With tax season upon us, it is time for lawyers to move beyond boxes of receipts and a spreadsheet for managing firm finances. Learn the basics of accounting and how to better manage your funds in this free webinar on accounting principles that every lawyer should know. Learn from Carla Caldwell, Director of Training at Xero, and Omar Ha-Redeye, Adjunct Faculty at Ryerson University and a practicing lawyer, as they tackle: - The basics of accounting for lawyers - How legal accounting differs from regular accounting - Report and reconciliation issues surrounding trust accounts - How to pick and integrate the best accounting tools for your practice - Steps to prepare your tax return for your firm's income

1. Legal Accounting
Joshua Lenon – Clio
Omar Ha Redeye – Fleet Street Law
Carla Caldwell - Xero

2. 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)

3. 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

4. BASICS OF ACCOUNTING

5. 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

6. 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

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

8. 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

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

10. 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

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

12. 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

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

14. LEGAL ACCOUNTING BASICS

15. 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

16. Work in Progress

17. 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(

18. Trust Account Records

19. 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(

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

21. TOOLS FOR
LEGAL ACCOUNTING

22. Clio Accounting Tools

23. Clio Accounting Tools

24. Clio Accounting Tools

25. Clio Accounting Tools

26. Using Full Accounting Suites

27. Beautiful accounting
software
Introducing
Xero

28. Director of US Education
Xero
Hi! I’m Carla Caldwell.

29. • 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

30. Accounting in Xero
• Fast bank reconciliation
• Reports & Files
• Easy end of year

31. Next Steps
Try for free:
www.xero.com/signup
Become an accounting partner at:
www.xero.com/partners

32. ONE FIRM’S ACCOUNTING

33. 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

34. Legal Incubator
(Not a legal
services
provider)
(Independent
Others)

35. Accounting at Aluvion
A quick intro to Aluvion’s bookeeping
philosophy

36. 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

37. Aluvion’s Bookeeping Principles
Track Everything!
-Many Small Entries (mistakes less important)
-Store Everything (reliability, analytics)
Filter Aggressively!
-Limit the noise
-Review and track

38. 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.

39. The Data Collection Funnel
Everything
Billing
Accounting
Daily and Weekly Review of ‘billable hours’
Bi-weekly Case File Reviews, Invoice
Reviews

40. Tools we use:
-Everything
-Billing
-Accounting

41. Docketing Tool
-Describe every task
-Tag them
appropriately
-Record time away
from computer on
mobile app, or any
other way you feel
comfortable

42. 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.

44. Export from Spreadsheet to Clio

45. 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

46. Contact Information
• Email:
– omar@fleetstreetlaw.com
– omar.haredeye@ryerson.ca
– omarh@gzlegal.com
• Social Media:
– Twitter: @omarharedeye
– LinkedIn: ca.linkedin.com/in/torontolawyer/

47. PREPARING FOR TAX SEASON

48. 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)

49. TAKEAWAYS

50. 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.

51. 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

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