Understanding Trust Accounting
To maintain public credibility accurate trust accounting is crucial for your law firm. Trust accounting for law firms acting as trustees to manage the assets of a trust-maker may require the need for obtaining specialized accounting services as attorneys specializing in trusts and estates should use the appropriate accounting method when reporting to the Internal Revenue Service (IRS). In this article, we will explain everything you need to know when it comes to managing trusts from a law firm and business or individual making use of that law firm’s perspective.
What is Georgia IOLTA Trust Accounts Bookkeeping
IOLTA is a legal reference used for trust account bookkeeping. Specifically, it stands for Interest on Lawyer Trust Accounts for Georgia IOLTA trust accounts.
How The Typical Individual Contributes To IOLTA
Entities ranging from large corporations to single individuals occasionally have the need for attorney services. Once you employ the services of an attorney, they usually require a retainer deposit, which the attorney must deposit into a bank account at a Georgia-approved bank for the Georgia IOLTA trust accounts. The attorney would deposit the money into the lawyer’s trust account. Retainers are not the only reason an attorney might deposit funds in a lawyer trust account. Sometimes a client leaves a large sum of money with their attorney because those funds are in dispute.
Georgia IOLTA trust accounts safeguard the interests of an attorney’s client, to ensure that the lawyer isn’t unethically using a client’s money for his own interests. Escrow accounting audits review trust accounts often to ensure the ethical usage of these funds.
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What is Trust Accounting and Its Method for Recording Transactions
Whether your state rules that as a law firm, you must have a separate trust account for each client or allows for you to combine all clients’ trusts into one account, it is imperative nationwide to keep trusts separate from your firm’s operating account.
The IRS defines trust as “a relationship in which one person holds title to the property, subject to an obligation to keep or use the property for the benefit of another.” Determining the proper treatment for tax and financial statement reporting requires trust accounting for processing and identifying the expenses of trusts in different categories.
While scrutinizing every transaction in and out and between accounts doesn’t mean you need to pour over tons of receipts and checks for hours; and while occasional “trust shortage” may be easily rectified, the situation where funds are dispersed erroneously or inappropriately can have disastrous consequences. Inadequate financial recording of trust transactions can result in fees, penalties, and other legal repercussions, which might tarnish the reputation of your law firm.
Using the Cash-Based Accounting Method for Trusts
Understanding cash-basis or tax-basis financial statements for small to medium-sized law firms is significant if you need cost-efficiency for your law firm. Entities such as Trusts may use the cash-basis of accounting rather than adopting GAAP guidelines, which is costly for maintaining financial records. When applying the cash-basis accounting method, the financial statements reflect all transactions for “cash receipt and disbursements or events.” An advantage of adopting the cash-basis accounting method is that there are liabilities and the need for preparing a balance sheet in trust accounting for lawyers. Accounting software is the best solution for recording-tracking transactions, preparing financial statements, and ensuring IRS and AICPA requirements comply.
Fusion CPA can help your firm understand the appropriate accounting methods to apply when dealing with trusts
Zola Suite vs. QuickBooks Software Applications
Implementing accounting software to manage and track a trust’s transactions is helpful for trust accounting, preferably the Zola Suite. Although some trust attorneys use QuickBooks, Zola Suite can integrate with QuickBooks Online to incorporate trust expenses and income. While Zola Suite has a technology design for trust accounting and recording legal transactions, QuickBooks is for basic accounting, payroll, and financial management needs.
Integrating Zola Suite with QuickBooks Online allows outsourced certified accountants to streamline your accounting tasks in real-time when viewing financial transactions. Both accounting applications are perfect for small and mid-sized businesses, but Zola Suite is more suitable for laws firms and trust attorneys. QuickBooks is for companies needing bookkeeping and accounting, including bank reconciliation, accounts payable, accounts receivable, and financial statements. Rely on outsourced trust accounting services for software applications integration offered by a CPA.
With Zola Suite software for trust accounting and a partnering outsourced accountant, your accounting processes will smoothly and proficiently run in real-time. You should be confident in accurate bookkeeping and report filing with the Internal Revenue Service under AICPA requirements. Financial services specializing in trust accounting for lawyers can eliminate the complexities associated with GAAP and AICPA guidance.
Advantages of Outsourcing Services for Trust Accounting for Lawyers
The most reputable firms in the country know that trust accounting for law firms must be as highly prioritized as finding talented attorneys. Even though you may not need a full-time accountant to handle the banking for your trust accounts, having someone who is knowledgeable and reputable keeping your firm in compliance with state and federal law can save your company from significant loss. Trust accounting for law firms can be risky business if you aren’t staying current on the ever-changing rules. Finding a bookkeeper familiar with trust accounting will prove to be an invaluable asset to your company.
The benefits of partnering with reputable CPAs for professional accounting services for trusts:
- Accurate calculations of your clients’ trust accounting income, including dividends, royalties, rents, expenses, income, and depreciation based on your state’s guidelines.
- No balance sheet preparation using the cash-basis accounting method.
- Low operational cost-efficiency when applying cash-basic accounting.
- Possible reduced costs associated with benefits and employer’s taxes that come with hiring an internal CPA.
Our team of accounting specialists and certified public accountants at Fusion CPA specialize in trust accounting and technology applications for law firms. We have expertise in tax consultation, income tax filing, financial statements, financial planning, and business advisory. Contact us to learn more about our trust accounting services, Zola Suite software, QuickBooks Online integration, and how we may help your law firm grow. Eliminate unnecessary costs using GAAP accounting and possibly save money applying the cash-basis method for most trusts with accurate trust accounting.
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