Accounting for Lawyers
E_Hernandez_Esq
Member Posts: 1
I am having difficulty getting over the last hurdle of having a working model for my Trust and Operating Account. I practice personal injury law and must hold settlement proceeds in my Trust account before disbursing the proceeds to myself, client, and other entitled parties. Once I finalize everything I created different express accounts for keeping track of what funds were going to who. The balance and reporting in my trust and operating account come out fine this way but the Liabilities account does not reflect the disbursements that have been made as expenses, so my balance is way off in the liabilities section. What can I do to fix this issue and have my liabilities account match my bank account balance? Thanks.
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Comments
E_Hernandez_Esq,
Transactions in the trust fund should only go between the asset and the liability to increase and decrease the balance of the trust fund. For example, let's say the fund has 300k. You won a case and are entitled to a 50k fee. Entries for the trust fund. Debit Trust Fund Liab 50k Credit Cash Trust Fund 50K. The balance is now 250k which would agree back to bank. Your books: Debit cash 50k credit sales 50k. My experience with attorneys is that they typically keep a separate ledger to record receipts and disbursements with in the trust account. That way notes and narratives can be added. For clients I service with a trust fund, the balance of trust fund recorded in Wave actually does not change, as there no transactions being kept up within Wave. At the end of the year I will make an adjustment to true up the balance to actual. Hope that makes sense.
Mike G, CPA
www.mgfinancial.net
Better Service - Better Pricing
Hey @Mikeg thanks for the insight, I'm not sure if that would have solved my issue but I was able to find a solution yesterday. I basically created a journal transaction and debited the funds in the liability account I created called funds in trust (my settlement/retainer funds) and credited the transactions for the various disbursements I made. It did not alter the balances in the trust account but did make the adjustments to the liability account allowing me to now reflect an accurate balance sheet in my reports.
TrinityMediations,
That's good to hear that you have it agreed back. I would keep in mind that Trust Fund transactions (receipts and disbursements) should not run through the income statement. Receipts by the trust fund are not income and disbursements are not expenses. I'm thinking by your description that when monies were paid out of the trust fund the debit went to the income statement. Your journal transaction just negated those so that the liability agreed to the trust fund balance. In the future, you may want to consider just debiting and credit the trust fund accounts to update the balance.
Mike G, CPA
I have been going through a similar problem handling the trust account transactions. I get funds from clients in the Trust Account. The earnings are then transferred to the Business Account. I have not found a suitable workaround to this to meet the legal aspect of the transactions.
I had been with QuickBooks, and they make the process a breeze, by simply allowing us to categorize the Bank Account as Trust Account. The rest is simply taken care of by posting the transactions. The QuickBooks way then categorizes the entries correctly and does not identify monies going in and our of Trust Account as actual income or expense.
Wave has limited the categorization of bank accounts to just an asset. It would be good to mark a bank account as a Trust Account, which can then function as a Liability account, wherein we can create sub-accounts for customers money in trust. This would be proper method for noting all the transactions in and out of Trust Account, individual trust account (sub-account) of customers and the Business Account.
I hope Wave can come up with a solution to this.
@Nack, I wholeheartedly agree. A trust account option seems like a reasonable and simple solution. Anything else will likely require a cumbersome and comparatively time consuming journal entry workaround.