Notes
PCLaw® Accounting
PCLaw 12 New Certification Training
Virtual Training - Lesson 6
Business of Law Software Solutions
Practice Management
Copyright © 2012 LexisNexis, a division of Reed Elsevier Inc. All rights reserved.
Notes
Notes
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Updated 9/07/2012
Table of Contents
Introduction to Accounting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
G/L Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
G/L Account Types . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
G/L Accounts in a Tree Format . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
G/L Accounts in a List Format . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adding/Changing G/L Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3
4
6
7
PCLaw Accounting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Generally Accepted Accounting Principles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Accounting Methods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Accounting using the Cash Method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Tracking Client Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Creating Bills . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Receiving Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Changing/Writing Down Bills . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Tracking Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Accounting Using the Modified Cash Method. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Tracking Client Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Creating Bills . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Receiving Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Changing/Writing Down Bills . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Tracking Accounts Payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Accounting using the Accrual Method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Tracking Client Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Creating Bills . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Receiving Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Changing/Writing Down Bills . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Tracking Accounts Payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Posting to Control Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Using Control Accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Determining when a G/L Account is a Control Account . . . . . . . . . . . . . . . . . . . . . . 32
Control Accounts in PCLaw . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Reserved Accounts in PCLaw. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
PCLaw 12
i
Using the Client Disb Clearing Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allocating to the Client Disb Clearing Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Guidelines for Using the Client Disb Clearing Account . . . . . . . . . . . . . . . . . . . . . . .
Changing the Client Disbursement Clearing Account . . . . . . . . . . . . . . . . . . . . . . . .
Expense Recovery Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contra Expense Accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Using Only Expense Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Using Expense Recovery Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
35
35
35
36
37
37
37
38
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Producing Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Common Tab of G/L Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Other Tab of G/L Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Determining the Report Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Working with the General Ledger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Viewing Non-Detailed General Ledgers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Viewing Detailed General Ledgers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reading General Ledgers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selecting General Ledger Templates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Working with Trial Balances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reading Trial Balances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selecting Trial Balance Templates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Working with Income Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reading Income Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selecting Income Statement Templates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Working with Balance Sheets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reading Balance Sheets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Understanding the Equity Section . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selecting Balance Sheet Templates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Calculating G/L Balances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Working with Departments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tracking G/L Revenue by Department . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Assigning Departments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Realizing Revenue When Billing or Receiving Payments . . . . . . . . . . . . . . . . . . . .
Producing Reports by Department . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Working With Parent and Sub Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Parent Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Assigning Sub Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Viewing a Chart of General Ledger Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Producing G/L Statements for Parent/Sub Accounts . . . . . . . . . . . . . . . . . . . . . . . .
Producing Consolidated Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ii
PCLaw Accounting
39
40
41
42
43
43
47
48
50
50
50
52
52
52
54
54
55
55
58
58
60
61
62
63
63
63
63
64
64
65
66
Reconciling PCLaw . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Reconciling the Trust Bank. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reconciling the General Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reconciling Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reconciling Client Disb Recov (1210) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reconciling Client Disb Recov (1210) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reconciling Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reconciling Value Added Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PCLaw 12
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70
72
74
75
77
79
iii
Introduction to Accounting
Notes
PCLaw follows Generally Accepted Accounting Principles (GAAP) in
its General Ledger module. When the Use G/L Accounting option is
enabled in PCLaw, double-sided accounting entries are used to
record transactions. Source journals are used to store both
transactions and familiar financial statements, such as the General
Ledger, Trial Balance, Income Statement, and Balance Sheet, which
are used to report and summarize transactions.
Using GAAP means that most accounts and journals can be
reconciled. Various techniques and troubleshooting routines are
associated with G/L reconciliation to accomplish this task.
This lesson covers all the above, from the basic process of creating
a general ledger account, to the complicated procedure of balancing
a firm’s set of books, to understanding why a transaction acts the
way it does. Some of the topics have been introduced in previous
virtual training sessions, with less focus and detail as described in
this session.
Objectives:
Upon completion of this lesson you will be able to:
PCLaw 12
•
Manage general ledger accounts.
•
Produce and analyze financial statements.
•
Reconcile discrepancies between journals, client ledgers,
and the general ledger.
•
Recognize how PCLaw handles different transactions,
such as revenue and expenses.
1
Notes
2
Notes
Introduction to Accounting
G/L Accounts
Notes
General Ledger (G/L) accounts are used by firms that use PCLaw to
produce income statements and balance sheets. You can access
General Ledger accounts by typing the G/L account nickname.
For example, to access the Petty Cash account, type in 1098, which
is the account nickname initially assigned to Petty Cash.
G/L Account Types
Each G/L account is assigned an account type which determines
whether the account is to appear on the Income Statement or the
Balance Sheet. The account type also determines where it is
included on the particular statement.
Account
Type
Account
Nickname
Range
Statement
Description
Current
Asset
Balance
Sheet
Dr
1000-1499
Resources owned by the firm
including bank accounts,
petty cash accounts, and
accounts receivable.
Fixed
Asset
Balance
Sheet
Dr
1500-1999
Resources owned by the firm
including furniture and computer equipment.
Current
Liability
Balance
Sheet
Cr
2000-2499
Obligations that the firm has
to other parties such as taxes,
loans, and accounts payable.
Long Term
Liability
Balance
Sheet
Cr
2500-2999
Long Term liabilities are debts
that are normally repaid over
a period of more than one
year.
Equity
Balance
Sheet
Cr
3000-3499
Resources invested in the
firm by the owners. This corresponds to the difference
between assets and liability.
PCLaw 12
3
Notes
Notes
Account
Type
Account
Nickname
Range
Statement
Description
Retained
Balance
Sheet
Dr/
Cr
3500-3999
Equity accumulated/paid by
the firm during the fiscal year.
Although these accounts
appear on the Balance Sheet,
their balances are zeroed out
at year end, and applied to
Equity.
Dividend accounts in corporations and Drawing accounts
in partnerships are Debit balance accounts.
Income
Income
Statement
Cr
4000-4999
Income earned or received
for services including fees,
interest, and rental income.
Expense
Income
Statement
Dr
5000-9999
Operating costs incurred by
the firm such as salaries, rent,
insurance, telephone
charges, and office expenses.
G/L Accounts in a Tree Format
Options > Lists > G/L Accounts
The user is given the option to use either the List or Tree format for
the pop up help windows. Check Tree View Style on the Other tab of
Workstation Settings to use the following window for pop up help.
The Pop Up Help - G/L Accounts displays the General Ledger Chart
of Accounts. G/L Accounts are used by PCLaw to prepare financial
statements. The firm can edit the PCLaw list to match their current
chart of accounts or use a PCLaw set for simplified entry. Firms
should always consult with their accountant.
Each G/L Account has an alphanumeric Nickname and an Account
Name. The list of G/L Accounts can be sorted by any criteria when a
user clicks on a column heading. The Search For tool searches by
the selected column, as displayed in the adjacent box on the toolbar.
G/L accounts can be searched by account name, in addition to all
other parameters.
4
G/L Accounts
Notes
G/L Accounts Window
What You Should Know:
Delete Item
• Control accounts cannot be deleted.
• A general ledger account cannot be removed, if it has a balance
or activity in the current year.
Demote Item
• When using Parent and Sub Accounts, click to make the
highlighted account a sub account of another general ledger
account.
Promote Item
• When using Parent and Sub Accounts, click to make the
highlighted sub account no longer subservient to its parent
account.
Behind the Scenes
Each G/L account represents a separate record in the G/L Account
data file.
Deleting a G/L account, does not physically remove this record from
the data file. Only the status of the record is changed.
PCLaw 12
5
Notes
Notes
G/L Accounts in a List Format
G/L Accounts in the list format are available for PCLaw versions 8
and lower and is also an option for PCLaw version 10. This format is
available for Pop Up Help only, and is not available when viewing
the G/L accounts window on the Options > Lists pull-down menu.
Uncheck Tree View Style on the Other tab of Workstation Settings to
use the below window for pop up help.
Pop Up Help - G/L Accounts Window in List Format
The G/L Accounts window in List format has similar functionality to
its counterpart in Tree format, although some capabilities are not
available. Add and Change buttons replace the Add Items and
Change Items icons. Accounts cannot be moved up or down on the
list, and the relationship between parent and sub accounts cannot
be displayed.
6
G/L Accounts
Notes
Adding/Changing G/L Accounts
Use the Add G/L Account and Change G/L Account windows to
create and modify general ledger accounts, respectively.
New G/L Account Window
What You Should Know:
Payroll Account
• This option is for firms using ADP Payroll.
• It enables you to check to assign this account as a payroll
account.
Type
• Select this option from the drop-down menu to designate
accounts as either:
• Current Asset
• Fixed Asset
• Short Liability
• Long Liability
• Equity
• Retained
• Income
• Expense
•
•
For control accounts, this option is not available for modification.
Account types are discussed in more detail in Behind the
Scenes.
Lawyer
• If this option is an Equity, Retained, or Income account not
assigned to the firm, select the lawyer or partner for whom this
account belongs.
PCLaw 12
7
Notes
Notes
Sub Account Of
• To make this account a sub account, select the nickname to
assign an account as its parent. This option is only necessary if
using Parent and Sub Accounts.
Behind the Scenes:
Control accounts are individually flagged for their specific activity. As
a result, changing a control account’s name or nickname does not
affect the functionality of the control account.
If changing the accounting method for the firm, it is not sufficient to
change the control account nickname, specifically for Client Disb
Exp (5010) or Client Disb Recov (1210). The recommended method
is creating a new account, changing the reserved account status for
the original and new account, and transferring the balance. This
must be done with the assistance of PCLaw Technical Support.
For non-control accounts, changing the account type within a fiscal
year can affect the integrity of the financial statements for that year.
Particularly, if the change involves transforming an income
statement account to a balance sheet account or vise versa. The
correct procedure is to create a new account, and then transfer the
balance as a G/L Adjustment (General Journal) entry.
8
G/L Accounts
PCLaw Accounting
Notes
In PCLaw, the firm may opt to use General Ledger (G/L) accounting.
As we have already seen, making this choice opens a wide range of
PCLaw options. Not only can the firm post to the General Ledger,
but it also has the ability to track income, assets, and liabilities, as
well as create Income Statements and Balance Sheets. Additionally,
an array of other financial tools are available, such as budgeting and
month end reports.
However, along with the benefits of G/L accounting, there are many
other choices the firm needs to make. First, you must choose which
accounting method to use; Cash, Modified Cash, or Accrual. You
must also decide what G/L accounts to use when posting different
transactions, such as revenues and costs. Finally, you must select
what procedures to use to reconcile your accounts.
This topic serves as a general introduction to accounting, and
explains how the principles of accounting apply to PCLaw.
Generally Accepted Accounting Principles
The PCLaw General Ledger adheres to Generally Accepted
Accounting Principles (GAAP). In the United States, Canada, and
most other nations whose laws are based on the common law
system, GAAP are accounting rules used to prepare, present, and
report financial statements for both publicly-traded and privatelyheld companies.
In the United States, the U.S. government does not directly set
accounting standards in the belief that the private sector has better
knowledge and resources. US GAAP is not written in law, although
the U.S. Securities and Exchange Commission (SEC) requires that
it is followed in financial reporting by publicly-traded companies. The
US GAAP provisions differ somewhat from accounting standards in
other countries, though efforts are underway to reconcile the
differences. Future changes would make reports created under
international standards for companies listed on U.S. markets
acceptable to the SEC without adhering to the US GAAP. This
manual, and the accounting terms herein, are written following US
GAAP guidelines.
At year end, net profit/loss (P/L) changes to Retained Earnings or
Income for Allocation appear on a Balance Sheet.
PCLaw 12
9
Notes
Notes
GAAP Basic Accounting
Debit (Dr)
Credit (Dr)
Assets
Increase
Decrease
Liabilities
Decrease
Increase
Equity
Decrease
Increase
Income
Decrease
Increase
Expenses
Increase
Decrease
Expense Recovery (Contra)
Decrease
Increase
GAAP Accounting
In the GAAP Basic Accounting example above, note that the “T” cell
formation represents each and every transaction in PCLaw, with
debits and credits provided for each transaction.
Debits always equal credits for each transaction, therefore the right
column of the credits always equals the left column of debits.
Accounting Methods
At installation, the technician is prompted to select one of three
accounting methods, Cash, Modified Cash, or Accrual, to use in the
PCLaw set of books being installed. If at anytime in the future, the
firm wishes to change the accounting method, it must be done with
the assistance of PCLaw Technical Support.
The sample transactions in the following topics are shown with both
Auto Allocate Payments to G/L Accounts and Auto Allocate
Retainers at Billing options enabled. If either option is disabled, it
becomes the user’s responsibility to allocate tax, disbursements,
and fees to the appropriate accounts.
Accrual accounting methods do not separate hard and soft costs.
For Cash and Modified Cash methods, the firm in PCLaw has the
option whether to separate hard and soft costs. All scenarios are
demonstrated in the following illustrations.
Accounting using the Cash Method
Cash accounting differs from either the Accrual or Modified Cash
systems in several key areas. Cash systems can separate hard and
soft costs and choose whether to track or not track soft costs if they
are separated.
10
PCLaw Accounting
Notes
These options, Separate Hard and Soft Costs, and Track Soft Costs
in G/L, are both located on the Other Tab of System Settings.
Sales tax is not included in the sample transactions, illustrated in
this topic, although reference to sales tax will be made when the
situation warrants.
Tracking Client Costs
Expense recoveries, costs imported through the Cost Recovery
module, and adjustments to disbursements at the time of billing are
considered soft costs.
When the Separate Hard and Soft Client Costs option is disabled,
these transactions are tracked through Client Disb Expense (5010).
When the Separate Hard and Soft Client Costs option and Track
Soft Costs option in the G/L are enabled, these transactions are
tracked through Client Soft Costs (5011).
When the Separate Hard and Soft Client Costs option is enabled,
but the Track Soft Costs in G/L option is disabled, these transactions
do not appear in the G/L until a payment is made against them.
General checks and new payables allocated to a matter are
considered hard costs and are not affected by these options. Hard
costs are tracked using Client Disb Expense (5010).
What You Should Know:
Posting Expense Recoveries
Separate Hard and Soft Costs option is disabled
When costs are not separated, soft costs post to Client Disb
Expense (5010).
The following example illustrates the results when posting an
expense recovery of $100.
Client Disb
Expense
(5010)
Client Costs Journal
100
Expense
account (user
defined)
100
Posting Expense Recoveries
Separate Hard and Soft Costs option is enabled
Track Soft Costs in G/L option is enabled
When when soft costs are separated and tracked, soft costs post to
Client Soft Costs (5011).
PCLaw 12
11
Notes
Notes
The following example illustrates the results when posting an
expense recovery of $100.
Client Soft
Costs (5011)
Client Costs Journal
Expense
account (user
defined)
100
100
Posting Expense Recoveries
Separate Hard and Soft Costs option is enabled
Track Soft Costs in G/L option is disabled
When hard and soft costs are separated, but soft costs are not
tracked, an expense recovery posts the transaction to the Client
Costs Journal; however, the General Ledger is not affected.
Posting General Checks
General checks allocate costs to matters as they occur. Checks with
matter allocations consist of 2 transactions, a general check, and an
expense recovery. Since these are hard costs, the Separate Hard
and Soft Client Costs option does not affect this transaction.
The following example illustrates the results when posting an
general check of $100 with a matter allocation of $70.
General
Bank
(10##)
General Bank Journal
Client Costs Journal
Client Disb
Clearing
(5210)
100
Client Disb
Recov (1210)
70
70
70
Expense
Account (user
defined)
General Bank Journal
30
When a matter is entered in the allocation section of the General
Check window, PCLaw automatically defaults to Client Disb
Clearing (5210). Since the account is debited and credited during
the two transactions, the account balance does not change.
12
PCLaw Accounting
Notes
Creating Bills
Accounts receivable is not used in Cash systems. When invoices
are produced, hard costs remain in Client Disb Expense (5010). If
tracked, soft costs remain in Client Soft Costs (5011). If not tracked,
soft costs remain off of the general ledger. Fees are not posted to
the lawyers’ fee accounts.
If there are general retainers, the retainer amount is transferred from
Client Disb Expense (5010), and applied to the billed fees and
disbursements. Trust to general transfers have the same effect as
general retainers on the general side of the transaction.
What You Should Know:
Creating Bills with No General Retainers
The General Ledger is not affected. An accounts receivable balance
is not created in the General Ledger.
The transaction is posted to the Billing Fees Journal.
Applying General Retainers
Separate Hard and Soft Client Costs option is disabled
When a general retainer is part of in the billing process, the retainer
immediately is applied to the invoice balance. Only the general
retainer portion of the transaction affects the G/L.
The following example represents a $100 general retainer, of which
$50 is applied to fees, $30 is applied to disbursements, and $20
remains unapplied.
Lawyers’ fee
accounts
(4000.abc)
General Bank
General Bank and Billing Fees Journal
Client Disb
Expense
(5010)
100
50
General Bank and Billing Fees Journals
30
General Bank Journal
20
When the original retainer was received, it was credited to Client
Disb Expense (5010) (not shown above).
When the bill is created, the entire value of the general retainer is
debited from Client Disb Expense (5010). The retainer balance is
then applied as a payment to the invoice. The lawyers’ fee accounts
PCLaw 12
13
Notes
Notes
are credited for the value of the retainer applied to fees. Client Disb
Expense (5010) is credited for both the value of the retainer applied
to disbursements and for any unused general retainer that is
returned to the account.
The General Bank Journal displays a record of the retainer being
reversed and reapplied. Since debits equal credits, the bank
balance does not change. This transaction does not appear on the
bank’s general ledger control account.
Applying General Retainers
Separate Hard and Soft Client Costs option is enabled
Track Soft Costs to G/L option is enabled
When general retainers are included in the billing process, the
retainers immediately are applied to the invoice balances. Only the
general retainer portion of the transaction affects the G/L.
The following example represents a $100 general retainer, of which
$40 is applied to fees, $30 is applied to hard costs, $20 is applied to
soft costs, and $10 remains unapplied.
Lawyers’ fee
accounts
(4000.xxx)
General Bank Journal
General Bank and
Billing Fees Journals
General Bank Journal
Client Disb
Expense
(5010)
Client Soft
Costs (5011)
100
40
30
20
10
When the original retainer was received, it was credited to Client
Disb Expense (5010) (not shown above).
The entire value of the general retainer is debited from Client Disb
Expense (5010). The retainer balance is then applied as a payment
to the invoice. The lawyers’ fee accounts are credited for the value
of the retainer applied to fees. Client Disb Expense (5010) and
Client Soft Costs (5011) are credited for the value the retainer
applied to disbursements. Client Disb Expense (5010) is also
credited for any unused general retainer. The general bank is both
debited and credited for the full amount of the retainer; therefore, its
balance does not change. In addition, the transaction does not
appear on the bank’s general ledger control account.
Applying General Retainers
Separate Hard and Soft Client Costs option is enabled
14
PCLaw Accounting
Notes
Track Soft Costs to G/L option is disabled
This transaction is identical to when the Track Soft Costs to G/L
option is enabled. Since payment is being received against a soft
cost, Client Soft Cost (5011) is used by default.
The General Bank Journal displays a record of the retainer being
reversed and reapplied. Since debits equal credits, the bank
balance does not change. Also, this transaction does not appear on
the bank’s general ledger control account.
Receiving Payments
For Cash systems, fees and untracked soft costs are not realized on
the general ledger until payment is received. Hard costs and tracked
soft costs remain in their respective client expense accounts.
What You Should Know:
Receiving Payments
Separate Hard and Soft Client Costs option is disabled
When costs are not separated, the portion of the payment allocated
to cost goes entirely to Client Disb Expense (5010).
The following example represents a $100 receive payment, of which
$60 is applied to fees and $40 is applied to disbursements.
General
Bank
(10xx)
General Bank and
Billing Fees Journals
60
lawyers’ fee
accounts
(4000.xxx)
Client Disb
Expense
(5010)
60
40
40
For partial payments, the default order for applying payments is as
follows:
• Taxes (if applicable)
• Disbursements
• Fees
This order may be changed on the Data Entry tab of System
Settings.
If the Blend Tax Payments option is selected on the Data Entry tab
of System Settings, taxes are paid in the ratio to the amount of
disbursements and fees paid. If the order of payment dictates that
disbursements are paid first, then the entire amount of
disbursements and taxes on disbursements are paid before any of
the payment is applied to fees or taxes on fees. The remainder of
PCLaw 12
15
Notes
Notes
the payment is applied to fees and taxes on fees in the same
proportion.
Receiving Payments
Separate Hard and Soft Client Costs option is enabled
Track Soft Costs in G/L option is enabled
When soft costs are separated and tracked, the portion of the
payment allocated to cost is divided between Client Disb Expense
(5010) and Client Soft Costs (5011).
The following example represents a $100 receive payment, in which
$50 is applied to fees, $30 is applied to hard costs, and $20 is
applied to soft costs.
General
Bank (10##)
General Bank and
Billing Fees Journals
50
Lawyers’ fee
accounts
(4000.xxx)
Client Disb
Expense
(5010)
50
30
30
Client Soft
Costs (5011)
20
20
For partial payments, the default order for applying payments is as
follows:
•
•
•
•
Taxes (if applicable)
Hard Costs
Soft Costs
Fees
This order may be changed on the Data Entry tab of System
Settings.
Receiving Payments
Separate Hard and Soft Client Costs option is enabled
Track Soft Costs in G/L option is disabled
This transaction is identical to when the Track Soft Costs to G/L
option is enabled. Since the payment is being received against a
soft cost, Client Soft Cost (5011) is used by default.
When soft costs are tracked, an additional transaction exists at the
start of the process. This transaction debits Client Soft Costs (5011)
and credits a corresponding expense account. As a result, Client
16
PCLaw Accounting
Notes
Soft Costs would usually have corresponding debit and credit
entries over the life of the firm.
When soft costs are not tracked, Client Soft Costs (5011) maintains
a credit balance, as it only tracks costs when payment is received.
The cost is never tracked in a corresponding expense account.
Changing/Writing Down Bills
Since accounts receivables are not tracked in a Cash system, the
writing down of an invoice only affects the General Ledger with
regards to hard costs and tracked soft costs. The entire write down,
including fees and untracked soft costs, is posted to the Write Up/
Down Journal.
What You Should Know:
Posting Write Downs
Separate Hard and Soft Client Costs option is disabled
When costs are not separated, the user may write down both fees
and disbursements, however only disbursements require the
assigning of a G/L account.
The following example represents a $100 write down of
disbursements.
Client Disb
Expense
(5010)
Write Up/ Down Journal
100
Expense
account (user
defined)
100
If an invoice is written up, the reverse transactions occur.
Posting Write Downs
Separate Hard and Soft Client Costs option is enabled
Track Soft Costs in G/L option is enabled
When soft costs are separated and tracked, the user may write
down fees, hard costs, and soft costs. Both hard costs and soft costs
require the assigning of a G/L account.
The following example represents a $100 write down of
disbursements, of which $60 represents hard costs and $40
represents soft costs.
Client Disb
Expense
(5010)
PCLaw 12
Client Soft
Costs (5011)
Expense
account (user
defined)
17
Notes
Notes
Write Up/ Down
Journal
60
60
40
40
Posting Write Downs
Separate Hard and Soft Client Costs option is enabled
Track Soft Costs in G/L option is disabled
When Track Soft Costs in G/L is disabled, the user may write down
fees, hard costs, and soft costs; however, only hard costs require
the assigning of a G/L account.
The following example represents a $100 write down of
disbursements, of which $60 represents hard costs and $40
represents soft costs.
Client Disb
Expense
(5010)
Write Up/Down Journal
60
Expense
account (user
defined)
60
Tracking Accounts Payable
Costs may be allocated to a matter through Accounts Payable.
Accounts Payable consists of two parts:
• Creating new payables
• Processing payables
What You Should Know:
Creating New Payables
If New Payables do not have allocations to matters, then the
General Ledger is not affected; therefore, no general liabilities are
posted to the ledger.
If New Payables do have matter allocations, the portion of the
payable allocated to the matter does affect the General Ledger as a
hard cost. Since the allocation is a hard cost, both the Separate
Hard and Soft Client Costs and the Track Soft Costs in G/L options
have no bearing on how transactions are handled.
The following example represents a $100 payable of which $60 is
allocated to a matter.
Client Disb
Expense
(5010)
18
Expense
account (user
defined)
PCLaw Accounting
Notes
Purchases Journal $100
General Ledger is not
affected.
Client Costs Journal
60
60
Allocating costs to matters occur only in the New or Open Payable
features of Accounts Payable. Once costs are allocated to matters,
they become separate transactions. Processing the payable has no
relevance to whether the cost is paid or outstanding within the
matter. In addition, receiving a payment from a client towards a cost
allocated to them has no relevance to whether the payable is paid or
still outstanding.
Processing a Payable
Processing payables have no effect on a matter.
The following example represents payment of a $100 payable, of
which $60 was allocated to a matter.
General
Bank (10xx)
General Bank Journal
100
Expense
account (user
defined)
100
Processing payables reduce the general bank account and posts
the amount of the payment as an expense. If the payable is eligible
for a discount, the credit for the general bank is reduced by the
amount of the discount, and Accounts Payable Disc (4997) is
credited. Accounts Payable Disc (4997) is an income account.
PCLaw 12
19
Notes
Notes
Accounting Using the Modified Cash Method
Modified Cash accounting differs from either Accrual or Cash
systems in several key areas. Modified Cash systems have the
ability to separate hard and soft costs. Soft costs are tracked as an
expense.
Sales tax is not included in the sample transactions, although
reference to sales tax will be made when the situation warrants.
Tracking Client Costs
Costs advanced to a client through the Billing feature or the Cost
Recovery module are expense recoveries and are not described
separately.
What You Should Know:
Posting Expense Recoveries
Separate Hard and Soft Client Costs option is disabled
When not separated, soft costs post to Client Disb Recov (1210).
The following example represents a $100 disbursement.
Client Disb
Recov (1210)
Client Costs Journal
100
Expense
account (user
assigned)
100
Posting Expense Recoveries
Separate Hard and Soft Client Costs option is enabled
When separated, soft costs post to Client Soft Costs (5011).
The following example represents a $100 expense recovery.
Client Soft
Costs (5011)
Client Costs Journal
100
Expense
account (user
assigned)
100
Posting General Checks
General checks allocate costs to matters as they occur. Checks with
matter allocations consists of two transactions: a general check and
an expense recovery. For hard costs, the Separate Hard and Soft
Client Costs option does not affect this transaction.
20
PCLaw Accounting
Notes
The following example illustrates the results when posting an
general check of $100 with a matter allocation of $70.
General
Bank
(10##)
General Bank Journal
Client Disb
Clearing
(5210)
100
Client Costs Journal
Client Disb
Recov (1210)
70
70
70
Expense
Account (user
defined)
General Bank Journal
30
When a matter is added in the allocation section of the General
Check window, PCLaw automatically defaults to Client Disb
Clearing (5210). Since the account is debited and credited during
the two transactions, the account balance does not change.
Creating Bills
Accounts Receivables are not used in Modified Cash systems.
When an invoice is created, disbursements remain in Client Disb
Recov (1210), and fees are not posted to the lawyers’ fee accounts.
If there are general retainers, the retainer amount is transferred from
Client Disb Recov (1210) and applied to billed fees and
disbursements. Trust-to-general transfers have the same effect as
general retainers on the general side of the transaction.
What You Should Know:
Creating Bill with No General Retainers
The G/L is not affected, and the transaction is posted to the Billing
(Fees) Journal.
Applying General Retainers
When a general retainer is part of the billing process, the retainer is
immediately applied to the invoice balance. Only the general
retainer portion of the transaction affects the G/L.
PCLaw 12
21
Notes
Notes
The following example represents a $100 general retainer, in which
$50 is applied to fees, $30 is applied to disbursements, and $20
remains unapplied.
General
Bank (10xx)
(not posted)
General Bank Journal
100
Client Disb
Recov (1210)
Lawyers’ fee
accounts
(4000.abc)
100
General Bank and
Billing Fees Journals
80
30
General Bank Journal
20
20
50
The entire value of the general retainer is debited in Client Disb
Recov (1210). The retainer balance is then applied as a payment to
the invoice. The lawyers’ fee accounts are credited for the value of
the retainer applied to fees. Client Disb Recov (1210) is credited for
both the value of the retainer applied to disbursements and for any
unused general retainer that is returned to the account. The General
Bank Journal is both debited and credited for the full amount of the
retainer; however, the transaction is not reflected in the General
Bank Control G/L account.
Receiving Payments
For Modified Cash systems, fees are not realized in the general
ledger, and disbursements remain in Client Disb Recov (1210) until
payment is received. The Client Soft Costs (5011) option is also
credited, if the Separate Hard and Soft Client Costs option is
enabled.
What You Should Know:
Receive Payment
Separate Hard and Soft Client Costs option is disabled
When costs are not separated, the portion of the payment allocated
to the costs goes entirely to Client Disb Recov (1210).
The following example represents a $100 receive payment, in which
$70 is applied to fees and $30 is applied to disbursements.
General
Bank
(10xx)
Posts to General
Bank and Billing
(Fees) Journals
22
70
30
Lawyers’ fee
accounts
(4000.xxx)
Client Disb
Recov (1210)
70
30
PCLaw Accounting
Notes
For partial payments, the default order for applying payments is as
follows:
• Taxes (if applicable)
• Disbursements
• Fees
This order may be changed on the Data Entry tab of System
Settings.
If the Blend Tax Payments option is selected on the Data Entry tab
of System Settings, taxes are paid in the ratio to the amount of
disbursements and fees paid. If the order of payment dictates that
disbursements are paid first, then the entire amount of
disbursements and taxes on disbursements are paid before any of
the payment is applied to fees or taxes on fees. The remainder of
the payment is applied to fees and taxes on fees in the same
proportion.
Receiving Payments
Separate Hard and Soft Client Costs option is enabled
When costs are separated, the portion of the payment allocated to
cost is divided between Client Disb Recov (1210) and Client Soft
Costs (5011).
The following example represents a $100 receive payment, in which
$50 is applied to fees, $30 is applied to hard costs, and $20 is
applied to soft costs.
General
Bank (10##)
General Bank and
Billing Fees Journals
50
Lawyers’ fee
accounts
(4000.xxx)
Client Disb
Recov (1210)
50
30
30
Tip: For partial payments,
the default order for
applying payments is as
follows: taxes (if
applicable), hard costs,
soft costs, and fees. This
order may be changed on
the Data Entry tab of
System Settings.
Client Soft
Costs (5011)
General Bank and
Billing Fees Journals
20
20
Changing/Writing Down Bills
A G/L account is not assigned when writing down fees on an
invoice, since fees are not realized until payment is received.
However, when writing down disbursements, an account is
assigned.
PCLaw 12
23
Notes
Notes
Posting Write Downs
Separate Hard and Soft Client Costs option is disabled
When costs are not separated, the user cannot distinguish between
hard and soft costs when writing down disbursements.
The following example represents a $100 write down of
disbursements.
Client Disb
Recov (1210)
Write Up/Down Journal
100
Expense
account (user
defined)
100
If an invoice is written up, a reverse transaction occurs.
Posting Write Downs
Separate Hard and Soft Client Costs option is enabled
When costs are separated, the user may write down either hard
costs, soft costs, or both.
The following example represents a $100 write down of
disbursements, of which $60 represents hard costs and $40
represents soft costs.
Client Disb
Recov (1210)
Posts to Write Up/
Down Journal
Client Soft
Costs (5011)
60
Expense
account (user
defined)
60
40
40
Tracking Accounts Payable
Costs may be allocated to matters through the Accounts Payable
module. Accounts Payable consists of two parts:
• Creating new payables
• Processing payables
What You Should Know:
Creating New Payables
If new payables do not have allocations to matter, then the general
ledger is not affected, and a general liability balance does not
appear on the ledger.
If new payables have matter allocations, the portion of the payable
allocated to the matters affects the general ledger as a hard cost.
24
PCLaw Accounting
Notes
The following example represents a $100 payable, of which $60 is
allocated to a matter.
Client Disb
Recov (1210)
Expense
account (user
defined)
Purchases Journal $100
General Ledger is not
affected.
Client Costs Journal
60
60
A user can allocate costs to matters only in the New or Open
Payable features of Accounts Payable. Once a cost is allocated to a
matter, it becomes a separate transaction. Processing the payable
has no relevance to whether the cost is paid or outstanding within
the matter. In addition, receiving a payment from a client towards an
allocated cost has no relevance whether the payable is paid or still
outstanding.
Processing Payables
Processing a payable has no affects on a matter.
The following example represents the processing of a $100 payable
invoice, of which $60 was allocated to a matter.
General
Bank (10xx)
Posts to General
Bank Journal
100
Expense
account
(user
defined)
100
Processing a payable reduces the general bank account and posts
the amount of the payment as an expense. If the payable is eligible
for a discount, the credit for the general bank is reduced by the
amount of the discount, and Accounts Payable Disc (4997) is
credited. Accounts Payable Disc (4997) is an income account.
PCLaw 12
25
Notes
Notes
Accounting using the Accrual Method
Accrual accounting differs from either Modified Cash or Cash
systems in several key areas. Since Accrual systems are most
common among Canadian, UK, and Australian firms, a value added
tax is included in the sample transactions.
Tracking Client Costs
Costs advanced to a client through either the Billing or the Cost
Recovery modules are expense recoveries and are not described
separately.
What You Should Know:
Posting Expense Recoveries
An expense recovery allocates an existing expense to a client.
The following example represents a $100 new payable without
matter allocations.
Client Disb
Recov (1210)
Client Costs Journal
Expense
account (user
assigned)
100
100
Posting General Checks
A general check allocates a cost to the client as it occurs. A check
with a matter allocation is a package of two transactions: a general
check and an expense recovery.
The following example represents a $100 general check, a $70
matter allocation, and $10 tax.
Client Disb
Clearing
(5210)
General
Bank
(10##)
General Bank Journal
100
70
Client Costs Journal
HST/GST/VAT Journal
26
70
10
Client Disb
Recov (1210)
70
HST/GST/
VAT Payable
(2400)
Expense
Account (user
defined)
10
30
PCLaw Accounting
Notes
When a matter is entered in the allocation section of the General
Check window, PCLaw automatically defaults to Client Disb
Clearing (5210). Since the account is debited and credited during
the two transactions, the account balance does not change.
Creating Bills
In Accrual systems, the billing process transfers unbilled
disbursements from Client Disb Recov (1210) to Accounts
Receivable (1200). Fees are posted to Accounts Receivable (1200)
and the corresponding lawyers’ fee accounts. Value added tax is
posted to Accounts Receivable (1200) and HST/GST/VAT Payable
(2400). If a general retainer or a transfer from trust is included in the
billing process, then an additional general bank transaction occurs.
Tip: The default clearing
account may be changed
on the Other tab of
System Settings.
What You Should Know:
Creating Bills with No General Retainer
When a general retainer is not included in the billing process, an A/R
balance is created.
The following example represents a $100 invoice, consisting of $60
fees and $40 disbursements. Added to the invoice is $10 tax.
Accounts
Receivable
(1200)
Billing Fees Journal
60
Billing Fees Journal
40
Client Disb
Recov (1210)
Lawyers’ fee
accounts
(4000.xxx)
60
40
GST Payable (2400)
Billing Fees and HST/
GST/VAT Journal
10
10
Applying General Retainers
When a general retainer is part of the billing process, the retainer is
immediately applied to the invoice balance. Fees, disbursements,
and value added tax are affected as shown in the example above.
The following example represents a $100 general retainer, of which
$70 is applied to an existing A/R balance and $30 remains
unapplied.
PCLaw 12
27
Notes
Notes
Accounts
Receivable
(1200)
General Bank Journal
Client Disb
Recov (1210)
General
Bank Journal (2400)
100
General Bank and
Billing Fees Journals
100
70
General Bank Journal
70
30
30
The entire value of the general retainer is reversed from Client Disb
Recov (1210), and the retainer balance is then applied as a payment
to Accounts Receivables (1200). If the retainer balance is less than
or equal to the A/R balance, the transaction is completed. If the
retainer balance is greater than the A/R balance, the unapplied
portion of the retainer is returned to Client Disb Recov (1210).
Receiving Payments
In Accrual systems, payments reduce Accounts Receivables.
What You Should Know:
The following example represents a $100 receive payment.
General
Bank (10##)
General Bank and
Billing Fees Journals
100
Accounts
Receivable
(1200)
100
For partial payments, the default order for applying payment is as
follows:
• Taxes (if applicable)
• Disbursements
• Fees
This order may be changed on the Data Entry tab of System
Settings.
If the Blend Tax Payments option is selected on the Data Entry tab
of System Settings, taxes are paid in the ratio of the amount of
disbursements to fees paid. If the order of payment dictates that
disbursements are paid first, then the entire amount of
28
PCLaw Accounting
Notes
disbursements and taxes on disbursements are paid before any of
the payment is applied to fees or taxes on fees. The remainder of
the payment is applied to fees and taxes on fees in the same
proportion.
Changing/Writing Down Bills
In Accrual systems, there are two methods for writing down
invoices:
• Permanently writing off the bill
• Provisionally writing off the bill
What You Should Know:
Permanently Writing Off Bills
Writing down an invoice reduces the accounts receivable balance.
Lawyer fees may be reduced, expenses to the firm may be
increased, and GST Payable may be reduced.
The following example represents the write down of a $100 invoice,
consisting of $60 fees and $40 disbursements. Added to the invoice
is $10 tax.
Accounts
Receivable
(1200)
Write Up/Down Journal
40
60
Expense
account (user
defined)
Lawyers’ fee
accounts
(4000.xxx)
40
60
GST Payable (2400)
Write Up/Down Journal
10
10
If an invoice is written up, the reverse transactions occur.
Provisionally Writing Off Bills
A provisional write-off affects only the General Ledger and HST/
GST/VAT Journal. The entry is not posted to the Write Up/Down
Journal. The user may request either the Write Up/Down Journal or
the Receivables by Client report to display provisional write-offs, by
selecting the Include Provision for Write Offs option when
generating the selected reports.
A provisional write-off affects the General Ledger in nearly the same
manner as a permanent write-off. The only difference is the place for
crediting Accounts Receivable (1200), whereas the provision is
placed in Provision For Bad Debt (1201).
PCLaw 12
29
Notes
Notes
The following example represents the provisional write down of a
$100 invoice, consisting of $60 fees and $40 disbursements. Added
to the invoice is $10 tax.
Provision For
Bad Debt
(1201)
Does not post to
Write Up/Down Journal
40
Expense
account (user
defined)
lawyers’ fee
accounts
(4000.xxx)
40
60
60
GST Payable (2400)
HST/GST/VAT Journal
10
10
Tracking Accounts Payable
Costs may be allocated to a client through Accounts Payable.
Accounts Payable consists of two parts:
• Creating a new payable
• Processing a payable
What You Should Know:
Creating New Payables
New Payables may or may not be allocated to matters.
The follows is an example of a $100 New Payable with a $10 value
added tax. $60 dollars of the payable is allocated to a matter.
General Liabilities (2000)
Purchases Journal
100
Client Costs Journal
Expense acc’t
(user defined)
Client Disb
Recov (1210)
100
60
60
HST/GST/
VAT Payable
(2400)
HST/GST/VAT Journal
10
10
Allocating a cost to a matter occurs only in the New or Open
Payable features of Accounts Payable. Once a cost is allocated to a
matter, it becomes a separate transaction. Processing the payable
has no relevance whether the cost is paid or outstanding within the
matter. In addition, receiving a payment from a client towards an
30
PCLaw Accounting
Notes
allocated cost has no relevance whether the payable is paid or still
outstanding.
Processing Payables
Processing Payables has no effect on the matter.
The following example represents the processing of a $100 payable
invoice with a $10 value added tax. $60 of the payable was
allocated to a matter.
General
Bank (10xx)
General Bank Journal
110
General Liabilities (2000)
110
Processing payables reduces the general bank account and
General Liabilities (2000). If the payable is eligible for a discount, the
credit for the general bank is reduced by the amount of the discount,
and Accounts Payable Disc (4997) is credited. Accounts Payable
Disc (4997) is an income account.
Posting to Control Accounts
Specific general ledger accounts in PCLaw are linked to journals
such as General Bank, Billing Fees, or Client Costs. These accounts
are referred to as control accounts.
Data entry features that use control accounts, such as General
Check, affect the General Ledger and the associated journal,
simultaneously. The G/L account and journal should always display
the same balance.
For example, when creating a general check for bank account 1,
you are asked for one G/L allocation to complete the two-sided
accounting entry. The credit portion of the entry is allocated
automatically to Gen Bank Acct 1 (1000).
Note: The terms reserved
account and control
account are
interchangeable. Prior to
version 7.10, the term
reserved was used in the
G/L Accounts window
instead of control.
Using Control Accounts
All data entry features using control accounts automatically post to
that account. Other than entering opening balances, control
accounts should not be used when allocating transactions to the
General Ledger.
When a reserved account is used inappropriately, such as when
creating a general journal entry, PCLaw displays a warning prompt:
PCLaw 12
31
Notes
Notes
PCLaw Notification Prompt
The prompt indicates you are using a G/L control account. A manual
allocation to a control account does not affect the journal associated
to the control account. Thus, the journal and control account will no
longer balance.
Example:
Gen Bank Acct 1 (1000) reflects the balance of the General Bank
Journal. It increases when a receipt is posted and decreases when
a check is issued. A misallocation to this account affects the G/L
only. Hence, the Trial Balance reflects the change to the account,
but the General Bank Journal does not.
Note: PCLaw provides the
option for general journal
entries that post to
general or trust bank
control accounts to be
posted to their respective
bank journals.
If it becomes necessary to adjust the balance in a control account,
such as Gen Bank Acct 1 (1000), you should enter either a receipt
or a check to affect both the journal and the control account.
Follow this rule:
If a control G/L account appears automatically on a data entry
window, use it. If the account does not appear automatically, or if
you are warned against using it, do not use it.
Determining when a G/L Account is a Control Account
Options > Lists > G/L Accounts
You may confirm that a G/L account is a control account using the
G/L Accounts window on the Options > Lists pull-down menu.
For PCLaw version 9.20 and higher, refer to the Control column in
the Pop Up Help > G/L Accounts window. Control accounts display
their type of control account, whereas non-control accounts are
blank.
For earlier versions of PCLaw, refer to the Control box on the bottom
right hand corner of the G/L Accounts window. If the account is not a
control account, the box will be blank. If it is a control account, the
PCLaw feature associated with the account appears in the Control
box.
32
PCLaw Accounting
Notes
Pop Up Help - G/L Accounts window
The account type (asset, liability, etc.) for a control account cannot
be changed. However, the nickname and account name may be
adjusted to suit the user’s preferences.
Control Accounts in PCLaw
The following chart lists all control accounts in PCLaw that are linked
to related journals.
Account Name
Nicknames
Linked to Journal
Accounting
Method
General Bank Acct (1
to 99)
1000 to
1098
General Bank Journal
All
Trust Bank Acct (1 to
99)
1100 to
1198
Trust Bank Journal
All
Accounts Receivable
1200
Billing Fees Journal
Accrual
Provision for Bad
Debts
1201
Write Up/Down Journal
Accrual
Client Disb Recovery
1210
Client Costs Journal
Accrual/Modified Cash
General Liabilities
2000
Purchases Journal
Accrual
Trust Funds Owed
2100
No journal
All
G.S.T. Payable
2400
GST Journal
All
Sales Tax Payable
2450
Sales Tax Journal
All
PCLaw 12
33
Notes
Notes
Account Name
Nicknames
Accounting
Method
Linked to Journal
Accounts Payable
Disc
4997
Purchases Journal
Accrual
Client Disb Expense
5010
Client Costs Journal
Cash
Client Soft Costs
5010
Client Costs Journal
Modified Cash
Client Soft Costs
5011
Client Costs Journal
Cash
Control Accounts
Reserved Accounts in PCLaw
Warning: Although fee
accounts are not directly
linked to any journal, they
can still be reconciled to
the Billing Fees Journal
for Accrual systems and
the Payment Allocation
Listing for Cash and
Modified Cash systems.
Manually posting to fees
makes the account nonreconcilable.
Other accounts in PCLaw are reserved, but are not directly linked to
a corresponding sub-journal. These accounts may be reserved for
equity, fees, balance sheet year end adjustments, and other
purposes. Although these accounts appear in G/L Accounts as
control accounts, they may be manually adjusted.
Account Name
Nicknames
Linked to Journal:
Accounting Method/
Type
Equity/Capital
3000
No journal
All - Partnership/
Corporation
Equity.{lawyer’s initials}
3000.abc
No journal
All - Partnership
Income for Alloc/Ret
Earnings
3500
No journal
All - Partnership/
Corporation
Drawings
3501
No journal
All
Drawings.{lawyer’s
initials}
3501.abc
No journal
All - Partnership
Fees
4000
No journal
All
Mark Up Income
4000.abc
No journal
All
Interest
4999
No journal
All
Suspense
9999
No journal
All
Reserved Accounts
34
PCLaw Accounting
Notes
Using the Client Disb Clearing Account
When creating a check that is allocated to a matter, G/L account
nickname 5210 is filled in automatically in the allocation area of the
check window. To use the Client Disb Clearing account (5210), the
Use G/L Accounting option must be selected on the Other Tab of
Options > System Settings.
Allocating to the Client Disb Clearing Account
Client Disb Clearing (5210) appears automatically whenever a
matter nickname is typed in the allocation section of the General
Check or New Payable window. A check allocated to a matter is a
package of two transactions.
For the general check segment of the transactions, PCLaw:
• Debits Client Disb Clearing (5210).
• Credits the general bank control account associated with the
bank account specified in the Acct box of the check.
Client Disb
Clearing
(5210)
100
General
Bank (10##)
100
For the expense recovery segment of the check, PCLaw:
• Debits Client Disb Recov (1210) for Accrual and Modified Cash
accounting systems.
• Debits Client Disb Exp (5010) for Cash accounting systems.
• Credits Client Disb Clearing (5210).
Client Disb
Recov/Exp
(1210/5010)
100
Note: For the Accrual
accounting method,
substitute General Liabilities
(2000) for the general bank
account. For Modified Cash
and Cash systems, this
portion of the transaction is
not posted to the general
ledger.
Client Disb
Clearing
(5210)
100
The net effect on the clearing account is zero.
Guidelines for Using the Client Disb Clearing Account
The disbursement clearing account balance should always be zero.
If a non-zero balance is present, then a manual entry has been
allocated to the account. These entries may be identified by
examining a detailed General Ledger for the disbursement clearing
PCLaw 12
35
Notes
Notes
account. Any transaction that does not possess an offsetting entry is
unable to be a clearing account entry.
The following rules ensure the proper use of the disbursement
clearing account:
•
•
Accept Client Disb Clearing (5210) as it appears
automatically when allocating a cost to a matter.
If Client Disb Clearing (5210) does not appear by default
for any transaction, you should not manually specify this
account.
Changing the Client Disbursement Clearing Account
The Client Disb Clearing (5210) is created as the default clearing
account in PCLaw. However, any account may be specified as the
disbursement clearing account.
Tip: Regardless of the
account selected to be
used as the disbursement
clearing account, the
concept of the account
functions on the same
principle. The purpose for
using a separate clearing
account is to separate
clearing account entries
from other PCLaw
transactions.
36
Other tab of System Settings
In the Accounting Options area, in the Client Disb Clearing box, type
or select the account nickname to use as the clearing account.
PCLaw Accounting
Notes
Expense Recovery Accounts
Contra Expense Accounts
In addition to basic Asset, Liability, Equity, Income, and Expense
accounts, PCLaw utilizes the GAAP concept of Contra Expense
accounts when recording Expense Recovery items. A contra
expense account is a special type of expense account which
generally accumulates credits instead of debits. Income accounts
and Expense accounts both appear on the Income Statement. Since
the common definition of contra is opposite, a contra expense
account is an Income account that falls within the list of Expense
accounts on the income statement. When an expense recovery is
entered, PCLaw accumulates the recovery in contra expense
accounts (i.e., G/L accounts with the word “recovery” in the title).
The chart of accounts within PCLaw contains both expense and
expense recovery accounts. For example, you will find Photocopy
Expense (5520) and Photocopy Recovery (5521) accounts. Both
accounts are expense accounts and affect the firm’s net profit. The
difference lies in how expense information is presented on the
Income Statement.
To understand the roles of Expense and Expense Recovery
accounts, take the example of a purchase of photocopy paper and
toner by check for $90. The check is posted to Photocopy Expense
(5520).
Using Only Expense Accounts
Scenario 1: To make an expense recovery entry for $3.00 to
Photocopy Expense (5520), PCLaw debits either Client Disb Recov
(1210) for Accrual and Modified Cash accounting systems or Client
Disb Expense (5010) for Cash accounting systems. Then, PCLaw
credits the account you specify, in this case, Photocopy Expense
(5520). The Income Statement reflects part of the transaction as
follows:
Expenses
Photocopy Expense (5520)
87.00
Photocopy Recovery (5521)
0.00
Total Expenses
87.00
Using Expense Accounts Only
PCLaw 12
37
Notes
Notes
Photocopy Expense consists of a debit of $90.00 from the initial
purchase of photocopy supplies and a credit of $3.00 from the
expense recovery transaction.
Using Expense Recovery Accounts
Scenario 2: When you make an expense recovery entry for $3.00 to
Photocopy Recovery (5521), PCLaw debits either Client Disb Recov
(1210) for Accrual and Modified Cash accounting systems or Client
Disb Expense (5010) for Cash accounting systems. Then, PCLaw
credits the account you specify, in this case, Photocopy Recovery
(5521). The Income Statement reflects part of the transaction as
shown below:
Expenses
Photocopy Expense (5520)
90.00
Photocopy Recovery (5521)
-3.00
Total Expenses
87.00
Using Expense Recovery Accounts
The Photocopy Expense consists of a debit of $90.00 from the initial
purchase of photocopy supplies. Photocopy Recovery consists of a
credit of $3.00 from the expense recovery transaction.
The only difference is that Scenario 2 reports total photocopy
expense before recoveries in one account and total photocopy
recoveries in another account. Notice how the Total Expenses
remain the same in each scenario.
38
PCLaw Accounting
Financial Statements
Notes
Financial statements are comprised of the General Ledger, Trial
Balance, Income Statement, and Balance Sheet. Activity is reported
for a specified period of time, most commonly for the period
consisting of a calendar current month. Statements report the profit,
loss, and current worth of the company.
What Are Financial Statements?
Before discussing each specific statement, we must first determine
how financial statements differ from other PCLaw reports, with
respect to appearance, options, and report period.
Financial statements possess several basic differences when
compared to PCLaw reports.
Statements are produced on templates that can be changed or
edited. PCLaw provides several templates for each statement type.
The template may display year to date figures, prior year or budget
comparisons, or a twelve month overview. Use the default PCLaw
templates, modify them for the firm’s own requirements, or create
new templates.
Reports are produced using a fixed or customized layout. Although
specific fields on the report can be added or removed, the actual
format of the report must maintain a basic structure.
G/L accounts do not store individual entries. Month end balances
are saved separately to streamline statement creation; however,
actual transactions are compiled from source journals to produce
the requested statement.
Source journals such as General Bank, Trust Bank, Client Cost,
Billing Fees, and Purchases are primary reports in PCLaw. Financial
statements and productivity reports pull their content from these
journals. Detailed transactions on the General Ledger indicate the
source journal from where the record is pulled.
Producing Financial Statements
Financial statements can be accessed from several locations in
PCLaw. Multiple G/L statements can be run simultaneously. For
example, if a statement is open on your screen, a second statement
can be produced without closing the first statement.
PCLaw 12
39
Notes
Notes
The Common Tab of G/L Statements
G/L > G/L Statements > Common Tab
The Common Tab is the first tab to appear when opening the
Statements window. It contains the more common components for
producing G/L Statements.
Common tab of the Statements window
What You Should Know:
Statement Selection
• A minimum of one statement must be selected when producing a
report, and up to 4 different statements can be run at one time.
• A template must always be defined for each selected statement.
• There are no default settings stored elsewhere in PCLaw for G/L
statements.
Range
• When producing a statement for a specific account type, always
select the First {Account Type} and Last {Account Type} options,
instead of the actual first and last accounts. This will avoid
accounts that are numbered out of sequence from being omitted
from the statement.
• When producing statements for all accounts, always use First
Current Asset and Last Expense.
Previous Report Period
• Date values always report the last statement that was run, not
the last accounting period that was closed.
40
Financial Statements
Notes
Detailed Report
• Check to show individual transactions posted to each account.
• Only the General Ledger can show detail.
• This option does not display detail on summarized entries, such
as those found for expense recovery, general bank, and
accounts payable.
Run Reports on
• This option is available to PCLaw version 10 and higher.
• It only affects the appearance of the statement being produced,
and does not repost entries.
• Actually changing the accounting method is a multi-step
procedure, that involves adjusting specific account balances.
• Documentation to move from one accounting method to another
is set out in the PDF Document Library at http://
support.lexisnexis.com/ltps/. This also includes the assistance of
PCLaw Technical Support, as the setting must be changed in the
PCLaw Data Maintenance utility.
The Other Tab of G/L Statements
G/L > G/L Statements > Other Tab
The Other tab contains additional options for producing G/L
Statements.
Other tab of the Statements window
PCLaw 12
41
Notes
Notes
What You Should Know:
Print Zero Balance Accounts
• If activity in an account during the reporting period brings the
closing balance to zero, the account does not appear on a
statement if the Print Zero Balance Accounts option is not
selected.
Department/Category/Cost Centre
• Categories and Cost Centres are single dimension designations
set out in the Add/New G/L Accounts window.
• Departments are defined parameters, including G/L accounts,
matters, and timekeepers that are selected from a maintained
list.
Show Parent and Sub Accounts
• Refer to “Working With Parent and Sub Accounts” on page 63 for
more information on parent and sub accounts.
Run Consolidated Statements
• Prior to PCLaw 10, this option was for PCLaw Pro only.
• Check to produce combined financial statements for two firms.
• Highlight the set of books with which to consolidate statements.
• Type the user name for that set of books in the User Name box.
• Type the user name password for that set of books in the
Password box.
• Consolidated Statements are recommended for use with an
Income Statement or Balance Sheet only.
• Refer to “Producing Consolidated Statements” on page 66 for
more information.
Determining the Report Period
The Income Statement displays information for a range of time,
whereas the Trial Balance and Balance Sheet display a point in
time. The General Ledger reports both the transactions for a range
of time as well as the balance that is carried forward from the
reporting period start date.
This does not imply that the start date is insignificant when creating
a Trial Balance or Balance Sheet. The start date affects the
calculation of the statement. If the date range spans many months,
the statement takes longer to produce.
42
Financial Statements
Notes
Working with the General Ledger
G/L > Statements > General Ledger
The General Ledger lists all G/L accounts matching the selected
criteria when producing the report. The ledger provides the opening
and closing balance for each account for the report period, and if
requested, it can display detailed transactions.
The General Ledger is the default statement selected when the
Statements window is opened.
Viewing Non-Detailed General Ledgers
When Detailed Report is not selected on the Statements > Common
window, the General Ledger displays the opening and closing
balance for each account matching the selected criteria when
producing the statement. Transactions are summarized into debit
and credit entries by source journal and reserved account status.
Non-detailed General Ledger
For example, for Travel (4310), shown above, the general bank
journal was debited for $6,900.00 and credited for $950.00 during
the report period. For the same period, the account was also
credited for $100.00 from the client costs journal. The Source
column indicates the journal from where the debit or credit is
derived. GB indicates general bank, while CER is short for the client
expense recovery or the client costs journal.
The terminology for the summarized entries may differ depending
on the type of account. Delivery Expense (5500) is a non-reserved
account, therefore, the description starts with the word ‘Summary’
such as ‘Summary of Debits’.
PCLaw 12
43
Notes
Notes
How values on respective financial statements are determined by their space in time
For a reserved account, such as a bank account, the description
may differ. Summary of Debits is replaced with Total Receipts, and
Summary of Credits becomes Total Disbursements. Entries in
windows directly linked to reserved accounts have the word Total at
the start of the description line.
Non-detailed General Ledger reserved account
A reserved G/L account is linked directly to a specific journal and
one or more data entry windows in PCLaw. For example, account
1000 is a bank account, linked to the general bank journal. When
entering a firm receipt in this bank account, only a credit account is
required, as the bank account G/L automatically receives the debit
entry. Other features under the Data Entry > General Bank pulldown menu, such a General Check or Receive Payment option
automatically credits or debits the bank G/L account.
Accounts such as Client Disb Recov (1210) or Client Disb Exp
(5010) may contain descriptions that begin with both Totals and
Summary. The Total of Recovery entry includes all transactions
entered through Expense Recovery, General Check, or New
Payable when a matter nickname is specified. If an entry is manually
allocated to either a Client Disb Recov or Exp transaction, that
transaction is summarized separately as part of a Summary of
Debits or Summary of Recoveries.
44
Financial Statements
Notes
General Check window without displaying a value added tax
General Check window when a value added tax is deployed
For example:
For Cash accounting systems; a cost is allocated to a matter on a
general check, but instead of allowing PCLaw to automatically
allocate the amount to the Client Ledger through Client Disb
Clearing (5210), the user manually enters 5010. Thereby, 5010
serves as both a clearing account, and the destination account for
the client cost. The result is a pair of entries as follows:
PCLaw 12
45
Notes
Notes
Entries
G/L
Posted to General Bank Journal
General
Bank
Posted to Client
Costs journal
5010
5010
5010
Dr
Cr
$125
125
Explanation
Appears on general bank
journal
Clearing account entry
125
125
Clearing account entry
Appears on client ledger
Chart displaying how entries are posted in a Cash accounting system
.
5010 entered manually and is used as a clearing account, creating an extra debit and credit
that is not typical in an expense recovery entry.
General Ledger displaying summarized and non-summarized entries (no tax)
For Accrual accounting systems collecting a value added tax, a cost
is allocated to a matter on a general check, but instead of allowing
PCLaw to automatically allocate the amount to the Client Ledger
through Client Disb Clearing (5210), the user manually enters 1210.
Thereby, 1210 serves as both a clearing account and the destination
account for the client cost. The result is a pair of entries as follows:
Entries
Posted to
General
Bank Journal
Posted to Client Costs
journal
G/L
Dr
General
Bank
Cr
$125
Explanation
Appears on general bank
journal
1210
116.82
Clearing account entry
2450
8.18
Appears on GST journal
1210
1210
116.82
116.82
Clearing account entry
Appears on client ledger
Chart displaying how entries are posted in an Accrual or Modified Cash accounting
system with value added tax
If an entry is manually allocated to Client Disb Recov (1210) or
Client Disb Exp (5010), the entry is not included in Total of
Recoveries. Instead, it is summarized by the source journal.
46
Financial Statements
Notes
1210 entered manually and is used as a clearing account, creating an extra debit and credit
that is not included in a typical expense recovery entry.
General Ledger displaying summarized and non-summarized entries (after tax)
Viewing Detailed General Ledgers
A detailed General Ledger requires the Detailed Report box in the
Current Report Period section of the Statement > Common window
to be checked.
A detailed General Ledger displays the individual postings from all
respective journals for the period of the statement. These entries are
not contained in the General Ledger itself, but are read from the
source journals each time the statement is run.
Detailed General Ledger
Some reserved accounts may not display detail for all transactions.
These accounts have corresponding journals to display details of
transactions that were automatically allocated to these accounts.
Acc’t #
Account Name
Entry Description
Dr/Cr
Source Journal
1210
Client Disb Recov
Total of Recoveries
Dr
Client Costs
2000
General Liabilities
Total A/P
Dr
Purchases
5010
Client Disb Exp
Total of Recoveries
Dr
Client Costs
List of accounts that automatically summarize entries
Use the Client Costs Journal to view details of the Total of
Recoveries entry. Select the same date range used for the General
Ledger. Under the Other Tab, deselect the Include Accounts
Payable Entries option.
For Accrual systems only: Entries on the Client Costs Journal with
source abbreviation WO must also be deducted manually from the
total. These are disbursements added in the Billing Information
PCLaw 12
47
Notes
Notes
window. Disbursements added at the time of billing are posted
directly to the Accounts Receivables (1200).
Use the Purchases Journal to view details of the Totals of A/P entry.
The summarized entry uses the End Date of the report period.
General Ledger displaying summarized entries and the report End Date
For Client Disb Recov (1210) and Client Disb Exp (5010) accounts,
entries made through Expense Recovery and General Check,
where a matter nickname has been specified, are summarized. For
General Liabilities (2000), new payable entries where a matter
nickname has been specified, are summarized.
Reading General Ledgers
The default template for the General Ledger is GL.rgl. The standard
format for the template is outlined as follows:
Header
• Page numbers are displayed in the top right hand corner.
• The date the report is printed appears in the top left hand corner.
• The center title displays the firm name, statement name, and the
selected report period.
Acct No./Account Name
• Lists the G/L account nickname and the expanded account
name.
Date
• Lists the transaction date when Detailed Report is checked.
• Lists statement end date for summarized entries when Detailed
Report is deselected.
Srce
• Lists the source journal where the transaction(s) are posted.
Ref
Lists one of the following:
•
•
•
48
The check or receipt number from general or trust bank
entries.
The reference number from client expense or general
journal entries.
The invoice number from A/R or A/P entries.
Financial Statements
Notes
• The reference number does not appear for summarized entries.
Entry #
• Displays only for detailed entries.
• Does not appear for summarized entries.
Paid To
• Lists the contents of the Paid To or Received From box for a
general or trust bank transaction, the contents of the To box for
expense recovery entries, the explanation Journal Entry for
transactions from the General Journal.
Description
• Displays the contents from the Explanation box for individual
transactions.
• Displays text such as Total of Debits, Total of Recoveries, etc. for
summarized entries.
Debit/Credit Columns
• A debit value increases the balance of most asset and expense
accounts, as well as equity type accounts with a debit balance,
such as Drawings.
• A debit value decreases the balance of all liability, revenue, and
accumulated depreciation accounts, as well as equity type
accounts with a credit balance such as Capital.
• A credit value increases the balance of all liability, revenue
accounts, and accumulated depreciation accounts, as well as
equity type accounts with a credit balance such as Capital.
• A credit value decreases the balance of most asset and expense
accounts, as well as equity type accounts with a debit balance,
such as Drawings.
Balance
• The opening balance states the balance at the end of the day
previous to the statement reporting period.
• The closing balance is the sum of the opening balance +/- all
debit/credit entries in the reporting period.
• A negative balance is displayed in brackets.
• A negative balance is considered as a balance in a credit
position for an account that normally has a debit balance or a
balance in a debit position for an account that normally has a
credit balance.
• Accounts are divided by a solid line below the closing balance.
PCLaw 12
49
Notes
Notes
Selecting General Ledger Templates
The exhibits for this topic use the GL.rgl template. G/L templates
provided by PCLaw include the following:
Template
Description
GL
Most detailed General Ledger template
GLNOPAY
Omits the Paid To column
GLSM
Detailed General Ledger with condensed token spacing
SGL
For simplified accounting, omits the Acct. No. column
SGLNOPAY
Omits the Acct. No and Paid To columns
SGLSM
Simplified template with condensed token spacing
List of General Ledger Templates
Working with Trial Balances
G/L > G/L Statements > Trial Balance
The Trial Balance lists all active, non-zero balance accounts and
reports their balance in the respective debit or credit column. The
columns are totalled, and an Overall Balance of zero should be
reported at the bottom of the report. To give an accurate overall
balance, the Trial Balance should be run for all accounts.
Reading Trial Balances
Beneath the title on the Trial Balance is the caption: “For Period
Ending:” followed by a date. Balances are reported as of the end
date specified for the statement. Although you can enter a start
date, all totals on the statement are full balances carried forward
from day one for all asset, liability, and capital accounts, and from
the start of the fiscal year for all retained earnings, income, and
expense accounts. The start date determines how values on the
report are calculated. Refer to “Calculating G/L Balances” on
page 58 for more information.
50
Financial Statements
Notes
Trial Balance
What You Should Know:
Nickname/Account Name
• Lists the G/L account being reported.
• G/L accounts are sorted first by account type and then by
nickname.
• Account name is used if there a nickname field does not exist,
such as in simplified accounting.
•
Account types are as follows:
• Current Asset
• Fixed Asset
• Short Liability
• Long Liability
• Equity
• Retained
• Income
• Expense
Debits/Credits
• The values for debits and credits are divided into two columns.
• The debits and credits are summed in the Totals line.
• In a two-sided accounting system, total debits and credits of all
accounts must equal each other.
Overall Balance
• This value is the difference between the Debit balance accounts
and the Credit balance accounts.
• In all instances, the Overall Balance should be a zero value.
PCLaw 12
51
Notes
Notes
Selecting Trial Balance Templates
The Tbal.rtb template is used in the illustration at the top of the
page. Trial Balance templates provided by PCLaw include the
following templates:
Template
Description
TBal
Most detailed Trial Balance template
TBalsm
Detailed Trial Balance with condensed token spacing
STBal
For simplified accounting, does not have a nickname column
STBalsm
Simplified accounting with condensed token spacing
Trial Balance Templates
Working with Income Statements
G/L > G/L Statements > Income Statement
The Income Statement compares revenue and expense accounts
for a specified period of time. The difference between total revenue
and total expense is reported as Net Income. To give an accurate
Income Statement, the Income Statement should be produced for a
single calendar month.
Reading Income Statements
The Income Statement reports on a specific period of time. The
balances listed are summed from items posted between the Start
and End dates specified on the Statements > Common window.
The Income Statement includes only two G/L account types, income
and expense. Both account types are zeroed out at year end. If the
Income Statement is run for the last month of the fiscal year, it
calculates all income and expense for that report period. Year to
Date sections display values from the start of the fiscal year. If the
Income Statement is run for the first month of the next fiscal year,
the year to date figures will calculate only from the start of the new
fiscal year. This is true if year end has been run, or twelve months
have passed since the last fiscal year.
52
Financial Statements
Notes
Income Statement
If the Income Statement is run for several months, that includes a
fiscal year end prior to the statement end date, the adjusting entries
created by PCLaw for the year end will not appear on the statement.
What You Should Know:
Revenue/Expense
• The Revenue section includes all income accounts, such as
lawyer fees, Interest Income, and Accounts Payable Discount.
• The Expense section includes all expense accounts such as Bad
Debt Expense, Client Disb Exp, and Suspense.
• Net Income is the difference between Total Revenue and Total
Expenses.
• Both revenue and expenses are displayed as a positive entry on
the Income Statement.
• If a revenue account is in a debit position, or an expense account
is in a credit position, the value is displayed in brackets.
Columns
• Current Period comprises the date range that the statement is
run.
• Year to Date calculates balances from the start of the fiscal year
to the end date.
• For each account, a dollar value is provided as well as the
percentage that value represents of the total revenue or
expense.
• Comparison columns can change, depending on the template.
• Percentages, budget figures, and previous year templates are
available.
PCLaw 12
53
Notes
Notes
Selecting Income Statement Templates
The illustrations in this section are from the Income template, the
default template in PCLaw. Income statement templates provided by
PCLaw include the following:
Template
Description
Income
Year to Date column displays account balances from the
start of the fiscal year to the statement end date and the percentage of total revenue and expense that each account
represents.
IncomeSM
Year to Date template with condensed token spacing.
IncBudg
Percentage column for current period and year to date are
replaced with monthly and year to date budget figures,
respectively.
IncomeD
Similar to the Income template, but groups accounts by
department.
CompInc
Displays data from the previous year for both the current
reporting period and year to date.
CompInc2
Similar to the CompInc template, but displays the account
name to the right of the Current Period column.
CompIncD
Similar to the Compinc2 template, but groups accounts by
department.
Incm12
Displays account balances by calendar month for a 12month period, backwards from the Current Report period.
Incm12SM
Account Balances by calendar month with condensed token
spacing.
Income Statement Templates
Working with Balance Sheets
G/L > Statements > Balance Sheet
The Balance Sheet shows the worth of the firm. Like the Trial
Balance, the Balance Sheet depicts a point in time. The equity
accounts forecast how net income would be distributed, if an End of
Year process was performed at the End Date of the Current Report
Period. To provide an accurate overall balance, the Balance Sheet
should be run for all accounts.
54
Financial Statements
Notes
Balance Sheet
Reading Balance Sheets
The Balance Sheet contains three separate sections. Assets can be
current or fixed. A current asset is defined as an asset that can be
converted quickly into cash. Liabilities can be short term or long
term. The equity account type can have equity accounts that carry
the balance forward indefinitely, or retained accounts that zero out at
year end. For further detail on equity accounts, refer to
“Understanding the Equity Section” on page 55.
The balance for each account is contained in the left hand column.
Totals for each subsection appear in the middle column. Section
totals appear in the right-hand column.
Total Assets should always equal Total Liabilities & Equity.
Understanding the Equity Section
While asset and liability accounts display current balances, equity
accounts are different. Values of individual lawyer equity accounts
do not change over the course of the year, unless manual
adjustments have been made to these accounts. Only when the End
of Year procedure is performed does PCLaw post adjusting entries
PCLaw 12
55
Notes
Notes
to close out all income, expense, and retained earnings type equity
accounts.
G/L Account
Account Type(s)
Action at Year End
Asset
Current or Fixed Asset
Balance carries forward
Liability
Short or Long Term Liability
Balance carries forward
Capital/Equity (firm or
lawyer)
Equity
Balance carries forward
Income for Alloc
Equity
Balance carries forward
Drawings
Retained
Balance is zeroed out
Retained Earnings
(firm or lawyer)
Retained
Balance is zeroed out
Income
Income
Balance is zeroed out
Expense
Expense
Balance is zeroed out
How General Ledger Accounts are affected by Year End
A firm makes a profit during the year, and thus increases in value.
The balance of the lawyer equity accounts do not change over the
course of the same year. Therefore, the increase in value must be
shown elsewhere on the Balance Sheet. This is achieved through
two accounts: Retained Earnings and Income for Allocation.
The sum of all Retained Earnings and Income for Allocation
accounts on the Balance Sheet equals Net Income on the Income
Statement for the same report period. Net Income is allocated to the
lawyers’ Retained Earnings accounts using the Income Allocation
Percent value, which is found under the Accounting Tab of Lawyers
and Rates.
56
Financial Statements
Notes
Accounting tab of Lawyers & Rates
In the current example, income is allocated as follows:
DJD
60%
TOB
30%
Unallocated
10%
Net Income is allocated as follows: Income for Alloc 10%
Retained Earnings - TOB 30%
Retained Earnings - DJD 60%
Comparing Income Statement > Net Income to Balance Sheet > Retained Earnings
Net Income is allocated to retained type G/L accounts, but not equity
type accounts.
The allocated balance is stored in hidden Special Retained Earnings
(10000) accounts. These accounts function transparently, and do
not appear on any G/L statement. A Special Retained Earnings
account exists for each partner. When a Balance Sheet is produced,
these account balances are transferred to the appropriate Retained
Earnings/Income for Alloc account, where they appear under the
Equity section.
PCLaw 12
Note: Special Retained
Earnings accounts are
separated from Retained
Earnings accounts.
57
Notes
Notes
A value must be temporarily stored to display the forecasted
balance of all Retained Earnings accounts on the Balance Sheet
prior to running the End of Year process. This value is called upon
only when a Balance Sheet is created. If this value was posted
directly to equity, an imbalance would exist in the Trial Balance and
Income Statements, since special Retained Earnings is the
difference between income and expenses. Therefore, special
retained earnings accounts are outside the calculable range for all
financial statements.
If the Income Allocation Percentage box on the Lawyers & Rates >
Accounting Tab is left blank, or if the total allocations for all partners
does not add up to 100%, then the unallocated balance is posted to
the Income for Alloc (3500) account. Income for Alloc (3500) works
similar to Retained Earnings accounts, including having a special
Retained Earnings account that stores the balance of unallocated
net income for the Balance Sheet. Income for Alloc differs from
Retained Earnings accounts, only in that it is not associated with a
lawyer.
Selecting Balance Sheet Templates
The illustrations in this section are from the BalSheet template, the
default template in PCLaw. Balance Sheet templates provided by
PCLaw include the following:
Template
Description
BalSheet
A basic Balance Sheet displaying Asset, Liability, and Equity
sections.
BalShSm
The BalSheet template with the line spacing reduced.
BudgBal
Compares the firms actual performance for the period to what
was budgeted.
BudgBlSm
The BudgBal template with line spacing reduced.
Balance Sheet Templates
Calculating G/L Balances
For the first month of the first year of a firm, calculating a G/L
balance is a simple procedure. PCLaw scans the journals and
compiles the entries posted to each G/L account. Since there is only
one month’s data, the process does not take very long.
Now, take the example of a multi-lawyer firm with several years of
data. If PCLaw is required to scan each journal to determine both
the opening balance and transactions posted for the current report
58
Financial Statements
Notes
period for each account, the process may be immense. Therefore, a
quicker way to produce financial statements is required.
Behind the Scenes:
When a month is closed in PCLaw, the closing balance for each
account is saved in a G/L Account Balance file. Therefore, when
running statements for the next month, instead of PCLaw needing to
reread the journals of the prior months to attain the opening
balance, it can simply read the saved closing balances from the
prior month. Then it can scan for transactions that occur during the
current report period.
How the current month’s balance for a general ledger account is derived
The G/L Account Balance file is appended whenever a month is
closed. For each G/L account, a record is added. If there are fifty G/
L accounts, fifty records are created. If ten months are closed, then
the file contains five hundred records.
Often when producing statements for a current month, the prior
month has not been closed. PCLaw searches for the most recent
closed month prior to the Start Date, reads the G/L Account Balance
file, then compiles the requested information from that date forward.
Running statements for a set of books with many months open takes
longer to compile than for a set of books with only a few months
open.
Likewise, when running a statement using a start date several
months prior to the last closed month, PCLaw reads the respective
records in the G/L Account Balance file prior to the specified start
date and skips the records for all subsequent month ends. Next,
PCLaw searches for all entries through the Current Report Period >
End Date to calculate the correct closing balances.
PCLaw 12
Note: Only records after the
Opening Balance Entry Date
are read. Any transactions
posted prior to the Opening
Balance Entry Date are
disregarded when a
statement is produced.
59
Notes
Notes
Common Troubleshooting:
Backdated Entries
If a PCLaw report is produced for the same period, transactions
prior to the Opening Balance Entry Date are included on the report.
What happens when a statement is backdated beyond the latest closed month
If an entry is backdated into a closed month, running statements
only for the current report period will not include that entry. However,
if the start date is set prior to the backdated entry, then the entry is
included on the statements.
Working with Departments
G/L > G/L Statements > Other Tab
Department Codes were introduced in the Virtual Training 1 Installing and Preparing PCLaw session as part of the initial setup
for adding matters to PCLaw. Now, we will examine the expanded
utilization for departments and the role they play in financial
reporting.
PCLaw allows you to organize financial statements by departments
on two different levels.
You can group general ledger accounts by departments, including
assigning department accounts to timekeepers or produce financial
statements for an individual department. In addition, you can use or
change existing departments as provided by PCLaw or add your
own.
60
Financial Statements
Notes
You can also categorize income by department. This level includes
creating income G/L accounts for departments and using them in
place of lawyer fee accounts. Departments can subsequently be
applied to individual matters and used to track revenue during the
billing/payment process. Summary by Department and Summary by
Department by Lawyer sections can be included on some reports.
Most reports can be generated by department.
Tracking G/L Revenue by Department
Options > System Settings > Other Tab
Traditionally, PCLaw tracks revenue using lawyer fee accounts. For
both partnerships and corporations, all timekeepers are assigned a
fee account. Revenue alternatively can be tracked by department.
Income G/L accounts can be assigned for any department, and
these accounts take the place of lawyers’ fee accounts.
When changing how G/L revenue is tracked, the change is effective
for future revenue only. Adjustments are not retroactively made to
revenue previously posted to the General Ledger. Therefore, if the
firm chooses to track G/L revenue by department instead of by
lawyer, the lawyers’ fee accounts still appear on the prior period and
comparative sections of any financial statement, until those periods
are no longer included in the historical range of the financial
statement.
Warning: In order for your
financial statements to
provide consistent results, do
not repeatedly change how
revenue is tracked over a
period of time. Since
historical information is not
modified, changing the
tracking method makes the
financial statements difficult
to use for comparative
purposes.
Track G/L Revenue area on the Other tab of System Settings
PCLaw 12
61
Notes
Notes
Assigning Departments
General Ledger
Departments can be assigned to the General Ledger for use when
generating financial statements. Statements can be produced for
individual departments.
Assign departments to G/L accounts either by using the G/L Pop Up
Help window on the Options > Lists pull-down menu or by using the
G/L button in Options > Lists > Department Codes.
Departments can be assigned to lawyer fee, draw, equity, and
retained earnings accounts. Draw, equity, and retained earning
accounts may not be activated for some lawyers and do not apply to
corporations.
Lawyers/TimeKeepers
Assign departments to lawyer accounts using the Accounting Tab in
Lawyers and Rates. Select the lawyer and click change to access
the Accounting tab.
Bank Accounts
Departments can be assigned to bank accounts for use when
creating financial statements. Statements can be produced for
individual departments.
Assign departments to back accounts using the Bank Account Pop
Up Help on the Options > Lists pull-down menu.
Matters
If Track G/L Revenue by Department is enabled on the Other tab of
System Settings, a Department box is added on the Common tab of
the New Matter window and the Main tab of Matter Manager.
Department codes assigned an income G/L account allocate
revenue to that account, during the billing/payment process. Use
department codes are assigned to matters, to generate reports or
report summaries.
If tracking revenue by department, the department field becomes
mandatory for the New Matter window. It cannot be removed using
the New Matter Settings option on the System Settings > Matter
Tab. In addition, it must contain a value prior to saving data entry in
New Matter and Matter Manager.
Clients
The default department can be set by client for any new matters
created for that client.
62
Financial Statements
Notes
Realizing Revenue When Billing or Receiving
Payments
When an invoice is created it is given the department code for that
matter. If the department code has an assigned income G/L
account, then revenue is allocated to that account. For accrual
accounting systems, revenue is allocated when the invoice is
created. For modified cash and cash systems, revenue is allocated
when payment is received.
Producing Reports by Department
Certain PCLaw reports contain an optional Summary by Department
section. Some also contain an optional Summary by Department
and Lawyer section. These options can be selected on the Other tab
of the reports. The options only appear if Track G/L Revenue by
Department is enabled on the Other tab of System Settings.
On the Matter tab of most matter-based reports, a Department area
enables the report to be run for one or multiple departments.
Custom Reports can also be produced by department by selecting
the report on the Custom Report > Advanced tab.
Working With Parent and Sub Accounts
G/L accounts of the same type can be grouped under a parent
account. An Income Statement or Balance Sheet can display the
sub account, the parent account, or both. Parent accounts can be
used to group like accounts when creating Consolidated Income
Statements.
Parent accounts are for use with Income Statements and Balance
Sheets only. They neither appear on General Ledgers, Trial
Balances, nor on any other PCLaw report or journal.
Note: Prior to version 10,
Parent and Sub Accounts
were a PCLaw Pro only
feature.
Parent Accounts
A parent account is an umbrella account, under which all linked sub
accounts are found. A parent account is not utilized by itself and
cannot be the recipient of data entry. There are strict rules governing
the creation and use of parent accounts. A parent account:
•
•
•
Must have the same account type as its sub accounts.
Cannot have a balance or any activity.
Cannot be a reserved account.
Because of these rules, it is recommended to create a new account
to serve as a parent account rather than to use an existing G/L
account.
PCLaw 12
63
Notes
Notes
For consistency on the Income Statement and Balance Sheet, all
parent and sub accounts should be the same department type.
An account is converted to a parent account when a sub account is
first assigned to it, and not through any options in the parent account
itself. At this point, the account created in this procedure is a regular
G/L account.
To create a parent account for general or trust bank accounts, do not
create a new bank account. Create a regular G/L account with an
account type of Current Asset.
Assigning Sub Accounts
A sub account can be either a pre-existing or a newly created
account. A parent account needs to be created prior to the subaccount being assigned to the parent. A parent account can have as
few as one account assigned to it, or be assigned many accounts.
Although a parent account cannot be a reserved account, a sub
account can be reserved. A reserved account has the account type
grayed out in the Type box.
To revert a parent account back to a regular account, remove all
references to the parent account in the Sub Account Of boxes for all
sub accounts. If a parent account is removed, all references are
removed for each sub account. The sub accounts become regular
accounts.
Viewing a Chart of General Ledger Accounts
A list of all accounts including parent and their associated subaccounts are available on the Pop Up Help - G/L Accounts window.
The list must be sorted by Account Name (click the column heading)
to display the accounts. Sub accounts are indented under the parent
account. Click the Print icon to produce a Chart of General Ledger
Accounts report.
64
Financial Statements
Notes
Pop Up Help - G/L Accounts window
Parent and sub accounts are only visible when viewing G/L
accounts in a Tree format. Parent and sub accounts are not
differentiated when viewing G/L accounts in a List format.
Producing G/L Statements for Parent/Sub Accounts
An Income Statement or Balance Sheet can be produced to show
sub accounts only, parent accounts only, or both sub and parent
accounts. Selecting either sub or parent accounts do not affect the
overall balance of the statement. Parent and Sub Accounts are not
differentiated on the General Ledger or Trial Balance.
When Show Sub Accts is selected, the Income Statement and
Balance Sheet appear as they did prior to the addition of parent
accounts. If Print Zero Balance Accounts is selected, the parent
accounts appear on the statements with a balance of zero.
However, the sub accounts are treated as regular accounts and are
not grouped with the parent accounts.
When Show Parent Accts is selected, the Income Statement and
Balance Sheet display the parent accounts only with the summed
balance of all linked sub accounts. Sub accounts do not appear on
the statements even if Print Zero Balance Accounts is selected.
PCLaw 12
65
Notes
Notes
Parent and Sub Accounts
Sub accounts appear as indented under the parent account. The
balance of sub accounts are separated from the balance of regular
accounts. A summation line Total {name of parent account} appears
underneath with the sum of all parent accounts.
Producing Consolidated Statements
Tip: Consolidating
statements does not change
or transfer data on either set
of books.
With Consolidated Statements you can run statements combining
the data for two sets of books. The consolidating process places
accounts from both sets of books onto one statement. Accounts with
the same nickname are combined into the same account.
Parent accounts can streamline the appearance of Consolidated
Income Statements and Balance Sheets. The sets of books being
consolidated may have neither the same accounts nor the same
nicknames for similar type accounts. An example is lawyer equity
and fee accounts.
Common parent accounts can be created in both sets of books to
better group similar account types.
66
Financial Statements
Reconciling PCLaw
Notes
PCLaw provides an exceptional tool, in the G/L Reconciliation
report, in confirming your set of books is properly balanced for each
month.
The G/L Reconciliation report compares PCLaw journals with the
Client Ledger and General Ledger. Any imbalance is displayed on
the report. Once an imbalance is reported, its source needs to be
isolated. This chapter offers troubleshooting tips for finding the
source of any imbalance that may occur on the G/L Reconciliation
report.
A general ledger account that is directly associated with a journal is
called a control account. For example, General Bank Account 1 has
a G/L control account of 1000, Trust Bank Account 1 has a control
account of 1100. This terminology is used throughout this topic.
Common Troubleshooting:
This section contains useful tips for reconciling most reports in
PCLaw, including the G/L Reconciliation report. These tips are
recommended repeatedly throughout this document when
reconciling the different sections of the G/L Reconciliation report.
If there is an imbalance, run Verify Data Integrity
A common cause of an imbalance between reports is an index file
that does not properly refresh or update itself. To confirm the
integrity of your index files, perform a Verify Data Integrity.
1. Select the Tools pull-down menu, click Verify Data Integrity.
2. Select all boxes for the section being compared on the G/L Reconciliation report.
3. When the Verify Data Integrity is completed, rerun the G/L Reconciliation report.
Warning: Verify Data
Integrity could take a long
time to complete due to data
network speed and
hardware components.
Verify Data Integrity requires
everyone to exit PCLaw.
If there is an imbalance in the Journal/ G/L comparison, reread
G/L Information
When producing the G/L Reconciliation report, confirm that the
Reread G/L Information option is checked. If Reread G/L
Information is not selected, items posted after the last time a G/L
statement was produced may not appear on the report.
Balance the journal to the Client Ledger first
Some sections display balances in all three columns, Journal,
Ledger, and G/L. If all three balances are different, always reconcile
the Journal to the Ledger before reconciling either balance to the
G/L.
PCLaw 12
67
Notes
Notes
Any change to the journal balance will reflect on the G/L; therefore,
always ensure the journal balance is correct prior to adjusting the
General Ledger balance.
Locate the source of the imbalance by date
By starting with a time when the values balanced, the source of the
imbalance can be narrowed down by date.
For example, if reports were (and still are) balanced at the end of the
previous month, but are not balanced at the end of the current
month, run the G/L Reconciliation report up the 15th of the current
month. If the imbalance still appears, run the report until the 7th of
the month and continue to cut the periods in half until the imbalance
is narrowed down to a specific date. Look at a detailed journal,
Client Ledger, or General Ledger for that date to find the source of
the imbalance.
Tip: If the amount of the
imbalance changes, then
you are dealing with multiple
entries.
If the report, when run to the 15th of the month is balanced, run the
report to the 23rd, and continue to cut the periods in half to find the
date the imbalance occurred.
Locate the source of the imbalance by matter
For an imbalance in accounts receivables, narrow down the source
to a specific matter.
For example, produce a Client Ledger or Billing Fees journal (firm
totals only) for a range of clients by nickname from A to M, by using
the Range of Clients option on the Matter tab for these reports. If the
imbalance appears on this restricted report, narrow the range again
to A to F. Continue until you can isolate the matter with the
imbalance. If the imbalance is not between A to M, narrow down the
N to Z range to locate the matter.
Tip: If the amount of the
imbalance changes, then
you are dealing with multiple
entries.
Once the matter is known, you can run a detailed Client Ledger and
Billing Fees Journal for the specific matter to find the item causing
the imbalance.
Has the historic report changed?
If reports balanced at the end of the previous month, but not at this
month end, rerun the G/L Reconciliation for the previous month to
confirm that they still balance at that point in time. If not, then the
source of the imbalance is an entry backdated prior to the last
accounting period.
The imbalance can often be isolated by running an audit trail by
entry number, using a known entry number from the start of the
current period. On the Audit Trail report, check for dates that
occurred prior to the current period.
68
Reconciling PCLaw
Notes
Is the imbalance consistent over time?
If the value is consistent over time, then you must look for a
backdated entry, an incorrect opening balance, or a possible
corrupted entry.
If the value changes over time, then the imbalance is most likely due
to an incorrect data entry routine. One or more users are entering or
allocating information incorrectly. This could also be an indication of
more widespread data corruption.
Reconciling the Trust Bank
This section contains useful tips for reconciling an imbalance in an
area of the Trust Bank.
If there is an imbalance in the Client/Journal column:
Possible cause
Recommended correction
A partial entry: i.e. an entry
that was interrupted before
it could properly post to the
ledger or journal.
**This could be from a
workstation stoppage,
network issue, or power
interruption.**
• Drill down on the entry on the Client Trust
Ledger or Trust Bank Journal and remove
it. Re-enter it, if needed.
• Use the Register to remove the entry,
either on the Ledger or Trust Tab. Reenter the transaction, if needed.
Imbalance in the Trust Bank > Client/Journal column
Follow these preliminary steps for identifying the source of the
imbalance:
1. Narrow down by date when the difference occurs (refer to
“Common Troubleshooting:” on page 67 for more information).
2. Run a detailed Client Trust Ledger and Trust Bank Journal for
the date the imbalance occurred. The reports can be filtered by
bank account to further narrow the search field.
3. Compare the entries on both reports to find the imbalance.
4. Remove the entry in question, and re-enter it.
PCLaw 12
69
Notes
Notes
If there is an imbalance in the Journal/ G/L column:
Possible cause
Recommended correction
A non-trust transaction was
allocated to a trust bank
control account.
**This transaction cannot
originate from a trust bank
data entry window as these
windows do not provide a
field to specify G/L
accounts.**
• Use the Register to correct the G/L
allocation for the entry with a proper G/L
account other than the trust bank control
account.
• Create a G/L adjustment to move the
imbalance from the trust bank control
account to its proper G/L account.
Imbalance in the Trust Bank > Journal/G/L column
Follow these preliminary steps for identifying the source of the
imbalance:
1. Narrow down by date when the difference occurs (refer to
“Common Troubleshooting:” on page 67 for more information).
2. Run a detailed G/L for the control account in question for the
date the imbalance occurred.
3. Review the Srce column for a source other than TB.
4. Drill-down on the entry to correct the G/L allocation. Also an offsetting General Journal entry can be made to correct the imbalance.
If there is an imbalance between the sum of the individual trust
G/L accounts and the Trust Funds Owed (2100) account:
If the individual trust bank G/L accounts reconcile to their
corresponding journals, then an improper allocation was made to
Trust Funds Owed (2100). Refer to “If there is an imbalance in the
Journal/ G/L column:” on page 70 to identify and correct this
discrepancy.
Reconciling the General Bank
This section contains useful tips for reconciling an imbalance in an
area of the General Bank.
70
Reconciling PCLaw
Notes
If there is an imbalance in the Journal/ G/L column:
Possible causes
Recommended correction
A check or receipt was
allocated to the general
bank control account.
• Use the Register to change the G/L
allocation to an account that is not a
general bank control account.
A non-general bank entry
was incorrectly allocated to
a general bank control
account.
• Use the Register to correct the G/L
allocation to an account that is not a
general bank control account.
• Create a G/L adjustment to move the
imbalance from the bank control account
to its proper account.
An entry was backdated into
a closed month.
• Reopen and close the month, or create a
reversing entry for the same date.
An incorrect general bank
opening balance was
entered for the account.
• If no months are closed in PCLaw, use
Tools > General Bank Opening Balances
to correct the opening balance.
• If months are closed, create a Firm
Receipt for the amount of the opening
balance. Allocate the receipt to the bank
control account. This type of entry
changes the General Bank Journal
balance, but not the G/L balance.
An incorrect general ledger
opening balance was
entered for the general bank
control account.
• If no months are closed in PCLaw, use
Tools > General Ledger Opening
Balances to correct the balance of the
general bank control account.
• If months are closed, create a G/L
adjustment for the opening balance.
Allocate the receipt to an expense
account to affect the current year’s
income, or to an equity account to leave
income unaffected. This type of entry
changes the G/L, but not the General
Bank Journal balance.
Imbalance in the General Bank > Journal/G/L column
Follow these preliminary steps to identify the source of the
imbalance:
1. Narrow down by date when the difference occurs (refer to
“Common Troubleshooting:” on page 67 for more information).
2. Run a detailed General Bank Journal and a detailed General
Ledger for the control account for the date the imbalance occurs.
3. Search in the G/L Acct column on the General Bank Journal, for
the G/L nickname of the control account. Use the
search for any instance of the nickname.
PCLaw 12
icon to
71
Notes
Notes
4. Search in the Srce column of the general ledger for a source
other than GB.
5. Drill-down on any entry to examine in greater detail.
Reconciling Accounts Receivable
This section contains useful tips for reconciling an imbalance in an
area of Accounts Receivables.
If there is an imbalance in the Client/Journal column:
Possible causes
Recommended correction
A billing process was
interrupted with an invoice
posted to the Client Ledger,
but not to the Billing Fees
Journal.
**This is often shown by the
appearance of an invoice
number in the Bld Inv
column of the Client Ledger,
but that invoice number
does not appear on the
Billing Fees Journal.**
• Undo the bill.
• If a ‘Billing on Invoice #’ entry does not
appear on the Client Ledger for the
invoice, cancel the invoice by performing
the following:
1. Create an invoice for the same matter and
the same invoice number.
2. Confirm on the Options Tab of the Bill
Selections window, Prompt for
Changes to Billed Amounts is checked.
3. Click the Cancel button in the Billing
Information window. PCLaw displays a
Billing Cancelled prompt.
4. Confirm on the Client Ledger that the
invoice number has been removed from
all transactions.
A payment is missing from
the Billing Fees Journal.
**This is shown by total
receipts on the Client
Ledger not matching total
receipts on the Billing Fees
Journal.**
• If the payment is within an unreconciled
open month, remove the payment and reenter it.
• If a payment is in a closed month, call
PCLaw Technical Support.
An entry is missing from the
client ledger.
**This is shown by total
billed fees or billed
disbursements on the Client
Ledger not matching total
fees and disbursements on
the Billing Fees Journal.**
• If the invoice is in an unreconciled open
month:
1. Undo the bill (any payments made to the
invoice must first be reversed).
2. Re-enter the missing entry.
3. Create the bill once again.
4. Re-enter all previously removed
payments.
Imbalance in the Accounts Receivable > Client/Journal column
72
Reconciling PCLaw
Notes
Follow these preliminary steps for identifying the source of the
imbalance:
1. Narrow down by matter where the difference occurs (refer to
“Common Troubleshooting:” on page 67 for more information).
2. Run a detailed Client Ledger and Billing Fees Journal for the
matter with the imbalance. Reports should be run for all dates.
3. Compare the total billed fees, disbursements, taxes (if applicable), and receipts on both reports to further narrow the search.
4. Confirm all invoice numbers listed under the Bld Inv column of
the Client Ledger appear on the Billing Fees Journal.
Tip: When producing the
Billing Fees Journal, include
Paid Invoices and Write
Ups/Write Downs.
If there is an imbalance in the Journal/ G/L column:
(For Accrual Accounting Systems Only)
Possible cause
Recommended correction
A transaction is incorrectly
allocated to Accounts
Receivable (1200).
**This is most probably the
case if the A/R balance on
the Client Ledger equals the
Outstanding balance on the
Billing Fees Journal.**
• Use the Register to correct the G/L
allocation for the entry to a non general
bank control account.
• Create a G/L adjustment to move the
imbalance from the general bank control
account to its proper G/L account.
Imbalance in the Accounts Receivable > Journal/G/L column for Accrual Systems
Follow these preliminary steps for identifying the source of the
imbalance:
1. Narrow down by date when the difference occurs (refer to
“Common Troubleshooting:” on page 67 for more information).
2. Run a detailed Billing Fees Journal, Write Up/Down Journal,
Payment Allocation Listing, and Accounts Receivable (1200) for
the date the imbalance occurs.
3. On the General Ledger, use the Srce column to compare transactions to their source journal.
•
•
•
A source of BJ corresponds to an invoice on the Billing
Fees Journal.
A source of GB corresponds to a payment on the
Payment Allocation Listing.
A source of WUD corresponds to a write up or down on
the Write Up/Down Journal.
Tip: If the Client Ledger and
Billing Fees Journal are not
in balance, perform the steps
in “If there is an imbalance in
the Journal/ G/L column:” on
page 73 before attempting to
reconcile the G/L.
4. Drill-down on any entry to examine it in greater detail.
PCLaw 12
73
Notes
Notes
Reconciling Client Disb Recov (1210)
For Accrual Accounting systems only
The reconciliation formula for Client Disb Recov (1210) is as follows:
Tip: Unbilled disbursements
and unapplied general
retainer balances are
attained from the Client
Ledger.
Unbilled disbursements - unapplied general retainers
If there is an imbalance in the Journal/G/L column:
Possible causes
Recommended corrections
A Client Expense Recovery
is allocated to 1210 instead
of an expense account.
**This is shown by 1210
appearing in the G/L Acct
column of the Client Cost
Journal.**
• Drill-down on the entry on the Client Cost
Journal and change the G/L allocation.
• Post a general journal entry to reallocate
the amount.
A non-client cost is
allocated to 1210.
**This is shown by a nonsummarized transaction in
the 1210 G/L Acct column
that is neither a billing nor
general retainer entry.**
• Drill-down on the general ledger entry and
change the G/L allocation.
• Post a general journal entry to reallocate
the amount.
An incorrect unbilled
disbursement was entered
as a matter opening
balance for one or more
matters.
• If no months are closed in PCLaw, use
Tools > Matter Opening Balances to
correct the balance.
• If months are closed:
1. Create an Expense Recovery for the
imbalance.
2. Allocate the receipt to 1210 account.
• This type of entry will change the Client
Cost Journal, but not the G/L balance.
An incorrect general ledger
opening balance was
entered for Client Disb
Recov (1210).
• If no months are closed in PCLaw, use
Tools > General Ledger Opening
Balances to correct the balance of Client
Disb Recov (1210).
• If months are closed:
1. Create a G/L Adjustment for the opening
balance.
2. Allocate the receipt to an expense
account to affect the current year’s
income, or to an equity account to affect
firm capital only.
• This entry affects the G/L, but not the
Client Cost Journal.
Imbalance in Client Disb Recov (1210) > Journal/G/L column for Accrual Systems
74
Reconciling PCLaw
Notes
Follow these preliminary steps for identifying the source of the
imbalance:
1. Narrow down by date when the difference occurs (refer to
“Common Troubleshooting:” on page 67 for more information).
2. Run a detailed Client Cost Journal for that date. Use the
icon
to search for any instance of 1210 (the Client Disb Recov nickname) in the G/L Account column.
Tip: If you are using a
different nickname for Client
Disb Recov, substitute that
nickname in place of 1210.
3. Run a detailed Client Disb Recov (1210) for the date. Check the
report for any individual transactions that are not the result of billing or general retainers.
Reconciling Client Disb Recov (1210)
(For Modified Cash Systems Only)
This section contains useful tips for reconciling an imbalance in the
Client Disb Recov (1210) account in a Modified Cash system.
For Modified Cash systems, the reconciliation formula for Client
Disb Recov (1210) is:
•
Unbilled disbursements + billed but unpaid disbursements
- general retainers.
•
Unbilled disbursements and general retainer balances are
attained from the Client Ledger.
•
Billed but unpaid balance is attained from the Billing Fees
Journal.
If there is an imbalance in the Journal/ G/L column:
Possible causes
Recommended corrections
An expense recovery entry
is allocated to 1210 instead
of an expense account.
**This is shown by 1210
appearing in the G/L Acct
column of the Client Cost
Journal.**
• Drill-down on the entry on the Client Cost
Journal, and change the G/L allocation.
• Post a general journal entry to reallocate
the amount.
A non-client cost is
allocated to 1210.
**This is shown by a nonsummarized transaction in
Client Disb Recov (1210)
that is not an applied
payment.**
• Drill-down on the entry on the general
ledger, and change the G/L allocation.
• Post a general journal entry to reallocate
the amount.
PCLaw 12
Tip: Expense recovery,
general check allocated to
matters, and accounts
payables allocated to
matters appear as
summarized entries. Any
transaction incorrectly
allocated to 1210 appears
on the G/L as a separate
transaction.
Warning: Do not reconcile
if you are separating hard
and soft costs, as only hard
costs are reconciled on the
G/L Reconciliation report.
General Retainers are
received as hard costs. At
the time of billing, if a
general retainer is applied to
a hard cost, it is debited
from Client Disb Recov
(1210) as a hard cost. If a
general retainer is applied to
a soft cost, the retainer
amount is debited from
Client Soft Cost (5011) as a
soft cost. Since Client Soft
Cost (5011) is not tracked
on the G/L Reconciliation
report, an imbalance results
in the Journal/ G/L column
making Client Disb Recov
(1210) a non-reconcilable
account.
75
Notes
Notes
Possible causes
An incorrect matter opening
balance was entered for the
matter.
Recommended corrections
• If no months are closed in PCLaw, use
Tools > Matter Opening Balances to
correct the balance.
• If months are closed:
1. Create an Expense Recovery for the
imbalance.
2. Allocate the receipt to 1210 account.
• This entry affects the Client Ledger but
not the General Ledger balance.
An incorrect general ledger
opening balance was
entered for Client Disb
Recov (1210).
• If no months are closed in PCLaw, use
Tools > General Ledger Opening
Balances to correct the balance of the
bank ledger account.
• If months are closed:
1. Create a G/L adjustment for the opening
balance.
2. Allocate the receipt to an expense
account to affect the current year’s
income, or to an equity account to affect
the firm capital only.
• This entry affects the general ledger, but
not the Client Cost Journal balance.
Hard and soft costs are
separated, and a general
retainer has been allocated
to a soft cost.
• Create a G/L adjustment debiting Client
Disb Recov (1210) and crediting Client
Soft Cost (5011).
• Imbalance is otherwise non-reconcilable.
Imbalance in Client Disb Recov (1210) > Journal/G/L column for Modified Cash
Follow these preliminary steps for identifying the source of the
imbalance:
Tip: If you are using a
different nickname for Client
Disb Recov, substitute that
nickname in place of 1210.
Tip: Expense recovery,
general check allocated to
matters, and accounts
payables allocated to matters
appear as summarized
entries. Any transaction
incorrectly allocated to 1210
appears on the g/l as a
separate transaction.
76
1. Narrow down by date when the difference occurs (refer to
“Common Troubleshooting:” on page 67 for more information).
2. Run a detailed Client Cost Journal for that date. Use the
icon
to search for the any instance of 1210 (the Client Disb Recovery
account nickname) in the G/L Acct column.
3. Run a detailed General Ledger for Client Disb Recov (1210) for
the date. Check the report for any individual transactions that are
not the result of payments on invoices.
Reconciling PCLaw
Notes
Reconciling Accounts Payable
(For Accrual Accounting Systems Only)
This section contains useful tips for reconciling an imbalance in the
General Liabilities (2000) account. Only Accrual accounting systems
use the general ledger to track accounts payables.
If there is a imbalance in the Journal/ G/L column:
Possible causes
Recommended corrections
A payable entry is allocated
to 2000 instead of an
expense account or Client
Disb Recov (1210).
**This is shown by 2000
appearing in the G/L Acct
column of the Purchases
Journal.**
• Drill-down on the entry on the Purchases
Journal, and change the G/L allocation.
• Post a general journal entry to reallocate
the amount.
An AP payment made
through the General Check
feature is allocated to an
expense account, instead of
2000. Include in A/P was
selected in the General
Check window.
**This is shown by the
appearance of a payment
on the Payment Listing
report that is not in General
Liabilities (2000).**
• Drill-down on the entry on the Payment
Listing, and change the G/L allocation.
• Post a general journal entry to reallocate
the amount.
A transaction is allocated to
General Liabilities (2000)
that was not added through
Accounts Payable, such as
paying a payable by the
General Check window
without selecting Include in
A/P.
**This is shown by a nonsummarized item in the
2000 G/L account that does
not have A/P Payment on
Account in its explanation.**
• Drill-down on the entry on the general
ledger, and change the G/L allocation.
• Post a general journal entry to reallocate
the amount.
PCLaw 12
77
Notes
Notes
Possible causes
Recommended corrections
An incorrect opening
balance was entered for the
vendor.
• If no months are closed in PCLaw, use
File > Vendor > Open Vendor > Opening
Balances Tab to correct the balance.
• If months are closed:
1. Create a Payable for the amount of the
imbalance.
2. Allocate the payable to the 2000 account.
• This type of entry will change the Payable
Listing, but not the general ledger
balance.
An incorrect general ledger
opening balance was
entered for General
Liabilities (2000).
• If no months are closed in PCLaw, use
Tools > General Ledger Opening
Balances to correct the balance of the
bank ledger account.
• If months are closed:
1. Create a G/L Adjustment for the opening
balance.
2. Allocate the imbalance to an expense
account to affect the current year’s
income, or to an equity account to leave
income unaffected.
• This type of entry will change the General
Ledger, but not the Payable Listing
balance.
Imbalance in Accounts Payable > Journal/G/L column for Accrual systems
Follow these preliminary steps for identifying the source of the
imbalance:
1. Narrow down by date when the difference occurs (refer to
“Common Troubleshooting:” on page 67 for more information).
Tip: If you use a different
nickname for General
Liabilities substitute that
nickname in place of 2000.
icon
2. Run a detailed Purchases Journal for that date. Use the
to search for the any instance of 2000 (the nickname of the General Liabilities account) in the G/L Acct column.
3. Run a detailed Payment Listing to compare payments with those
listed in General Liabilities (2000). Check the report for any
transactions that are not the result of payments to accounts payable.
Tip: New payables are
summarized into a total A/P
entry. Any transaction
incorrectly allocated to 2000
will appear on the G/L as a
separate transaction.
78
Reconciling PCLaw
Notes
Reconciling Value Added Taxes
(For Firms Collecting HST, GST or VAT)
The GST Journal balance on the G/L Reconciliation report reflects
the General Reconciliation balance as it appears on the HST/GST/
VAT Journal.
If there is an imbalance in the Journal/ G/L column:
Possible causes
Recommended corrections
In the allocation section of
the General Check window,
an item was allocated to G/L
account 2400.
**This is shown by the
appearance of an item in
the HST/GST/VAT Payable
(2400) account, but not on
the HST/GST/VAT
Journal.**
• Drill-down on the entry on the HST/GST/
VAT Journal, and change the G/L
allocation.
• Post a general journal entry to reallocate
the amount.
A HST/GST/VAT
Remittance check was
entered without using HST/
GST/VAT Category ‘Z’.
**Entry appears on the GST
journal without a ‘Z’
designation.**
• Drill down on the entry on the HST/GST/
VAT Journal, and change the HST/GST/
VAT category.
An incorrect opening
balance was entered for the
HST/GST/VAT journal.
• If no months are closed in PCLaw, use
Tools > HST/GST/VAT Opening Balances
Tab to correct the balance.
• If months are closed:
1. Create a zero value General Check.
2. Select Y for Pay HST/GST/VAT.
3. Type the amount of the imbalance in the
HST/GST/VAT box as a negative value.
• This type of entry will change the HST/
GST/VAT Journal, but not the General
Ledger balance.
PCLaw 12
79
Notes
Notes
Possible causes
Recommended corrections
An incorrect general ledger
opening balance was
entered for the HST/GST/
VAT Payable (2400).
• If no months are closed in PCLaw, use
Tools > General Ledger Opening
Balances to correct the balance of the
bank ledger account.
• If months are closed:
1. Create a G/L Adjustment for the opening
balance.
2. Allocate the imbalance to an expense
account to affect the current year’s
income, or to an equity account to leave
income unaffected.
• This type of entry will change the general
ledger, but not the HST/GST/VAT Journal
balance.
Causes and recommendations for an imbalance in HST/GST/VAT > Journal/G/L
column
Follow these preliminary steps for identifying the source of the
imbalance:
1. Narrow down by date when the difference occurred to one date
(refer to “Common Troubleshooting:” on page 67 for more
information).
2. Run a detailed HST/GST/VAT Journal to compare transactions
with those appearing on the detailed HST/GST/VAT Payable
(2400) G/L. Check any transaction that appears on one report,
but not the other by drilling-down on that entry.
What You Have Learned
This section covered how PCLaw adheres to Generally Accepted
Accounting Principles (GAAP), and how the general ledger accounts
function. You should now be able to identify why and how Contra
Expense Accounts are used, along with the three accounting
methods of Cash, Modified Cash, and Accrual. You should be able
to create financial statements, and understand the logic behind the
calculations. Finally, you should be able to efficiently troubleshoot
any imbalance that may occur between journals, Client Ledgers,
and the General Ledger.
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Reconciling PCLaw