How To Set Up Trust Accounting in QBO Advanced (WIthout LeanLaw) QuickBooks Online for Law Firms - YouTube

This video will cover how to setup and use trust accounting and QuickBooks Online. this is the hard way without LeanLaw.

I'm going to cover five areas: chart of accounts, deposits,

creating invoices,

Paying invoices, and trust account statements. First is the chart of accounts. I have a sample account, here.

We can see two bank accounts: my operating account or checking account,

And then I have my IOLTA bank account where I keep my client trust money.

It's marked as a detail type trust account. that's important. so that's our starting point, two bank accounts.

To prepare QuickBooks for trust accounting, we need to create the liability account.

That's detail trust account liabilities that we'll call Funds Health and Trust. This liability account, here

Balances out the bank account, and they always need to be in balance.

But we use the liability account to keep track of to which client we owe which money. So that's the chart of accounts.

Next we'll go over how to record a trust deposit. the first thing is to add a client:

there it is our sample client. the temptation here is to do a receive payment or maybe a credit memo

But that is not the way to do it. what we have to do is first prepare the chart of accounts,

So that there's a sub account under funds Held in Trust for that client.

So what we're going to do is create another liability account with the detail type of trust account liabilities.

We'll name it for the client, sample client.

And then the key thing is making it a sub account under the funds held in trust liability account.

We see here that we have a sub-account and as we take money from the clients,

Sub accounts will appear under the funds held in trust and we can immediately see how much money out of the bank account

We account for which client. so that's preparing us for receiving a retainer from that client.

Next we create a deposit and this will be a deposit into the IOLTA or trust account.

And then we say that it's received from our sample client.

And this is the key thing here: the account for this deposit line item needs to be the sub account

Under the sub-liability account that we just created. this is absolutely key to keep track of the money correctly.

So we set that here we say received retainer. say it was check in the amount of

$5,000 press save. all right, now

We can see here in our chart of accounts that we have five thousand dollars in our bank account and that we show five thousand

Dollars under the sample client, so it means that they have five thousand dollars in our trust account.

Let's quickly create another client, another client, and then we'll create an account for them under the liability account

sub account of funds held in trust. save.

Now, let's clear another deposit.

For this client, we now set the account to their account under funds held in trust. it's another retainer. Let's say we got

$2,000 from these guys, and now let's look here. We have a clearer picture of the trust account.

Seven thousand dollars total. two thousand from the other client and five thousand from the sample client. you still with me?

Next is invoices. Let's create an invoice from one of the clients.

First one, new transaction invoice and we create some work, and we have two thousand dollars worth work now.

We have five thousand dollars in the trust account, but it doesn't show up here.

So I create the invoice here, and now we have an invoice of two thousand dollars for this client.

And his balance is two thousand dollars owed.

in QuickBooks,

You can't see the trust balance and the account balance in the same place.

To see the trust balance you have to go over to the accounting tab and see that he has five thousand dollars available.

I'd like to put that on the invoice. the only option is to use the memo field, down here to say something like,

current retainer balance five thousand dollars balance after invoice payment three thousand dollars.

Now the client understands that this invoice will be paid through the trust account.

For every invoice, you will need to manually update the memo field. next is payment

So how do we pay the invoice? there's an open invoice here for two thousand dollars, and I want to pay it through the trust?

We do a check where we pick the client here, sample client,

And we pick the IOLTA account as the bank account, and then we add a line item, here.

Where we reference the liability account for that client, here and say payment of invoice, two thousand dollars,

client, sample client and done.

And then the second step we need to do is record a payment of the invoice.

So we say for example, check,

payment invoice

$2,000, save. let's look at what that did in terms of our balances. now

The sample client, here, his account balance is zero and when you go to the chart of accounts, the IOLTA bank account balance is

$6,000 and the operating account balance is

$2,000. we transfer

$2,000 essentially from the trust account to our operating account.

So now it's our money essentially. from the liability side we now see that the client's liability is down to $3,000. so he has

$3,000 left that we're holding in trust for this one. It's all accurate.

The key thing is to have those two transactions go in and then also we need to then transfer the money from our bank account.

So that's a payment.

It's two transactions. the final step is trust statements.

At any moment you have to be audit ready. that includes always being able to account for the money in the trust account and giving

detailed statements of

transactions for each client.

If you want to see the summary of all client balances for your trust account, you can click the chart of accounts

showing a list of

Liability sub accounts. if you want to see the detailed transactions for a specific client or matter, you just click on their liability account.

Now there are some rules that differ by state with regard to how money is received.

It's important to go over these rules with your accountant or bookkeeper.

And that's trust accounting in QuickBooks Online without the help of LeanLaw.