the method of bookkeeping that you are learning in this course is perfect when using QuickBooks
for a law firm if you follow the steps perfectly your QuickBooks records will always be correct
to the last detail the only thing you have to be vigilant about if you're using our method is
adjusting the accounts receivables accounts clients with different payment arrangements
can be separated into separate accounts receivable accounts those who pay in advance can have all of
their invoices and payments recorded to and from the unearned retainer fees account but those who
pay after receiving the service can have all of their invoices and payments recorded to and from
the legal fees receivable account both of these accounts listed in red are accounts receivable
type of accounts but what if a good client starts to pay late well that's no problem you can keep
doing the same thing for the saint in the same way for about one or two months but if it gets
worse just record their invoices normally and make sure you choose the legal fees receivable
account as the accounts receivable account if we were making invoices that they did not pay
but what if the opposite happens what if a late paying client starts to pay early it's very rare
that a client will change from paying late most of the time to suddenly paying in advance or even
vice versa but if it does happen you will have to record that one payment twice that's called
splitting the payment now the specific payment that we're talking about is the payment that
changes the balance from negative to positive if you ever get a payment that changes a client's
balance from them owing you to the opposite now after this big payment you owe them step 1 record
the entry and record the payment normally except make sure that the amount the money amount that
is is equal to the open overdue invoices meaning record it the way you normally would but change
the money amount to be only equal to the balance of the customer then record that exact same
payment again with the exact same information but record the money amount as the remainder of
the payment now in the first entry you have to make sure that the accounts receivable account
you choose is the legal fees receivable account that's because if the invoice is not yet paid
it means the invoice was recorded into legal fees receivable and therefore that's where you have to
put the payment in the second entry there was no invoice that you're paying so the entire amount of
the excess is unearned so in the second entry to of the exact same thing you did in the first entry
except make sure again the money amount is the remainder and the accounts receivable account you
choose is unearned retainer fees for example let's imagine on march 1 Kandee pays three thousand four
hundred fifty dollars for both past and future invoices and she pays us with cheque number 847
well obviously the first $450 pays off the past due invoice because that's her remaining balance
the remaining three thousand is unearned retainer fees that Ross will earn from candy in the future
so how do we do this it's no problem number one record the payment that makes the balance change
to positive which is this particular payment by the way we're going to record this payment from
candy two times the first time you record it we will put the money amount as 450 and the accounts
receivable account that we choose will be legal fees receivable that's because that 450 is on an
invoice that went in to the legal fees receivable account then we're going to record that exact same
payment again except the money amount will be the excess 3,000 and the accounts receivable account
will be the unearned retainer fees receivable from the icon bar click payment the date of the payment
was March 1 of 2017 the client was candy and the check number was 847 put everything the same in
both entries except we're going to put for this first entry four hundred and fifty dollars just
to pay off the remaining balance and the other exception is that we have to make sure in this
case we're okay we have to make sure that the specific accounts receivable account we choose
is legal fees receivable that's because this $450 is from this $900 invoice that was recorded into
this account legal fees receivable and that's all you have to do again I advise make good use of the
memo field down at the bottom and really explain what this entry is then click Save and close and
now we'll make the exact same entry on the exact same date with the exact same client and we'll
even put in the exact same check number that'll make it easy when you do your bank reconciliation
the only difference in this second entry is we're going to put the remaining money amount and we're
going to change the accounts receivable account to unearned retainer fees so this money is not being
applied to an invoice at the moment you receive therefore it is unearned and should go into this
particular unearned receivable account and again before you close the window and save it I think
you should come down to the memo field and explain this as best you can save and close now remember
the client paid in advance and they want document as proof so we print credit memo and in this case
I'll preview it on the screen and the client is entitled to a retainer receipt just like we
made before and that retainer receipt should be the amount of the excess $3,000 now you can see
that your customer reports are perfectly correct the open invoice report shows there are no open
invoices for candy and she has a surplus payment of three thousand dollars of future services
coming to her and the client balance detail which is the most important report in this case shows
what's the most important thing notice the balance was negative then the balance went positive and we
switched from the unearned retainer account to the legal fees receivable account let's just show this
a little more clearly okay so when the balance went from negative to positive that was the moment
that we changed from the unearned retainer fees receivable account to the legal fees receivable
account and then at the moment the balance changed from positive to negative that was the moment we
switch back to the unearned retainer fees now you may well ask what if you keep forgetting to
change the receivables account for example in the transaction that we just recorded let's imagine
you forgot to change the receivables account and you recorded one payment of the entire
amount then you left that mistake sitting there for several months and let's imagine you made
several invoices after that mistake and all of those invoices have the wrong account receivable
account well if you can imagine someone who did it wrong for a long time it will be easy to fix
let's just compare the right results to the wrong results before we discuss how to fix it
this is the way it looks if it's correct notice the unearned retainer fees becomes the accounts
receivable from the moment the balance goes from positive to negative and then every future invoice
has the correct accounts receivable account these two invoices are taking from the unearned account
because they were prepaid into unearned rent before these invoices were made that's why
these invoices are correct when they say they're in the unearned retainer fees receivable account
however if you look at the wrong way you can see the balance goes from negative to positive and
the person keeps the accounts receivable account as legal fees receivable it should not be legal
fees receivable if the balance is negative if the balance is negative it means you owe them
but the legal fees receivable account means they owe you so that's the difference in the way it
looks between the wrong way and the right way now I put into the file the wrong way so that
you can see how you would fix it it's very simple first you would change the double-click and open
up these invoices and change it to the correct accounts receivable account then you would delete
the one wrong payment and re-enter it properly with the right amounts and the right accounts
so what are the official steps if you forget to switch the accounts receivable accounts and
now you're trying to fix it well it's very simple number one look at the most important report the
tenant balance detail number two find the payment that changes the balance from negative to positive
number three fix it by making it into two separate entries exactly the way we showed then make every
following invoice go to the unearned rent income account so let's take a look at how to do this
so here we are at the client balance detail and you'll notice if the balance is negative at the
moment these invoices were made then they should not be recorded into legal fees receivable they
should be recorded instead into unearned retainer fees so let's double click change the accounts
receivable account save and close yes do it for the next one double click change the accounts
receivable account save and close yes now we're almost finished the problem is that this payment
of three thousand four hundred fifty needs to be split four hundred fifty has to be received into
legal fees received and the other three thousand has to go into unearned retainer fees so let's do
this let's just make it an even three thousand and let's just change it into unearned retainer
fees because three thousand is the amount that is the excess that's unearned as of March 1 now
the only other thing we have to do now is put back that $450 payment so it's still March 1 it's still
candy it's still checked number 847 now it's an amount of 450 and that 450 if you remember that
450 should go to legal fees receivable because remember that 450 is paying down the remainder of
an invoice where the whole invoice went into legal fees receivable so the payment and the invoice
have to come in and out of the same account save and close and now when you look you see that it
now looks correct at the moment well you know it's a little bit out of order because these
two are really the same payment okay this went back to legal fees receivable but it's correct