Linda Artesani compares two ways law firms organize QuickBooks Online: separate files for trust and operating accounts versus one combined file. The two-file system isolates trust money but creates reconciliation headaches. She recommends one file for transparency and fewer errors, using tools like LeanLaw to hide IOLTA details when needed.
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Hi there, Linda Artesani, Artesani Accounting. This week I wanted to talk a little bit about various methods on how to really work with attorneys and law firms and whether there's one data file or 2. So this is a hot topic between accountants and bookkeepers and what's the best method. A lot of attorneys will come to us and they've got 2 files. They've got a file that just holds the trust because remember the trust isn't their money, And then they have a file and it's the trust bank and the offset is the trust ledger accounts or the individual ledger accounts for the clients. And then they'll have a file that is just for the operating side of the business. So people like to do this because they think that keeping the one file set aside by itself is kind of like separating it in your brain. You're keeping the money that doesn't belong to you separately housed. It doesn't really affect your books until you've recognized it as revenue. It does make a lot more work as an accountant because you have to do work in 2 files, basically. I prefer a method where there's full transparency and it really allows itself for less errors. So that 2-file system, although it does work, to me can be very disjointed. And it can also cause more mistakes because a lot of times the accountant will say, the bookkeeper or the attorney will say, well, everything's in that. account, it's correct. But now you're transferring— it's almost like when you have intercompany loans. Now you're transferring money from one side to the other, and sometimes the ball gets dropped. So you have to reconcile and reconcile to make sure it matches up. So you're reconciling the IOLTA here, but you have to make sure that you reconcile the operating side to make sure that all the transactions actually happened. Because in, in the real world, you have to make sure the money moves from IOLTA to trust. And that you show all that money in there. So yes, the 2-file system will work. However, I like the one file with transparency. Now, when the 2-file system is better is if the attorney just doesn't want to see any of that on their books. It's not their money. They don't want to see it. I totally get that. With LeanLaw, which is my favorite app to use with QuickBooks Online, you see all of that there and you can collapse it down because really it's just the IOLTA matching. But now you're making those bank transfers inside that one. company file. So as long as you're reconciling, everything should be golden and look good. That is my short synopsis on the 2-file and the 1-file method. I prefer 1 file. Keep it all in 1 place, 1 file to log into. We use a tool like Reach Reporting where you can send the records out. There's plenty of reasons why that, that software is great, one of which is you can present the financials without showing IOLTA at all on it. You can just turn it off. It's like little eyeballs and you just turn it off and then you can take that off the books. But that's for another post. But I just wanted to give you an idea of why I like the one file system. I love the transparency. I like being able to house it in one place. But actually both methods work. So if you have any questions or comments, please feel free to reach out. If you are having bookkeeping nightmares and you want to have somebody help you fix your IOLTA, account or your trust accounting, feel free to reach out to us. We love doing that work. If you're an accountant or bookkeeper and need more help, we have a group for you. It's called the Accountants Law Lab. Sarah and I work together on it. It's a lot of fun. So I hope you reach out and we can help you. Thanks for watching. Bye now. Bye.
