does your law firm need to report its financial information
periodically well then you need to watch this video adjusting balances for reporting
if you have any questions about this topic you can leave them in the comment section below and i'll
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unearned income in our records is not correct the unearned account is supposed to match the
total of all clients balances after the last video regarding post service paying clients
the balance of unearned does not reflect the actual amount of unearned legal
fees the balance of the later paying clients do not belong in the unearned income account
they belong in a different account that reflects what is actually owed back to us unearned income
is understated right now by the amount of the balances of the late paying clients
all late paying clients balances should be in another account in the chart of accounts
called legal fees receivable so when is it important to fix this well you can operate
on a day-to-day basis with a single inaccurate trial balance account and that's fine you can
always check the account in the customer balance summary report to see how much of the unearned
balance is for prepaid clients and how much is for clients who pay after receiving the legal services
so from the left panel we click reports and do not go to custom this time
go to standard and scroll down to the section of who owes you and click customer balance summary
now notice there are negative numbers for clients whom we owe future services to and
there's a positive balance that represents that they owe us money for future services
and let's go ahead and click save customization and then click save and well i already did this
but if you didn't do it just save it so that you can click reports custom reports and now the
customer balance summary is in the section of the special reports that we use for a law firm now if
you need to create accurate financial statements you can make a normal accountant adjustment along
with other normal accountant adjustments to make the numbers more accurate for reporting purposes
so what exactly needs adjusting well unearned legal fees has something that it should not
we need to pull out from unearned legal fees the balances of the later paying clients and put them
into another account that represents the legal fees that we are owed from the client i'm sorry
that we uh yes the money that we are owed from the client for past legal services and in order to do
that we make a general journal entry so here's the customer balance summary the way it looks
the two negative numbers are the true reflection of the unearned income so the unearned legal fees
should really be listed as a total of seven thousand dollars in the trial balance and this
two thousand dollar balance that candy has really belongs in another report or another account
called legal fees receivable so let's go ahead and put legal fees receivable in the chart of accounts
we click the cog wheel we go over to chart of accounts in the left column now we click new now
the type should be accounts receivable and i will explain this in a moment but the name should be
legal fees receivable
and then we click save and close so before we make the adjustment let's remember the amounts
the two negative numbers actually belong in unearned legal fees and
this positive number is what we're pulling out of the unearned account and bringing to
the new account legal fees receivable let's go ahead and make the journal entry
from the top left we click new then we go all the way to the right and we click journal entry
now the date of the journal entry should be the date that we're reporting the numbers
and in this example it's january 31 of 2021 click under the word account to bring the
pull down arrow then click on the arrow to choose the first receivable account that we put on the
list originally unearned legal fees because that was the first accounts receivable type account
that's the one that will match the customers balances so on the same line
as unearned legal fees we have to put the customer whose balance we're pulling out
and the amount we're pulling out is two thousand click in the credit column on the same row
and push tab keep pushing tab okay now the account that we just created which was legal fees
receivable that gets debit for 2000 because if you studied accounting you know that this is an
asset that we are increasing so we can report the proper numbers so this becomes debit the other one
becomes credit and if you never studied accounting don't worry it doesn't matter just follow the
steps and apply them to your situation and of course the customer's balance always comes with it
so this is how we adjust customer by customer client by client when we are ready to report our
numbers to make them correct now we click save and close at the bottom and you will see when
we click reports trial balance you will see that the numbers are now correct unearned legal fees
is now the correct number to be placed on the balance sheet and legal fees receivable is also
the correct number that can be placed on the balance sheet in the asset section this can be
placed on the balance sheet in the liability section this would go on the profit and loss
and this would go of course on the balance sheet and the accountant would have accurate numbers to
make the financial reports that's the good news now the bad news is that we now must delete or
reverse this adjustment so after the numbers are reported the adjustment must be reversed
this is because the invoices from late paying clients will be paid after reporting the numbers
in quickbooks online recording receiving invoice payments will change the unearned account that's
a behavior that we cannot change in quickbooks online but it will make our numbers wrong again
so we must reverse it we must reverse this journal entry until we need to formally report
our financial statements again and then when we need to report it again we will do the same
type of adjustment go and report the numbers then come back to quickbooks online and delete it
we only need to report once a year or at maximum if you have a large firm once a quarter
and it's only a one second adjustment for each individual client's balance if you need to and
of course there are other summary solutions if you have a full-time accountant working with you
and that account might think of other ways to adjust before reporting but for our purposes
let's go and delete that entry let's double click legal fees receivable and you see the journal
entry is right here journal entry double click at the moment the transaction or adjustment is in
front of you the one that you want to delete you go to the bottom and click more and click delete
are you sure yes now when we go back to the trial balance the numbers are the way they were before
but we need them to be this way when we operate on a day-to-day basis
and we only stop and adjust when we need to report that remove the adjustment and continue forward