Chart of Accounts customization for attorneys and law firms

Hi there, Linda Artesani, Artesani Accounting. We're going to dive into a brand new fresh file and we're going to look at what the chart of accounts looks like, the one that comes with the platform. And then we're going to go through the steps to take that chart of accounts and make it more law-specific using an importing of an Excel spreadsheet, which the listing that we've created to use at our firm. Let me share my screen and we'll show you how to do those steps. I'm just going to take you on a little mini tour of what the Chart of Accounts is and what accounts that are in there, what we kind of need to do to clean it up. So here we are in the Chart of Accounts, and to access that, you're going to come over to this left navigation toolbar and select Accounting, and that will expose the Chart of Accounts. Say we have Name, Type, Detail Type, and Balance. And then we've got View Register here. So we can click on the name and resort the list by name if you want to, and you can put it in alphabetical order. You can do Type if you want to start with the assets, the equity, and kind of bring down where you get to profit and loss types of categories. The Detail Type you cannot work through, it doesn't work that way. So if we come in here, you'll see Advertising and Marketing That's an account you're probably going to want to keep. Besides the firm, we've had some firms that want to really dive in with some subcategories like online marketing, even marketing for print media or something like that. So they might want to get a little bit more, especially if they're using multiple vendors. Obviously, if they're using one vendor, we can actually run a report on the vendor listing and then see what was spent on the various different areas. You don't need to subcategorize. But if you are using multiple vendors and you're trying to examine that, it's nice to have the subcategories and then you can collapse it at the time of sending it to the tax professional or expand it for use for the business owner or owners to examine where they're spending the money. Ask My Accountant is an account that I generally will come over here to the right-hand side and I will go to edit it. And then on the edit, I will actually take this and make it an other expense. And then under the other expense, I will make it another miscellaneous expense. And then I end up renaming this as slash need help, only because it's an account that I like to have for the attorneys when I work with them, that they can— or my staff can put something in if they're not quite sure where it goes, and then we can ask the client later. So I'll save and close that one. Just a little tip that what we do. And as you come through here, some of these are necessary. So bank charges and fees, and this is because I got it set up to go alphabetically, that's why you're seeing the other expense at the top. Bank charges and fees, you definitely want to keep. Billable expense income, for sure. Car and truck really depends. Maybe you use mileage instead of tracking your auto expenses. If that's the case, you probably want to get rid of the car and truck expense and just rename it maybe mileage. Contractors, you might want, but you might want to rename. If you only hire outside counsel, name it Outside Counsel. It's still a subcontractor. You still have to give them a 1099 and fill out all those details, but at least you'll have that here. Insurance, you will probably want to keep. Interest paid for certain. Job supplies, not necessary. So you just come over here to the right-hand side and just hit where it says Run Report, which when you first come into QuickBooks might not seem too intuitive. You're going to make it inactive. And the reason why it says make it inactive doesn't reduce usage, it goes back to that fact that if you're in a Plus version like this one is, you're only allowed to have 250 categories or accounts on the Chart of Accounts. Once you hit over 250, then you've got to move up to that Advanced level, which is a really fabulous product. However, if you're doing this, it doesn't reduce the usage because none of these accounts on here have counting towards your total of $250,000. So know that if you think you might be close, you probably just want to go to Advanced. But if you want to really work through these accounts, you can also rename any of these ones that we're going to remove, and then, then they don't count towards the total because you're renewing— using the slot back there. Um, you might want to keep Legal and Professional but maybe build out some subcategories. That's typically what we do on our Our listing that we have. Meals and entertainment, I'd like to have that categorized in a different way because meals and entertainment— now entertainment is not an expense that you're allowed to— an allowable expense. If you do spend money on entertainment, you might want to, but you might want to rename it entertainment deductible so that the client knows when you send them the report that it's not deductible. But under meals, I'd like to have a couple of categories. You might want staff meals, you might want meals at 50% deduction. You might let some meals at 100% deduction. There's a couple of new rules around that that you probably should be aware of if you're a bookkeeper or accountant or even a business owner trying to do it yourself. There's office supplies and software, another one. I like to separate that. I don't really want those 2 categories together depending on the firm. So I like to come in here and edit this and I'll just do office supplies and expenses here because I think that's a little bit better. It kind of generically Will be a good renaming. And then I'll do another, and when we pull the list in, you'll see that I have a computer one. We've got some other business expenses. Again, you could rename it. I usually make it inactive because it's too generic and people like to put things in that bucket, and it's not helpful for the tax accountant. So I just usually get rid of that one. Owner's investment and owner's pay and personal expenses. Great if you're a sole proprietor. If you are a corporation, you want to have the proper language around your equity accounts. If you're a partnership, you want partnership, you know, equity, partnership equity, partnership contributions, partnership distributions. If there's multiple partners, you want those names so you know whose money is being put in, whose money— especially with multiple. So you really want to be careful in the equity section. Definitely reach out to an accounting professional that could help you with building that part of your Books out. Refund— reimbursable expenses, I usually close that one off as well. I'll just come over here and just remove it. And we also have here our retained earnings is that account where QuickBooks at the end of the year will clear out all the profit and loss, all the income and expense accounts to zero. And that's the account it goes into. It's kind of the history of the lifeblood of the Blood of the firm, so you will keep that. It's a default, you can't even remove it. So this is part of the functionality of QuickBooks. We've got some other ones here on categorized expense, on categorized income. Those are again functionality of the platform. You have to keep it. It's part of the bank, bank feed downloads functionality, so you have to keep them. If I'm working with an attorney that I know is going to do it themselves and do the downloading, I rename those Uncategorized asset, do not use, all in caps like I'm shouting at them to make sure that they don't use that category as they're doing the download. Um, sales, I always rename sales legal fee income or legal income. It's a sales account that you cannot really get rid of. Um, legal services, even just using it, and it's not sales of product. In this case, it's a Service fee income.

So I changed that as well.

So I've got it earmarked in the right category and detail. And then undeposited funds is an account you want to keep. It's an account where if you have multiple checks and you're going to take them to the bank at the end of the week, you want a little holding account to hold it until— I always thought it's more like my desk drawer. It's a place where you put all the, all the individual payments and then you group them for deposit. Utilities, you may have that. Rent, you might have. Travel, definitely we, we do build that. So that's just a short little tutorial on how this works. Um, in the next video, I'm going to show you how the import works, but I wanted to at least give you a little guidance on the— if that happens, and then I'll show you the next steps on how to import.

So as you can see here, I'm on my default templated Chart of Accounts, and you can see we like to use account numbers at our firm. So there's a column for account numbers. And then you can see some of the standard uncategorized asset is already in the Chart of Accounts, so that won't import in. We've got it set up with account number, account name, type, and detail type. Those are the ones that are going to be in the pre-formulated template. And then as we come down here, you can see Company Assets, Computer and Electronics. And when you see the little colon, that means that this is going to sit underneath. So this is going to be a sub of this account. And you'll see here we've got Company Assets, Computer Electronics Depreciation and Original Cost. Those will be subs of a sub. And then there's a lot of accounts here, and what we would typically do with a client is that we would actually tell the client, here, here is the chart of accounts. We'll do a Google Sheet and we'll do the— we'll extract the client's chart of accounts, the current one that they're in. If they're migrating over to QuickBooks from another platform, we'll bring theirs in, and then we'll bring in this one, and then we'll do a blended. So we'll take their bank accounts and personalize it for their practice area. And then we will make the blended category. We'll collaborate, maybe do a Zoom meeting to go over what the changes are that the client wants to see, whether or not it makes sense with QuickBooks, adding a lot of subaccounts. So you'll see here that this is basic and standard for ours, but we do break out like bank cards and credit card fees, bank service fees. So we, we subaccount it out, and it's a pretty good chart of accounts. And we don't number the subaccounts, but you could actually put numbers in here if your client wanted to see numbers. It's easier to do it here than post bringing them in. And then we have a lot of legal professional fees. We have accounting, continuing legal trainings, contractors. We've broken it out, but it's very specific to legal industry. So the next step is importing that chart of accounts, and it's very easy to do. And it's much easier to create your chart of accounts and import it than entering these one at a time.

I'll show you how we do that.

So we're going to go over here.

To the gear, and then we're going to go to Import Data.

I'm going to select the Chart of Accounts bucket, and it's going to ask me for a CSV file or an Excel file to upload. Now you'll see here there's a sample file that you can download, and it's going to be a blank file that just shows this. It kind of shows the formatting that works the best with QuickBooks. Obviously, I'm going to use my own, so I'm going to It's already pre-formatted for me. So let me get out of here. I'm going to go grab that file right now, which is the COA for law firms template.

And then I'm going to hit Next.

And once I hit Next, it should recognize— and it did— all— I've got all the green checkboxes. So if it couldn't figure out— and I just want to make sure detail types, detail type— and I made sure that the master headers match on my spreadsheet to this, so it's all clearly there. Then I'm going to hit Next. And then it's going to tell me there's 124 accounts to be imported. Now I know Uncategorized Asset, it's already in there, so some of these are already in there, and I probably don't want to give them the numbers that are there. Undeposited Funds, already there, I don't need to bring that in. So there are some here, and you'll see when I hit Next that it's going to tell me that I've got some red errors, and they're probably going to be the accounts that are already in the file.

So I'm going to click Import here and let it do its magic. It's very quick.

And as you can see, Retained Earnings, this was on my list, it's already in there. Billable Expense Income, already in there. Advertising and Marketing, already in there. Um, I can't bring those in. And so all of these are not coming in. Ask Need Help, already in there. I've already renamed it. Now the numbers aren't going to be there, so when I get in there, I'm going to have to add the numbers because they're already— they were default accounts from the beginning. But I'm done, basically I'm done. There's 112 of 100 and 22 came in, and that's because these were already accounts in there. So you'll see in a second what that looks like.

Do I want to leave without saving?

Normally you'd say no, I don't want to do that, but in this case you can. And then let's go back over here to this, um, left toolbar to Accounting and then go back to the Chart of Accounts. And I'll show you here that we've now got a pretty robust Chart of Accounts. So I can come here and do Type again. And then I've got a bank account, I've got an IOLTA. This is where you're going to— which you could have done in the inside of the spreadsheet— put your accounts in.

Do, uh, header accounts.

So if I have these as my parent accounts, my IOLTA, I can call it Trust. Remember, you just come over here to that little sidebar, and I can just come over here and say Trust Accounts, Trust Accounting, Trust Bank Account, because I want this to be the parent. And then maybe you've got multiple, so you want to have the header. And that way you delineate between a trust bank account and a trust account where your client ledgers sit, right? Operating bank accounts, you, you know, you can put— rename that operating bank accounts and see that I made this a trust bank account, trust type bank account. You want to stick with those detail types that have to do with the industry. Advanced client costs, other current assets. So you can come through here. Now I want the numbering to be on, and I know the numbering came through because that's what I imported. So I'm just going to come over to the gear here, go to Account and Settings, and once it loads, I'm going to come down to Advanced. And then it says in here Accounting Method. Most people do Cash Basis, but I like to leave it on Accrual as you work through the year and just save some reports just Cash Basis for tax time. It's nice to kind of live in with Accrual because you do see Books that are done— you're invoicing, so you're using accrual method even if you do change to cash. And you can see here, Enable Account Numbers is off, and I want to turn it back on.

I'm going to hit Save.

The other thing I like to say, when I get down here at this very bottom column, this will save you a lot of hassle of having to log back in if you change that to 3 hours. And now you'll see that the account numbering here is here. So if you have a couple of operating accounts, create the bank accounts, make them subs of the operating. And you can come in here and number these. The fastest way to number these is to get this gear here. And then— I'm sorry, the pencil. And if you use the pencil, you can come over here and say, okay, Uncategorized Asset 1350, and just number them as you go along, maybe 1400. and just kind of go through here. And I don't usually do the subs, I just do the parent, uh, fixed asset software, $1,860. And I'll just come down like that and just add the number. So that Amex is a sub of the credit card, but maybe it's really, you know, Chase Visa. So I want to name it Chase Visa, um, dash, let's just say 2345. I like to add the 4 numbers as I go along. And then I would come down here and like Payroll liability, parent, I will give a number, but then not the subs. It's just going to come down here, and then you've got the partner accounts here that are in. If they're shareholders, you want to have these accounts. Owner investment, maybe I make them inactive. So now I'm just going to hit Save for now. And it saved those numbers. And then, like I said, you can add the subaccounts to that by just adding it here, New. Bank is a type. You could make this a checking account, you know, Operating Checking, uh, you know, 6789. Make sure you make it a separate sub-account of Operating Bank. Now you'll see that that's now a sub underneath here. And then if you've got multiple, maybe you get a payroll account, maybe you get a savings account, those would all go underneath the operating account. So you're separating trust from operating. Well, I know there's a lot of steps there in doing the import, but I hope that's helpful. And I hope that makes it not be so scary to have to import a Chart of Accounts. It's really crucial and critical in the beginning of the process of doing this kind of work that you really take the moments here to fine-tune and really customize your file to work with QuickBooks for your specific practice area for your industry. And on that note, I hope you all have a wonderful, wonderful week. Please hit subscribe if this is a good, uh, video and you'd want to see more, and be sure to check out the blog article as well. Bye now.