This article is part of a six part section on finance. The pages in this section will take you through the basics of trust and general accounting, including a sample Chart of Accounts for a solo or small law firm, some comments about buying accounting software and some accounting tips.
- If you receive a large sum of cash, count it carefully in the presence of the person giving it to you and another witness and get both to initial the duplicate receipt you keep.
- When a trust cheque is presented to a lawyer for signing, it should be accompanied by a printout of the client's trust ledger card so the lawyer can be satisfied that there are sufficient funds to the client's credit to cover the cheque.
- Check your law society's rules regarding depositing your own funds in your trust account to cover bank errors.
- Do not transfer a retainer from trust to your general account to pay fees until you have rendered a written account to your client. The account should be sent to the client before or contemporaneously with the removal of funds from trust.
- When you render an account that you are entitled to pay out of trust, remove the money from your trust account as soon as you have rendered the account. This will improve your cash flow and prevent any allegation that you are commingling trust and personal funds.
- Never pay personal or business expenses out of the trust account, even if you are entitled to the money. Instead, transfer the funds to your general account and pay the expenses from there.
- Get your trust and your general cheques in different colours to reduce the chance of mistakenly writing a cheque on the wrong account.
- When shopping for accounting software, ask for a list of users in your area and call them to see what they have experienced using the program.
- To do a budget, start with the Annual Plan form, which contains your goals for the next year. Create a spreadsheet based on your Chart of Accounts. Use formulas to analyze the effect of various decisions about revenue, expenses and capital expenditures. If necessary, revise your Plan.
- Keep abreast of developments in the federal laws designed to curb money laundering and terrorist financing through the Federation of Law Societies of Canada Web site and the FINTRAC Web site.
- When you pay trust funds to anyone other than the owner or yourself to pay your account, get the owner of the funds to sign a direction authorizing the disbursement.
- Do not withdraw cash from your trust account – always use a cheque so you create a proper audit trail.
- Placing a client's money in a separate interest-bearing trust account may generate a considerable amount of bookkeeping, so make sure that the interest to be generated justifies the hassle.
- Instead of keeping a petty cash fund, pay cash and write yourself a general cheque covering the amounts owed to you (supported by a receipt or cash register printout). Do the same for employees who use their own cash for minor amounts.
- Get a credit card that you use only for office expenses.
- If you have employees, get an employer number from Revenue Canada. You will be provided with books that set out the Income Tax and other deductions. You are required to remit the employee's deductions and your contribution monthly. You are also required to give your employees a pay stub showing period worked, gross pay, deductions and net pay.