Legal Accounting

transcript

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

•  Annual accounting certificate

•  6 year retention requirements

Storing Trust Records

“original or clearly legible copies”

TOOLS FOR LEGAL ACCOUNTING

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

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

Information is entered once

Information is tracked in many different locations

Contact Information •  Email: –  omar@fleetstreetlaw.com –  omar.haredeye@ryerson.ca –  omarh@gzlegal.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

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 joshua@goclio.com @JoshuaLenon Linkedin.com/in/joshualenon

Legal Accounting

Economy & Finance