Critical QuickBooks Online Trust Accounting Challenges for Law Firms
When it comes to accounting software, QuickBooks remains the go-to solution for many businesses. With the recent move to the cloud in the form of QuickBooks Online (QBO), more and more companies across industries are taking advantage of the program’s extensive on-demand capabilities for their business accounting needs. However, while many law firms continue to use QuickBooks and QBO as their general accounting platform, it is important to recognize the unique challenges specific to law practice that the software presents. Due to specific rules and regulations, the areas of trust accounting, billing, and client cost tracking pose critical challenges to law firms that businesses in other industries do not face.
In a recent article titled The Critical Challenges of Using QuickBooks Online for Law Firms, Quickbooks expert Caren Schwartz highlights the major shortcomings of QBO. Today we’ve summarized the first part of her article that deals with Legal Trust Accounting here and are looking at the top reasons why switching from a general to a legal-specific accounting solution may be the right move for your firm.
Trust Accounting Challenges in QBO
Challenge #1: inability to ensure all funds are tracked to its client matters
While QBO can track funds by client and matter, your firm must be diligent to manually include the client matter on each transaction, which is time-consuming and can be prone to error. By using a legal-specific solution instead, you can ensure all funds are automatically tracked to their client matters in real-time, as each has an individual ledger containing its respective balance and transactions.
Challenge #2: inability to prevent client ledger overdraft
Even if you properly include the client matter on every transaction, there is no way to prevent the overdraw of a client’s fund account when using a general program like QBO. A more specialized, legal-specific solution can have safeguards against the possibility of an overdraft.
Challenge #3: workarounds to generate three-way reconciliation reports
The “three-way reconciliation” is a report that is required in many states, especially during an account audit. This report breaks down your book balance, bank balance, as well as the sum of individual card balances (i.e. all accounting for funds in transit) – all in a single report. QBO can produce multiple reports that show the individual balances included in a three-way reconciliation, but it does not have the ability to run a summary report and it requires additional work in third-party programs to tie the reports together and make them understandable. Look for a legal accounting solution that includes automatic three-way reconciliation. Not only does this help come audit time, but it also allows you to quickly discover any mistakes and address them promptly.
Challenge #4: inability to lock books post reconciliations to prevent accidental edits
While QBO allows bank reconciliations at any time, there is limited ability to lock the data. If you are using a general accounting platform, though you can download data to ensure all transactions are present, you must be careful they are properly coded (including clients), as this is not automatic or guaranteed to be correct.
These are only a few of the top reasons why a general accounting software can create challenges when it comes to legal trust accounting. While a general accounting tool like QBO offers many good features and numerous add-on capabilities, it is critical to recognize the needs specific to law firms that may go unsupported. Of course, each practice is unique, and it’s important to take the time to properly assess the current processes in place to find the software and systems that work best for your office. In coming posts, we will continue to analyse Caren Schwartz’s article, diving even deeper into the challenges law firms face in billing and client cost tracking.
If you would like to learn more about The Critical Challenges of Using QuickBooks Online for Law Firms, please take the time to read Caren’s article. For an interactive discussion on the same topic, be sure to view our webinar of the same title. You can access the webinar here.