A talk given before the ABA's Legal Technology Research Center in April 2014 by Joshua Lenon. Every year during tax season, you probably end up thinking the same thing: “I’ll be more organized next year!” We’re here to help you follow through with that goal this year – or maybe next. - Get a handle on the basics of accounting - Understand how legal accounting differs from regular accounting - Learn how to pick and integrate the best accounting tools for your practice

1. 5 Steps to Easy(ier)
Legal Accounting
Joshua Lenon
Lawyer-in-Residence
Clio

2. Agenda
1. Create a Chart of Accounts
2. Pick an accounting tool
3. Set up Income Statements and Balance
Sheets to determine profitability of firm
4. Implement best practices for trust
accounting
5. Set weekly, monthly, quarterly, annual
reviews of time entry, billing, and
accounting

3. CHART OF ACCOUNTS

4. Chart of Accounts
Chart of Accounts is a detailed listing of all the
names of the accounts useful for reporting
• Assets
• Liabilities
• Equity

5. State Bar of Georgia’s
Standard Chart of Accounts
• Assets
– Cash in Bank
– Petty Cash
– Client Advances –
Unbilled
– Client Advances – Billed
– Real Property
• Liabilities
– Accounts Payable
– Tax Withholdings
• Segregated Liabilities
– Client Trust Funds
• Equity
– Owners’ Equity
Accounts
• Compensation Costs
– Secretarial
– Paralegals
– Associates

6. ACCOUNTING TOOLS

7. Types of Accounting
Cash Basis
• Revenues are recognized
when cash is received
• Expenses are recognized
when paid
• Usually followed by
individuals and small
companies
• Not in compliance with
accounting's matching
principle.
Accrual Basis
• Revenues are recognized
when they are earned
• Expenses are matched to
revenues or the accounting
period when they are
incurred (rather than paid)
• Better for tracking
profitability
• Required for use by
accountants

8. Types of Accounting
Choose a tool that can handle
both cash basis & accrual basis
accounting methods.

9. Accounting Requirements
• Accounts Receivable
– A system to track what funds are owed a law firm
• Client / Matter Specific Billing
– Linking exact amounts of funds in a firm’s possession
to a client or matter
• Multiple Accounts
– Tracking funds in both operating accounts and trust
accounts
• Fund Transfers
– Ability to track fund transfers between accounts

10. Accounts Receivable

11. Client/Matter Specific Billing

12. Multiple Accounts

13. Funds Transfers

14. Syncing

15. Proper Accounting
Proper accounting tools should produce the
following:
1. Income Statement
2. Balance Sheet
3. Statement of Cash Flows

16. DETERMINE PROFITABILITY

17. Income Statement
• Tracks profitability over a specified time
interval
• Often called the profit and loss statement
(P&L)
• Shows revenues, expenses, gains, and
losses
• Does not track cash receipts nor cash
disbursements

18. Income Statement
Bottom Line = (revenues +
gains) – (expenses + losses)

19. Balance Sheet
• “Snapshot" of a company's financial
position at a given moment
• Tracks current state of assets, liabilities,
equity
– Lawyer’s assets include operating accounts,
work-in-progress fees, office equipment
– Lawyer’s liabilities include loans, accounts
payables
– Law firm equity include capital, retained
earnings, income distributions

20. Balance Sheet
Balance sheets should
always balance.
Assets = liabilities + equity

21. Statement of Cash Flows
Cash amount change over an interval of time
• This is one place where lawyers’ trust
accounts will be tracked
• Pulls information from income statement and
balance sheet

22. Double Entry Bookkeeping
Every entry to an account
requires a corresponding and
opposite entry to a different
account.

23. TRUST ACCOUNTS BEST
PRACTICES

24. Trust Account Records
• Have an IOLTA / Trust
Account
• Deposit Slips
– Date
– Source
– Client or Matter
• Cash Receipts Book
• Disbursement Records
– Cancelled Checks
– Electronic Records
• Ledger
– Client or Matter entries
– Transfers, receipts,
balances & more
• Bank Statements
Florida(RULE(5.1.2(TRUST(ACCOUNTING(RECORDS(AND(PROCEDURES(

25. Trust Account Records

26. Trust Accounting
• Monthly reconciliation
– balance per bank
– deposits in transit
– outstanding checks
• Comparison of
reconciled balances
and ledgers
• Annual listings
– Unexpended trust
money
• Annual accounting
certificate
• 6 year retention
requirements
Florida(RULE(5.1.2(TRUST(ACCOUNTING(RECORDS(AND(PROCEDURES(

27. Storing Trust Records
“original or clearly
legible copies”
Florida(RULE(5.1.2(TRUST(ACCOUNTING(RECORDS(AND(PROCEDURES(

28. Storing Trust Records
TIP: Store PDF copies of
cancelled checks,
reconciliation reports, & bank
statements in your case files for
easy retrieval.

29. SET TIMELY REVIEWS

30. Timely Reviews
• Daily – individual lawyers review daily time
entries
• Weekly – administrators review weekly
• Monthly – administrators and managing lawyers
review trust account information and complete
reconciliations as part of billing cycle.
• Quarterly – managing lawyers review their
firm’s profitability
• Annually – managing lawyers review the annual
period to determine profitability and to prepare
for annual tax filings

31. TAKEAWAYS

32. Takeaways
1. Create a Chart of Accounts
2. Pick an accounting tool
3. Set up Income Statements and Balance
Sheets to determine profitability of firm
4. Implement best practices for trust
accounting
5. Set weekly, monthly, quarterly, annual
reviews of time entry, billing, and
accounting

33. Questions?

34. Thank You
Joshua Lenon
joshua@goclio.com
@JoshuaLenon
Linkedin.com/in/joshualenon

35. And Get Your Free Trial of Clio
goclio.com/signup
Code: ABA0414