Attorneys at small law firms must wear many hats. In addition to practicing law, they often act as office managers, bookkeepers, marketers, and salespersons. It can be daunting managing every aspect of your business, especially if you’re a solo practitioner. When you have practice management software that can take at least some of the burden off your plate, you will free up more time to practice law, which is why you got into this profession in the first place. A system that can manage your clients in a CRM, send payment reminders to clients, manage your trust accounts, and help you with your office accounting can be invaluable. It’s essential to understand the two different ways of handling your office accounting and how the integration of LEAP and QuickBooks Online works for each of these methods.
Cash vs. Accrual Accounting
There are two different ways for law firms to track their accounting. The difference between these two methods is simply a matter of when you choose to record transactions in your accounts.
In cash basis accounting, transactions are counted only when you pay or receive money. There are no accounts receivable or accounts payable maintained. In accrual basis accounting, revenues and expenses are recorded when they are earned, regardless of when the payment is actually made or received.
Large companies are required by the IRS to use the accrual method of accounting if they make over a certain amount in gross receipts per year. Many large companies that can hire entire accounting teams have the resources and the staff to manage both cash and accrual accounting at once. This method provides the most precise picture of the financial situation of the company but requires a significant amount of time and work to maintain.
Maintaining both accounting methods is usually not feasible for a small law firm or a solo practitioner. Small law firms and solo practitioners often do not have the cashflow to have. Often the bookkeeping will be taken care of by lawyers, support staff, or a part-time bookkeeper. Large companies that have the resources to devote to a full-time bookkeeper or an entire accounting department can afford to record transactions on an accrual basis because they do not have to worry about the day-to-day or month-to-month balance of the bank accounts.
If you’re a small law firm, you likely operate on a cash basis. Cash basis accounting is an excellent method for maintaining a view of the real cash flow of your firm. This is important for small businesses that can have issues with their cash flow. It’s crucial to maintain a view of the real impact transactions are having on your bottom line, especially if the risk of going negative is possible. If a client pays late or is only partially able to pay their bill, your actual cash flow could vary wildly from the amount you have invoiced.
Also, it can be difficult for small law firms to collect on invoices promptly. If you’re operating on an accrual basis, you may be seeing a misleading view of your firm’s expenses that doesn’t tell the whole story. You should research the benefits and the drawbacks of using both the cash and accrual methods and decide which way is the best fit for your firm.
Practice Management Software Integration with QuickBooks Online
No matter which type of accounting your firm uses, there are ways to simplify the process. You can save time on your bookkeeping by using practice management software that integrates with your accounting solution. One example is the integration of LEAP with QuickBooks Online.
LEAP uses QuickBooks Online for the general ledger of the firm. You wouldn’t expect a practice management system to implement a custom word processing solution when Microsoft Word is the preferred standard for most of the world. Rather than reinventing the wheel when it comes to office accounting, LEAP has chosen to integrate with QuickBooks Online, which is the standard for most small businesses across the United States.
Rather than switching back and forth between your bank statements and QuickBooks Online, you can set up your QuickBooks account to have your bank transactions automatically imported into the software. This will save you significant time transferring your data from your bank statements into your account software.
If you’re accounting on a cash basis, highlighted funds, client credits, office payments, client fees, payments received, payment write-offs, and cost recoveries will flow from LEAP into your QuickBooks Online Chart of Accounts. If you’re operating on an accrual basis, all the previous ledgers will be used in addition to ledgers for debtors, debtor’s adjustment, and debtor write-offs.
Instead of transcribing everything from your practice management software into your account software or your bank statements into QuickBooks Online, integrating these three programs will cut down on double data entry and allow you to work more efficiently than ever before. Learn more about integrating your bookkeeping and practice management solutions and see an obligation-free personalized demonstration of LEAP to know if it can be a fit for your firm.