonna see that. Another task that you're gonna handle for a client is payroll. In today's world, payroll is pretty much handled by having an outside service, whether it's Augusto or using QuickBooks Online payroll. It's very simple to go into the payroll section on the left navigation bar, start to connect it, put it together, turn it on, set it up. Very easy, simple to use. Way different than the back in the old days where we had spreadsheets and we're looking through the books and, and looking through details to do the checks and things like that. We don't have to do any of that anymore. It's very simple. It's— if you turn on the one in QuickBooks, it's really simple because it's embedded in the product. Gusto, you have to do a little bit of work on the outside to map it in and push it in, or ADP or Paychex or whatever your client's using. Know that you should be going into that software. If they're using something other than QuickBooks, you need to go onto their software, get that login. Sometimes it's called an accountant's login, and then you're going to need to back map and back code that software into QuickBooks so it gets mapped properly. So the wages get pushed into the wages category in QuickBooks. Like I said, with QuickBooks it's easier because it's right inside the product. But not everybody uses QuickBooks. So know that that's part of it. Another big part of what we do is we provide them with financial reports. Normally that would be your balance sheet and your profit and loss, and you do that monthly. You can also set up a management report where that has everything. Let me share my screen again and show you the management report. So very simply, the reports are right here on the, on the left navigation bar. Everything's on the left navigation bar. And you have your standard reports right here, which you can actually highlight and make favorited. And these are the ones you're probably gonna use the most is these 3 that came up by default. But there's also a management report, and you can see we have a company overview. It's already set for the reporting period of this year, and you can pretty much print that out or preview it out. I don't know what's in this file, but it looks really nice, and you can put your logo, and you can put like who prepared it. And you can come through here and look at a profit and loss report very nicely. But it's nice because it's all bucketed into a packet, and it looks nice. It's a nice presentation to the client, and you can see the balance sheet here, and, and that's pretty much it in the basic one. You can modify this as well. But like I said earlier, it's really important that you take the time to learn the software and learn all the great features that are in here. There really are a lot of features inside of QuickBooks. It's important to know the software, but also to understand why, why you're doing it, where things go. Get that bookkeeping certification because that's really critical. But that in a nutshell is really what bookkeepers do, is we handle those tasks and amongst others. And that's actually a lot. So with a— With attorneys' books, you're going to be handling the trust, which is a whole different beast. You're going to have your trust bank account, your trust liabilities. So when those things get deposited, The money gets debited into the bank account, credited into the liability account. And as the transactions come across and start to come through the ins and the outs of the trust liability, they're tagged to the client's account. And then you are going to have to prepare a 3-way bank reconciliation for your client. That's an extra piece of work, an extra body of work that you would do as a legal bookkeeper that you don't have to do if you work for other, other clients, which is why we charge more money. It's a very important report for the client. Really important that if you get a law firm client, go to that bar association where the law firm practices and understand what's required of the attorney from the bookkeeping side. They typically— every single law firm, every single state has rules and regulations, and you want to learn those inside and out. And you really should take the time to learn the language, learn the lingo, what you're going to hear around the law firm. Client cost is also important. You want to make sure you reconcile the advanced client cost account. And basically as the client spends money on an expense for the client, for their client, and then it gets invoiced, you get your invoice and your, your expense and then your invoice. And now you can like, they can just negate each other, but you wanna get them off the records. You wanna reconcile them away so that that keeps clean books. So that's really all the things you really need to know about being a bookkeeper. Very high level. There's a lot more tasks involved, but at least this will help you get started. And if you have any questions, comments, feel free to reach out. We also have an amazing group of people called the Accountants Law Lab. Some of them have no attorney clients, but they're there just to learn about what's required, and some of them have many. So come join us. It's a great group of people, and we all learn from each other every week. And on that note, I'll see you all next week. Bye now.