Published on March 27, 2014
Legal Accounting Joshua Lenon – Clio Omar Ha Redeye – Fleet Street Law Carla Caldwell - Xero
Agenda • Basics of Accounting (5 minutes) • Legal Accounting Basics (15 minutes) • Tools for Legal Accounting (15 minutes) • One firm’s Accounting (10 minutes) • Preparing for Tax Season (5 minutes) • Questions (10 minutes)
Instructors Joshua Lenon • Lawyer, admitted in New York • Lawyer-in-Residence for Clio Carla Caldwell • Director, US Training at Xero Omar Ha-Redeye • Lawyer, admitted in Ontario • Principal, Fleet Street Law • Instructor, Centennial College • Adjunct Faculty, Ryerson University
BASICS OF ACCOUNTING
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
Chart of Accounts Chart of Accounts is a detailed listing of all the names of the accounts useful for reporting • Trust Accounts • Operating Account • Petty Cash • Insurance • Real Estate • Compensation
Proper Accounting Proper accounting tools should produce the following: 1. Income Statement 2. Balance Sheet 3. Statement of Cash Flows
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
Income Statement Bottom Line = (revenues + gains) – (expenses + losses)
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
Balance Sheet Balance sheets should always balance. Assets = liabilities + equity
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
Double Entry Bookkeeping Every entry to an account requires a corresponding and opposite entry to a different account.
LEGAL ACCOUNTING BASICS
Work in Progress Ongoing/unbilled Client activity For accounting purposes, work in progress is considered as a current asset on the balance sheet. Complex calculations needed to determine, based on estimated costs and estimated revenue
Work in Progress
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(
Trust Account Records
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(
Storing Trust Records “original or clearly legible copies” Florida(RULE(5.1.2(TRUST(ACCOUNTING(RECORDS(AND(PROCEDURES(
TOOLS FOR LEGAL ACCOUNTING
Clio Accounting Tools
Clio Accounting Tools
Clio Accounting Tools
Clio Accounting Tools
Using Full Accounting Suites
Beautiful accounting software Introducing Xero
Director of US Education Xero Hi! I’m Carla Caldwell.
• Global leader in online accounting • 210,000+ paying businesses! • 8800+ Xero accounting partners • 575+ staff (US HQ in San Francisco) • A new release every 3 - 6 weeks • Unlimited users with different roles • Bank feeds from 5000+ institutions 2007 2008 2009 2010 2011 Xero: Summarized 201 2
Accounting in Xero • Fast bank reconciliation • Reports & Files • Easy end of year
Next Steps Try for free: www.xero.com/signup Become an accounting partner at: www.xero.com/partners
ONE FIRM’S ACCOUNTING
Differences Between Accounting and Legal Accounting • Trust accounting – Statutory/regulatory duty – Common law duty of trustee • Growing need for Document Management – Attaching reporting letters or memos to docket entries • Increasing demand for mobility – Lawyers on the move or virtual – Loss of billables if not recorded contemporaneously
Legal Incubator (Not a legal services provider) (Independent Others)
Accounting at Aluvion A quick intro to Aluvion’s bookeeping philosophy
Bookkeeping is important. Bookkeeping doesn’t have to be hard. Systems and Organization Drudgery Bookkeeping keeps your client happy. Transparent Billing Surprises Bookkeeping increases profitability. Profitable Work Delinquent Accounts
Aluvion’s Bookeeping Principles Track Everything! -Many Small Entries (mistakes less important) -Store Everything (reliability, analytics) Filter Aggressively! -Limit the noise -Review and track
The Data Collection Funnel Everything Billing Accounting Every step of every task you completed in the office. A summary of every task/deliverable you completed for every client. The result of every financial transaction.
The Data Collection Funnel Everything Billing Accounting Daily and Weekly Review of ‘billable hours’ Bi-weekly Case File Reviews, Invoice Reviews
Tools we use: -Everything -Billing -Accounting
Docketing Tool -Describe every task -Tag them appropriately -Record time away from computer on mobile app, or any other way you feel comfortable
Daily Docketing Review Daily email to review spreadsheet that grabs ‘billable hours’ from their timedoctor. -Ensure only billable work is logged -Ensure time measurements are correct. -Add any time that wasn’t logged via computer.
Export from Spreadsheet to Clio
Systematize Reporting Client Intake Form Clio -Contact -Mater CRM -Source -Closer Client File -Know your Client - Retainer Agreement Xero Information is entered once Information is tracked in many different locations
Contact Information • Email: – email@example.com – firstname.lastname@example.org – email@example.com • Social Media: – Twitter: @omarharedeye – LinkedIn: ca.linkedin.com/in/torontolawyer/
PREPARING FOR TAX SEASON
Solo vs. Partnership Taxes • Solo firm income is treated as personal income for solos. – Must pay Self-Employment Tax as well as Income Tax – Quarterly Payments • Partnerships – Employment Taxes – Annual Return of Income – Personal Income Tax filings per Partner (maybe SE)
Takeaways • Accounting is a complex, but necessary activity for profitable businesses • Proper tools can simplify accounting & prevent ethical errors • Frequent reviews are necessary to capture and bill time effectively.
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
Thank You Joshua Lenon firstname.lastname@example.org @JoshuaLenon Linkedin.com/in/joshualenon
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