In this first installment of a three‑part series, Linda Ardissani walks accountants through the essential steps for preparing an attorney‑client’s QuickBooks Online Advanced file for tax filing. She emphasizes establishing a clear parent‑child account hierarchy for operating and trust accounts, fully reconciling all bank, credit‑card, and loan feeds, and scrutinizing the balance sheet for mis‑posted transactions such as deposits recorded in the Advanced Client Costs account. Linda demonstrates how to locate and correct negative credit‑card balances, duplicate entries, and unknown header‑level postings. She reviews asset accounts, reminding viewers to attach purchase documentation for depreciation, and advises on handling loans, PPP forgiveness, and mortgage balances. The tutorial shows how to validate total trust liabilities, generate a balance‑sheet comparison report to catch prior‑year carry‑overs, and ensure owner‑equity accounts are correctly labeled for LLCs, S‑corps, or partnerships. The overall goal is to deliver a clean, accurate set of books that align with bank statements and are ready for the tax professional.
Chapters
Hi there. Linda Ardissani, Ardissani Accounting. Happy New Year. It's the new year. It's hard to believe. So I want to delve into what do you need to do to get a client's file ready? And this is going to be a series, so 3-part series. What do you need to do to get your attorney clients' books ready for tax preparation? What are the steps? So we're going to dive right into QuickBooks, and I'm just going to go through some of the areas I think that you need to look at. We're not going to get too much into any legal software like a LeanLaw or Clio. We're just going to stay laser-focused on the accounting package, QuickBooks Online Advanced. Let me share my screen and I'll show you what I mean. So we're on a balance sheet in my demo file. Now, mind you, the demo file is a mess, but this is kind of a good example of how you can go through a file and take a look at what needs to be fixed. Typically, I'll make sure everything is reconciled. I'll take the time to reconcile all the bank accounts, all the credit cards, loans, whatever's there before I get into this step. But obviously, when you see this file, you're going to say, okay, that's not happened. So as soon as I come in here, I'm going to see that the operating bank account has a transaction posted to it at the top level. So it's the parent level. We usually make this hierarchy of parent level, and then the bank accounts actually live. If they've got multiple operating accounts or multiple trust accounts, we will create parent trust account and then sub them down so that way we can really take a look at them. in a high level where we're able to see which one has an issue if the trust goes out of balance. This is something that you'll see. Nothing should ever be booked to any parent account, which you will notice as we go through this, as we go through this work. Don't forget to go back to the books review if you have to see any of that, because a lot of this can get handled there. But as we go through this, you're going to see, all right, we get the real estate trust accounts with negative. Something's wrong there. We have to look to see where's the deposits. Real estate trusts, usually money in, money out. You know, there's a house purchase, escrow, money goes out. This is not the case. I've got a negative, so I need to investigate why that is. So we'll just pretend that the other accounts are balanced. Advanced client costs should never be negative. So you just have to click in the category to see what's going on. And I've got the date range set to be the full calendar year. I've got a cash basis because most of my clients are cash basis. I've got a few exceptions, but So know the basis of your client. And then as we come in here, I can see this, this giant negative here. Like, what is this? It's a deposit. Why is a deposit sitting in my advanced client cost account? It shouldn't be there. It should be— that should all be handled with invoices and expenses, right? I'm using that product or service, money comes in, money comes out. It's kind of a wash account. We just kind of hold work in process up there and then we bring it down. So there's something wrong here and I can actually pop into this transaction, take a look. And see what somebody did. They actually booked like they received money, but they booked it in as a deposit with advanced client costs. Completely wrong transaction. Unless they're trying to— if they had the $3,996 somewhere in expenses, now we gotta go look in the expense category to see where is this. You don't even know what client this is. This is just the wrong way to do this kind of a transaction. So I'll have to investigate this one to figure out what the heck happened here. And maybe this is one that belongs in, you know, that large amount. Maybe it belongs in the real estate trust, who knows. So that might be why that balance is wrong. So again, go back to reconciliation. Let's dive down here a little further. You're going to see the credit cards because there's no assets here. So typically with a law firm, you're not going to see a lot of assets. I've seen artwork, I've seen furniture and fixtures, I've seen computer and equipment, I've seen websites. So they spent $25,000, $30,000 on a website that would sit on their assets and it gets depreciated. You might see those things. Just look at them. If they purchased expensive equipment over $2,500, it should be booked up in the asset. You should have along with that, you know, attach the documents so the tax person has the receipt of the purchase so they can know how to depreciate it. Help them out there. We actually book our own depreciation in, in our firm, but sometimes if you don't have that capability, let the tax person do it and then just give them the— give them the details. They don't have to come back and ask you if they're logged in and they are actually on the file. They can pull that down right on the transaction itself. Um, the credit card's negative. So that's, that's one of my pet peeves. If I see a negative balance— this is a balance, this one happens to be a balance with some negatives as well, with some subaccounts. Typically that happens when, um, and this is possible, they had a credit balance. $4,000 is kind of a lot. Somebody overpaid their credit card, but it can happen. Uh, I would investigate, obviously reconcile, see what's going on in there, see if there's been duplication, or maybe Seen some banks that when you have to reconnect the bank feed, it brings in transactions that aren't necessary. So somebody could have booked in a whole bunch of things there. That would be an indication that a payment was not right, and maybe they booked in a payment twice. I've seen that as well. So just take a look in the balance and look to see what's going on in this account. It's just a matter of clicking on the hyperlink and taking a look at the transactions inside. When you see a parent and subaccounts kind of laying out here, The subs equal the total of the header. Remember, we talked about headers. We don't want to see anything sitting in the header. In this case, you do, but sometimes the payment lands there, but the transactions are in the subaccounts because people are using their credit cards. And it's just a journal entry. You just need to make a journal entry to kind of true up the balances. Even if it doesn't happen exactly at the end of the year, you want to get that balance looking normal. You don't want to look— you don't want it to look strange when you hand the books over to the tax professional. You want to at least show Whatever the balance on the statement says, that's my balance. So whatever my average daily balance is at the end of the year, depending on when your cycle ends, I try to true it up to that. So they've got a real picture of what is in that credit card. And of course, the trust accounts. I've got a header account here. That means I don't know where a transaction goes. That's typically where I'll book something in that's unknown to me. I need to find out where that is. I can't have that booked and hanging as an unknown. So I'll have to go to the client and find out what the $3,800 is. And again, you can look In the account, in the header, and see that, you know, here's the transactions and where do they go. So here's the $3,800 and there's multiple transactions here. Why are they in the header? I can see retainer in and out. It was William Aldridge. Why wasn't it booked to William Aldridge? Those are the things you want to ask. And this one, there's a journal entry, $10,500. It could be that it belongs someplace else. So you really need to find out. Mary Smith, why is it in the header? We know who Mary Smith is. So those are the things you need to clean up. That's part of doing a cleanup when you work with attorneys. And as you know, I like to see this hierarchical view of the total trust, so I can come over here and just collapse the trust to see the total balance. That $50,431.64 should in fact equal my total trust accounts, and it doesn't by quite a bit. Now I don't have a 3-way bank reconciliation happening, so I need to figure out that. And then you can come over here and just change this to group by month. And then run the report. And then track where it went awry. So I can go and just kind of collapse these down. This is just a way to kind of check into things and see. I can collapse down the credit card, and then I can come over to the client trust liabilities and just track it down and see, okay, for— it was off right away in January. So how much further back do I need to go to fix this? It's off by not that much. So I want to see where things went awry. It's only off by a little bit. And then as you go through the months, you'll start to see that right away there's a big problem here. It's all part of the cleanup. You just need to figure all of that stuff out. So this is part of reviewing the balance sheet. The last step in reviewing the balance sheet— and obviously went through the assets and the depreciation— you'd want to go through any loans. If there's a loan, I've seen it where law firms will buy the building that they're in, and sometimes they leave that on the books. Usually lawyers are very smart. They'll put it in an LLC and they'll pay rent to themselves. They'll have an LLC, a separate company. If they have any depreciation, any prepaid accounts, you want to take a look at those as well. I don't have any on this file, but that's something you want to look at. Any loans, PPP loan we're seeing because they've all been forgiven, find out if it's been forgiven. Mortgages, if there's a mortgage on the, on the books, take a look. If you're not working with lawyers and you're working with somebody else, you might see mortgages. Make sure the balance is accurate. I like to take that last month's picture, take, go to the website, pull down the balance, and then take that picture and attach it to the very final amount so that shows it validates dates for the tax professional, my balance aligns with the bank. It's really what they're looking for. And you want that for accurate books for your clients. Trying to think what else I need to talk about. So I didn't want to go too much detail here. One of the last things I do— so imagine I've cleaned all of this up and it's a beautiful, perfect thing. Last thing I like to do for my customer is I like to go back in here and do a balance sheet comparison report. I just want to see where my balances are because this is just a way to kind of look to see. So I could see I had a problem. $1,200 of this $18,775 came from the prior year. So I have to do a cleanup of that. If this is a new client to you, you want to fix, fix that because you want to make sure it's correct. But you're gonna have to make that adjustment in the current fiscal year, the unclosed tax year, right? You want to make that correction, bring it to the client's attention, and just kind of go through and look at the balances. So it's just— and we're going to do this in the profit and loss as well, but this is kind of making sure, because don't forget The balance sheet's like the lifeblood of the company. It's an ongoing history of what has happened in the firm. So you really want to make sure this is very accurate. I usually start here and then go on, move on to the profit and loss. But yeah, you want to just take a look and see how's the balances here. You can see nothing really happened in here from last year. But you just want to go through and look at maybe distributions. Is this, is this hierarchy correct? Why is your money in the opening balance equity account? Shouldn't be there. There should be no money there. So you want to find out what that is. You can see Ali McBeal took some partnership distributions if this is an LLC, but then there's also says shareholder distribution. What is that money? There shouldn't be partnership and shareholders. It's either one or the other. If it's an LLC, this company, and it's acting as an S corp, you want to make sure that you've got the proper terminology on your balance sheet. That's important when you start to do this work. want to see owner's pay and I forgot what the stupid language is that's on QuickBooks, it's generic owner's pay and expenses or whatever it says. You want it to say if they're an actual corporation, you want to see the shareholder or the capital accounts. You want to see for partnerships, the partner distribution and contributions. You want to see that laid out properly. It's important to have the books looking right. So I hope this was helpful. I will definitely reach out Reach out to me if you have any more questions. If you need your books cleaned up, you know they're a mess, please reach out and let me know and we will definitely try to give you assistance. It's what we do. It's part of the work that we do. And as always, I hope you all have a wonderful, wonderful day. Hit the subscribe if you want to learn more. This is part 1 of a 3-part series, so hit the subscribe and you'll get to see in the future weeks where we're going next. Bye now.
