would you like to know what the chart of accounts of a law firm would look like
well then you should stick around for this video setting up a law firm's chart of accounts
if you have any questions about this topic you can leave them in the comments section below and
i'll do my best to help you and of course if you feel the video helped you i hope you will
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you may well ask what is the chart of accounts well in the old days the chart of accounts was
called the general ledger it was simply a notebook where each page in the book was a different record
of a different category of transactions in this example you could see it's a video company so page
one was video income every time they did a video job they wrote it down on page one page six was
repair expense every time they did a repair they wrote it down on page six then when they needed
to make financial statements or do their taxes they would simply take the total of each page
and those totals were the numbers that they put on the tax forms and their financial statements
it's the same exact thing with the computer except it's called the chart of accounts so an account is
an individual record of transactions you need an account for each bank account credit card account
income source and expense that your law firm has you will also need other accounts as well but they
will be explained more clearly as we add them deeper into the course the chart of accounts is
the name of the window that allows you to delete edit and add accounts to the chart of accounts
so here are the example accounts that we will use for this quickbooks online attorneys course
you must have one account to record all the income you get from legal services now you
could separate them into different income accounts so you can track how much money you make from each
separate legal service so as an example of that we will also have another income type of account
for a different service notary public so all the other legal services that we do
will be recorded in legal services income but when we earn money from doing notary service
that transaction would be recorded in notary income then we have delivery expense
to record all the money that we would pay to either ups fedex or any other delivery company
for making business related deliveries we have postage expense for the money that we pay
to mail out letters and serve notice to people who we must contact through the united states mail we
must spend money on supplies we must record in the account called transportation expense
all the money we pay for business related transactions and the two income accounts will
appear at the top of the profit and loss and these four expense accounts will appear in the bottom
section and that report that we show you later will show you your firm's profit and loss
we also have to have a separate record for bank related transactions so we need one account in
the chart of accounts that matches exactly the transactions in our business operating bank
account we also have to have an account in the chart of accounts to keep track of all the money
that clients paid us in advance of receiving legal services for us that account is called
unearned legal fees and it will equal the total of each client's balance for what they paid us
in advance specifically for future legal services then we will have another bank
account specifically for the money that we collect on behalf of the client that we will eventually
pay to the client and of course because we have a bank account that is really the client's money
our books and records must also have an account in the chart of accounts that represents the total
money that we owe to all the individual clients whom we've collected money for and have not yet
paid them so these are the example accounts of a typical general law firm and of course
in your situation you can get more specific if you need to so here are the accounts
when you input accounts into the quickbooks online chart of accounts there is more than just the name
to input you can see from this chart that there are three pieces of data that you must enter when
you set up an account in the chart of accounts first you have to record the account name which
we discussed a moment ago then you have to tell quickbooks online what type of account this is
and only in quickbooks online you have to add another piece of data called detail type and
you will see in a moment as we read from this list and set up our chart of accounts for our
law firm you will see how we put in each of the three pieces of data for each account account name
can be anything you want as long as you know what it means exactly what you type in will
be exactly how the account is shown on reports like the profit and loss and the balance sheet
account type determines what type of transactions can be recorded into it it determines what
financial statements and reports it will show up on and it determines the position of the account
in those reports so be careful to choose the correct account type when we put in
our chart of accounts now detail type is a new piece of data that is specific to quickbooks
online it's usually not relevant it sometimes adds functionality to an account but that's very rare
and we will not need this in our course so we will simply read off the list of accounts
and as we read them off we will record them into the quickbooks online chart of accounts
in the top right we click the cog wheel
we go all the way to the left column your company and go down and click chart of accounts
now if this is the first time you're opening the chart of accounts you have to click this
green button and what you will see are all the accounts that quickbooks online already put
for you and these are general typical accounts that most companies would need what we're going
to do is add the specific accounts that our law firm needs so let's take a look at the list here
and let's put in the first one legal services income and that's an income type of account and
it's service fee income so in the top right we click new and we type in the name legal
well we choose income as the type of account and as the detail type service or fee income and for
the name we put legal service what is it legal services income i suggest you put the cap locks on
and type everything in capital so that when you look at the chart of accounts
you can clearly distinguish between the accounts that we added and the accounts
that were already there in quickbooks online and again the name is legal service income
and then we click you could click save and close
and then observe if you scroll down to the income section you can observe that this account has been
added to the chart of accounts but we will do many in a row click new and then the next one is
notary income and that's an income type of account and that's service fee income so it's an income
type of account its service fee income and its income from notary service i guess notary income
and that's income from performing the nota republic services now you could
click save and close but it would be faster if you just click save and new
and if it disappears it is assumed it's on the list delivery is other business expense expense
other business expense
delivery expense
save and new now postage expense same thing everything but the name
make sure that the type and detail type are the same save and new uh utilities
actually we can skip utilities and put just transportation expense
save a new what else we need a bank account so we'll put cash
in chase bank so this is a bank type of account it's specifically a checking type of account
save and new we also need in our chart of accounts unearned legal fees now
some people will argue that it is not an accounts receivable type of account but i am going to show
you a video very soon that explains logically why you must choose this account type even though
this is a current liability you will see this method works properly for attorneys
so we choose accounts receivable and there's only one choice and we type in
save and new we also need an account where it's a separate bank account because attorneys usually
keep the money they hold for clients usually in a separate bank account from their normal operating
account and that's a bank type of account that can be checking because you have to pay them
periodically and let's name it cash held in trust for clients cash held in trust so let's say bank
checking save and new and the last account represents the money that we
owe to the clients for money that is sitting in the cash held in trust account and that's
an other current liability and look it has its own detail type for attorneys
and companies that operate like attorneys where they collect on behalf of their clients
so the name of it is payable collected clients funds it is a
current liability it is a trust account liability and by the way this little thing here
will explain the type and the detail type and we will put the name payable collected clients funds
and now at the end we can click save and close and if you scan the chart of accounts
you can see that all the accounts and capital letters are the ones that we just added
you can double check to make sure that the type detail type and spelling are exactly what you need
congratulations our example chart of accounts is ready for us to use
you