Keeping Client Trust Accounts with GnuCash. Minnesota State Bar Association. Mike Trittipo, Director of Technology

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1 Minnesota State Bar Association Mike Trittipo, Director of Technology Copyright 2009 Minnesota State Bar Association. The MSBA licenses each of its members to reproduce one copy of this guide for the member s own use, but not for resale or further distribution.

2 Table of Contents Introduction...3 The Rules and Required Books...3 Computerized vs. Handwritten Accounting... 4 General Principles for All Accounting Software... 5 Three Ways of Meeting the Rules and the Principles... 6 Options for Handling Firm s Funds and Interest... 8 Setting up a Trust Account and Subaccounts... 9 Preparation for Initial Set-Up... 9 Set Up Chart of Accounts Enter Initial Balances Enter New Transactions Monthly Reconciliation Making Split Transactions Reports Request... 23

3 Introduction Practicing law as a way of making a living first re-appeared in Europe after Roman times around the 12th century. Double-entry book-keeping can be dated to the 13th. Both were well established by the 15th century. So were conflicts over fees and calls for regulation. In 1908, the ABA drafted the United States first suggested Canons of Ethics. Canon 26 forbade lawyers to commingle property entrusted to them with their own. But the Canons did not prescribe any particular books or records. In 1976, Minnesota added Disciplinary Rule to the Code of Professional Responsibility and issued Formal Opinion No. 9, imposing specific book-keeping duties. It was no longer enough to satisfy DR One also had to keep the books and records to show one was doing so and to certify yearly that one was keeping those records. The Rules of Professional Conduct adopted in 1985 impose similar duties. Despite how long the duty has been established, trust account violations remain one of the most frequent reasons for disciplinary action. This guide will show how you can maintain the required books using GnuCash, a free software program that runs on either Windows or Linux. The Minnesota State Bar Association has published similar guides before, for two versions of Intuit s QuickBooks software and two versions of Microsoft s Accounting Express software. The particular version of GnuCash used was 2.2.4, built June 7, 2008, on OpenSUSE The look and the steps are the same on Windows in all relevant aspects. The Rules and Required Books The current rules are in two places: RPC Rule 1.15, and RPC Appendix 1. You should re-read both each year, because they are regularly amended. Rule 1.15 has been amended five times since it was adopted in 1985: in 1989, 1999, 2005, 2006, and Rule 1.15(h) requires lawyers who handle client funds to keep books and records sufficient... to establish compliance with the rule s other parts, but does not say what is sufficient. Rule 1.15(i) requires the Lawyer Professional Responsibility Board to say each year what is sufficient and thus required. It does so in Appendix 1. Amendments to Section 1.6 of Appendix 1 in 2008 require keeping copies of wire and electronic fund transfer confirmations and images for electronic deposits by substitute checks. Re-reading regularly ensures you see such changes. Whenever you receive any money in trust, you need to decide in what kind of account to deposit it. In particular, you need to decide when client funds should go into an IOLTA account under Rule 1.15(e), and when into a non-iolta one under Rule 1.15(f). See Rule 1.15(g). So your accounting system should provide for non-iolta accounts as well as IOLTA accounts. This guide focuses on IOLTA accounts, because the method used for them works for the others, too. Minnesota State Bar Association Page 3 of 23

4 An overarching requirement is that you keep records identifying all your trust accounts, giving the bank name, date opened, account number, name and type (IOLTA or not, pooled or not, under Rule 1.15(e), (f)(1), & (f)(2)), and other information required by Appendix 1, I.1. In theory, you could add all the required information to note, memo, or descriptive fields in your accounting program. In practice, it is best to keep this information in a separate document outside the accounting books themselves. Appendix 1 requires keeping the following specific books: 1. A separate check register for each account, showing all deposits and disbursements chronologically with a running balance; and with the details of the date, amount, client identity, payee (if a check), and purpose. Separate receipts and disbursements journals have been optional since A separate subsidiary ledger for each client matter for which you receive funds. Each client subsidiary ledger must show each receipt and disbursement, its date, amount, purpose, payee and check number (if applicable), and the running balance. There should also be separate subsidiary ledgers for the small amount of your own funds that are allowed to be deposited to cover service or check printing charges and the like, and ideally a separate subsidiary ledger for interest, too, although the LPRB may let the two be combined in some circumstances. 3. A monthly trial balance of the subsidiary ledgers. This means a report showing all client matter balances, i.e., identifying each client matter, the balance for each one at the end of each month, and the total of them all. 4. A monthly reconciliation of the bank statement balance with the checkbook balance and the total of all subsidiary ledger balances. Reconciliation means accounting for outstanding deposits and checks, and entering into your records any transactions shown on the bank statements and not previously entered in your records (e.g., interest and service charges). 5. If you computerize your books, you must print out certain reports monthly and keep the printouts. App. 1, I.7. In particular, you must print out (a) the checkbook register (being sure to include all required detail), (b) the trial balance of the subsidiary ledgers, and (c) the reconciliation report. There are other substantive rules about handling money in trust and record-keeping, but these are the key ones as far as the book-keeping itself is concerned. Computerized vs. Handwritten Accounting The rules do not require you to use a computer. All required books and records can be made and kept with ink and paper, using the same methods as have been used for centuries: debits on the left, credits on the right, with every amount being entered twice, once as a debit and once as a credit, to separate accounts, and money always moving from the credit (right) side of one account to the debit (left) side of another. Minnesota State Bar Association Page 4 of 23

5 The LPRB and others have guides showing how to keep the required books manually. The author of the American Bar Association s guide to trust accounting and starting a law practice, Jay Foonberg, has recommended that lawyers keep their trust account books with ink and paper by hand for a while, so as to understand the practice and demystify it, before either computerizing or hiring a book-keeper or accountant. However, keeping the books properly using ink and paper does require making multiple entries in separate places, not to mention using neater handwriting than some of us regularly use. The double in double-entry accounting refers to the requirement that there always be at least two entries of the same amount in separate places (and sometimes more). Using accounting software has several benefits. It takes care of double entry for you so you need enter an amount only once rather than two to four times, along with identification of the source and destination accounts. (Your specification of the source and destination tells the program where to make the corresponding doubled entry.) It calculates the running balances for you and does not make math mistakes. It will generate neater reports, easier to check for problems, than handwritten records might. It will allow quick checks of balances, to help you manage and give clients faster information. Basically, you need only make the entries for the check register, item 3 in the key requirements section above, and the program will take care of items 4, 5, and 6 for you, and make 7 a snap. And since the data can be backed up, it can be even safer than a single set of paper records might be. General Principles for All Accounting Software A few basic ideas inform all the methods that this guide shows, or that previous MSBA guides to using other accounting programs have shown. 1. Every penny must be assigned to someone (i.e., to their account): either a specific client, you, or the Lawyer Trust Account Board (LTAB). There is never any slush or unassigned money. If there is, a mistake has been made (typically a source or destination account not properly identified) and must be corrected. 2. No one can spend money they don t have. This means that client A s money can t be used to cover disbursing more for client B than client B has in trust, even though no overdraft occurs on the trust account overall. It also means that the balances for your funds and the IOLTA interest can never be negative. If either is negative, client money is covering the shortfall. Appendix 1 I.3.a. and I.4 specifically prohibit negative balances as to any client matter. 3. Keep it simple. One accountant in northern Minnesota showed the MSBA a system using QuickBooks that showed all trust account balances as accounts receivable with negative balances. The accountant argued that a Negative Accounts Receivable is a Positive Accounts Payable, and that one could make positive numbers for the LPRB after the fact by exporting into Excel, then Minnesota State Bar Association Page 5 of 23

6 multiplying all numbers by negative one (-1). That is not good enough. Your trust account records should be clear to anyone as kept and not require such gymnastics. 4. Keep your trust accounts separate from your business accounts if using a generalpurpose accounting program rather than a full-blown specialized legal practice management system. In QuickBooks terms, use a separate company. In GnuCash, use a separate file. 5. Don t rely on built-in accounts. Make your own set from scratch. This avoids any temptation to think that some magic compliance tricks have been built into a special account in some black-box way. Proper books result from consistently following a reliable method. Three Ways of Meeting the Rules and the Principles There are only three basic recommendable ways to use any general accounting program to meet the trust accounting rules and these principles. A couple of minor variations may exist as to treatment of your own funds and interest, but only three basic ways overall. 1. Track the trust bank account balance with a single asset account on one side, and use an umbrella trust liability account on the other side subdivided into multiple trust liability sub-accounts, one for each client and matter. Every deposit into to the trust account must be matched by an increase in the appropriate client trust liability sub-account, never by an unassigned increase in the umbrella trust liability account; every disbursement from the trust account must be matched with a reduction in the specific applicable liability sub-account. The asset accounts correspond to real bank accounts. Assets Trust Account: IOLTA Trust Account: non-iolta 1 Trust Account: non-iolta 2 Liabilities IOLTA trust liability Apple trust liability Baker trust liability Charlie matter 1 trust liability Charlie matter 2 trust liability Firm s Funds (limited) Interest Non-IOLTA trust liability 1 Non-IOLTA trust liability 2 2. Track the total of your trust account liability to all clients as a single trust liability account on one side, and use an umbrella bank account on the asset side with multiple sub-accounts, one for each client and matter. Every deposit into the trust account must be into a specific client or matter sub-account on the asset Minnesota State Bar Association Page 6 of 23

7 side (never into the account at large ), and must be from the same single liability account. Every disbursement must be from a specific sub-account, not just from the bank account in general; but every disbursement reduces the overall liability balance. The asset accounts shown in blue correspond to real numbered bank accounts; the ones in green are purely accounting-program accounts. Assets Trust Account: IOLTA Firm s Funds Interest Client funds Apple s funds Baker s funds Charlie matter 1 funds Charlie matter 2 funds Trust Account: non-iolta 1 Trust Account: non-iolta 2 Liabilities IOLTA trust liability Non-IOLTA trust liability 1 Non-IOLTA trust liability 2 Some programs would let one combine methods one and two, making sub-accounts on both the asset and liability sides. The MSBA favors the simplicity of doing only one or the other. 3. Instead of using liability accounts as the source for deposits to the bank account, create separate income accounts for each client and matter. Every deposit to the trust account is treated as coming from a specific client income account, and every disbursement from the trust account is charged against a specific client income account. Assets Trust Account: IOLTA Trust Account: non-iolta 1 Trust Account: non-iolta 2 Income Apple income Baker income Charlie matter 1 income Charlie matter 2 income Firm s Funds Interest Yates income (non-iolta 1) Zebra income (non-iolta 2) Minnesota State Bar Association Page 7 of 23

8 The first two methods have the advantage of hewing closely to reality: every penny received in trust creates or increases a liability; every proper disbursement reduces that liability. The advantage of the first method over the second is that it is more likely to allow and make it easy to enter split transactions (e.g., writing a single check to your firm for fees earned or reimbursement of costs advanced, for several clients at once). The first was the method the MSBA recommended for QuickBooks 2005 and for Microsoft Accounting Express But not all accounting programs allow liability accounts to have subaccounts. If they allow subaccounts on the asset side, method 2 may work. This was the way the MSBA developed for QuickBooks 6 back in The third method is not ideal. LPRB developed it as a work-around for Quicken, which doesn t allow sub-accounts, but which many lawyers bought. Quicken doesn t even refer to income accounts ; it refers to categories of an income type. As a result, the method produces some oddities such as calling the trust account balance total income and even profit in some built-in Quicken reports. The LPRB details the method in its guide to using Quicken 2002 for trust book-keeping. GnuCash is versatile enough to allow using any of the three methods. This guide uses the first. In a sense, you have already learned by this point in the guide all you need to know of the big picture in order to figure out how to use GnuCash (or any other general-purpose accounting program with reasonable features) for your trust accounting. The rest of the guide will show where the specific menus and icons are that you use to create the accounts shown above and enter amounts into them, and print reports and so on. But the guide star for all you do is contained in choosing one of the chart of accounts listed above, and consistently following the five principles given to produce the five books required by Rule 1.15 and the Appendix. Options for Handling Firm s Funds and Interest The rules allow you to keep a small amount of your own money in the same bank account as the client funds, to cover charges such as for service or check printing. The LPRB says that small means generally only about $50 to $100, only enough to ensure that such charges come out of your money, not client funds. Any more may be considered commingling. The way banks handle interest varies two ways. Some statements show the interest earned always matched by an equal amount paid over to the LTAB in the same month, and no automatic monthly service charges. Others may show the interest earned this month, but not show that amount (or a lesser amount after paying service charges out of it) paid over to the LTAB until the next month s statement; or impose service charges that may be greater than the interest earned in any given month. Minnesota State Bar Association Page 8 of 23

9 The two questions to answer as to the firm s funds and interest are (1) whether to treat them also as assets and liabilities or instead as income and expense; and (2) whether to group them in a single account or keep them separate. There is some conceptual attraction to treating them as income and expense, but we believe it is better to treat them identically to client funds. Keep it simple counsels being consistent, and treating every deposit and every disbursement similarly makes mistakes are less likely. The answer to the second question depends on whether your bank imposes monthly charges that may exceed the interest earned in a given month. The LPRB recommends finding a bank that does not. But when that is not possible, the LPRB s guide to Quicken shows a system that handles them both of out Firm s funds. This guide will keep the interest and firm s funds accounts separate, because the LPRB recommends doing so, and GnuCash allows it. Setting up a Trust Account and Subaccounts Preparation for Initial Set-Up Before you begin, you need to know the balance, to the penny, of any existing amounts held in trust. In principle, you could determine these at any time. In practice, it is easiest to set up initial balances as of the date of your most recent bank statement. Reconcile your existing accounts with that bank statement, so that every penny s ownership of the balance shown by the bank is known, as well as every penny of any checks outstanding and not yet reflected in the statement. If any payments from an existing trust account are outstanding, leave them outstanding when setting up the new program (i.e., set up the initial balances as if they had not been written), and then record them in it with their dates and all details. That way, you ensure two things. First, your reconciliation on the next month s statement will be easier when the check clears. Second, if the check remains outstanding for any reason, your accounts will reflect the fact. If your bank does not impose monthly service charges and always has offsetting entries in the same amount for interest earned and interest paid over to the LTAB, then you can leave the initial balance for interest in the new accounting software at zero. But some banks may accrue interest for some time, then pay it over at a later date, so the earned and paid amounts are not perfectly offsetting. If they also charge fees which may exceed interest earned in a given month, then you should set the initial interest amount to the last interest earned balance, and ignore any interest that the most recent bank statement shows was paid. Minnesota State Bar Association Page 9 of 23

10 Set Up Chart of Accounts To set up a new set of accounts in GnuCash use the File > New > New File menu sequence. That will open a New Account Hierarchy Setup page. There, click Forward. The next page asks you to choose a currency. The default is United States dollars, so you can click Forward again, which takes you to a page where you can choose what accounts to create. The default choice, Common Accounts, is as close to what you will need as any, so click Forward again, then Apply. Following these defaults will create accounts in all the standard accounting categories: assets, equity, expenses, income, and liabilities. Most can be deleted. Their presence is not a technical problem, but they are not needed and deleting them will make it easier to find and focus on the accounts you need. You can delete accounts or subaccounts by expanding any part of the hierarchy (the usual way: a right-pointing arrow indicates the existence of subsidiary branches, and clicking it will expand that part of the tree to show them), then right-clicking the account you want to delete, and choosing Delete Account from the menu, as shown next. Minnesota State Bar Association Page 10 of 23

11 If you do not expand a given branch before choosing Delete Account, GnuCash will point out that subaccounts exist, and ask you what you want to do. In the case of the Expenses Account category shown below, the answer is to delete all the subaccounts along with that parent. Delete all accounts except Assets and Liabilities. There is no need for Equity, Expenses, or Income. If we were using method 3, an analogue of the one the LPRB developed for Quicken, we would leave the Income category. But this guide shows method 1: one GnuCash asset account for each real-world banking account, and a series of trust liability accounts, one for each client (and matter, if funds for it are held separately for a given client from those for another matter for the same client), under an umbrella liability account. The main purpose for having the umbrella account is to provide automatic addition of the subsidiary client amounts for quicker and easier comparison with the bank balance as shown in the GnuCash accounts and the bank s statements. Next, create the new accounts and subaccounts needed for method 1, including subaccounts for your clients on the trust liability side. To create a new account under Liabilities, highlight that line, then right-click to obtain a menu in which New Account is an option. Minnesota State Bar Association Page 11 of 23

12 Doing so will produce the following pane. In it you can name the account, provide a description and add some notes if desired, and set the parent account (by default the one highlighted already). Name it in an understandable way (e.g., Client Trust Liability as above for this first one, which will be the umbrella for the various client subaccounts) and choose an appropriate parent account (in this case, the overarching Liabilities account), then click OK. Keep adding new accounts, making them subaccounts as appropriate, until you have a set that looks like the following (but with your client and matter names, not Apple, Baker, and Charlie). (The Equity account is not necessary, however.) Leave all opening balances at zero for now. Minnesota State Bar Association Page 12 of 23

13 Note that the accounts for clients were all created as subaccounts of the Client Trust Liability account. That is crucial to using method 1: every deposit into the trust account and every disbursement out of it is entered against some particular client s or matter s trust liability. Be sure also to create a Firm s Funds subaccount and an Interest subaccount as shown above. By right-clicking on any account or subaccount, you can obtain the menu previously shown in which Edit Account is an option, so it is easy to change parent accounts or the account name, or to add a description and so on. Finally, note that all initial balances were left at zero, not yet set at the amounts that you determined. The desired initial balances will be entered by using the GnuCash program s check register for the trust account. When done with the initial set-up, click File then Save, and give the file a name, say MN Law Firm Trust Accounts but substituting your own name or your firm s. Enter Initial Balances Open the check register for the IOLTA trust checking account. You can either double-click the line, or right-click it and use the Open Account menu item. Either way opens a window with a line waiting for your first entry. The date by default will be the actual date. You could choose to use the date of the last bank statement that you worked from. Enter a description of the transaction, keeping in mind the requirements of Rule (the View menu allows expanding the single lines into double lines, which exposes a notes field, but the descriptions in these illustrations suffice for present purposes. We will call the purpose initial balance transfer and identify the client as Apple. Next follows an essential step: the Transfer box must be filled in with the proper liability sub-account. Only by filling in the Transfer box does a double entry get made and put in the right place. There is never a transaction for which the Transfer box can be blank. Filling it in correctly is eased by the fact that GnuCash provides a drop-down menu in which you can choose the right account here the Apple client trust liability subaccount as shown below. This saves typing and avoids mistakes. Minnesota State Bar Association Page 13 of 23

14 Continue as shown below, adding the amounts for other clients and the firm s funds and interest that you previously determined. The end result in the check register for the IOLTA trust checking account should look something like the following example. Note that every deposit has an entry in the Transfer box, specifying one of the subaccounts of the Client Trust Liability (IOLTA) account. The making of an entry in that box is what causes the result in the balance sheet shown next. Minnesota State Bar Association Page 14 of 23

15 While you are getting used to this program, it is always a good idea to check the balance sheet and other reports (reached, not surprisingly, via the Reports heading in the menu bar at the top) to verify that your entries are having the right effect and producing sensible-looking reports. Indeed, it is a good idea to play with this or any accounting program first by setting up a series of dummy or pretend accounts, before trying to use it for real data. Should you ever have an unusual transaction that you are not sure how to handle, the advice is the same: set up a practice company and practice your transaction entry there first. Enter New Transactions The next step, after all initial balances are entered, is to enter any transactions since then. You do it the same way as entering a deposit, only you put the amount into the withdrawal column. Just as with deposits, the key is to always have an entry in the Transfer box that identifies the right subaccount of your trust liability account. The next picture shows the result in the check register after entering some withdrawals. Note that the Transfer box on each has an entry referring to an appropriate liability subaccount, and always a subaccount, never the client trust liability account at large. This time rather than check the account summary or balance sheet reports, we will check the trial balance report. It is distinguished by the fact which is one reason the rules require you to print the trial balance each month and preserve a copy that it shows each subsidiary account s balance along with the total. That allows you to verify that every client s subaccount has a non-negative balance as it should. In GnuCash, this means that the amount appears on the right side of the trial balance, in the Credit column. Minnesota State Bar Association Page 15 of 23

16 To emphasize the point just made, we are next going to enter a series of transactions with a deliberate mistake that will result in a negative balance in a client s subaccount, so that you can see how that will appear in GnuCash. We will assume that you settled Apple s matter and received a check from the other party. First we deposit the settlement amount and (a week later, after being sure the deposit is final) withdraw the amount due to the firm for fees or agreed cost reimbursement. The next disbursement will be to Apple. GnuCash helps make it easy to see how much that should be for. You can simply check the trial balance. That shows $5, of the checking account total as belonging to Apple now. Minnesota State Bar Association Page 16 of 23

17 We therefore return to the check register and record a check to Apple for $5, After we do that, the balance sheet will balance. It will show assets and liabilities both at $1,942.60, the same as the checking register shows and as a hypothetical bank statement of even date would show. The balance sheet alone will provide no warning sign of this kind of error. Fortunately, the trial balance, shown next, does give the necessary warning. As shown above, it balances. But it does so at the expense of a debit entry in a client trust liability subaccount. That is a negative balance. Whenever an amount appears on the debit side of a client trust liability subaccount in the trial balance, a mistake has occurred. Only by checking the trial balance every month will you see these. The appearance of the account and subaccount names in blue in the illustrations is not an accident. They are blue because you can use them as links to detail on the account in question. Clicking on the link to Apple Trust Liab. will open up a tab with the detail on all transactions that have affected that account. As shown above, the detail makes it easy to see where the mistake occurred: the negative balance appears in red with a minus sign, and a comparison of the preceding balance to the amount entered for the check makes the transposition error easy to spot. Minnesota State Bar Association Page 17 of 23

18 In some accounting programs, you would have to make a correcting entry. GnuCash lets you edit each transaction. So (assuming that the check itself to Apple was for the correct amount and only in entering it in GnuCash was a mistake made) you can just edit the disbursement amount to be $5, and then all will be well. The ending balance in Apple s register will become exactly zero as it should and the ninety cent debit will disappear from the trial balance. Monthly Reconciliation The next illustration shows that correction made in the check register for the IOLTA checking account, and two additional entries dated a week later on the 29th, when the bank statement has been received. One is a deposit of interest earned in the last month. The other is the bank s payment to the LTAB of the previously earned interest. Having entered those from the bank statement, you can begin the reconciliation process by pressing the Reconcile icon at the top. The ending balance highlighted in blue will by default be the balance in GnuCash s check register. Change it to be the balance shown on your bank statement. We will assume that the check number 103 to Eagle Experts has not been presented, so the bank thinks the balance is $ When that amount is entered and OK is clicked, another window appears, as shown on the next page. Minnesota State Bar Association Page 18 of 23

19 To reconcile your books and the bank statement, click in the R ( reconcile ) column for each entry that appears and is the same amount both places. As you do, the difference in the lower right corner of the reconciliation pane will decrease. The entry on the funds out side for the check to Eagle Experts has been left unchecked, because it does not appear on the bank s statement. Once the two entries for interest are clicked, the difference becomes zero, as shown in the next picture. Another change occurs also: the circle that was grayed out at the top of the reconciliation pane, under the word Transaction, turns green as shown below. Minnesota State Bar Association Page 19 of 23

20 However, do not yet close the reconciliation pane. A surprising and glaring deficiency in GnuCash is that it lacks any defined or built-in reconciliation report. The only way to create one as is required by the LPRB is to take a picture of your computer screen, and then print that. Fortunately, it is easy to take pictures of one s computer screen in both Windows and Linux, and to save and print the screen captures. But you have to do it now, at this point. After doing so, you can close the reconciliation dialogue. After reconciling, the check register shows a y ( yes ) for amounts that have been reconciled, and an n for those that have not yet been so, as shown next. Making Split Transactions Sometimes it is handy to split a transaction by referring it to more than just the single source and single destination accounts. Thus, for example, you can write a single check to the law firm to cover multiple clients payments of agreed fees for your work, rather than having to make a separate check for each client or matter. Suppose that the firm is entitled to reimbursement of costs advanced in the amount of $27.89 from Baker and $42.10 from Charlie. Rather than make two checks and enter two transactions, you can record a single check against two (or more) client subaccounts. Begin by entering the check number and identifying the payee and the purpose of the disbursement and the amount. Then either click the Split icon at the top of the program, or right-click the line and choose Split Transaction. The amount that was entered as a withdrawal will appear duplicated on the new line that appears below and on another line below that in the column to the left (ordinarily the Deposits column), and the checking account itself will be filled in as the Transfer account. On the line below where the checking account is already filled in, open the dropdown menu and put in the first of the multiple accounts against which a part of the total check is to be entered. In this example, that is the Baker liability subaccount. Minnesota State Bar Association Page 20 of 23

21 Then click into the Deposit column to the right of the Baker subaccount, and enter the correct amount to be withdrawn from Baker s money to reimburse the firm. The result is that GnuCash calculates how much more has to be charged against some other account to bring the total to what was originally entered, and enters that amount pending your identification of the account against which it should go. Again use the drop-down menu to identify that account, here Charlie s. You could modify the amount if, say, only $20 were due from Charlie s account, and the other $22.10 were due from a client Dancer. When done, press Enter and the transaction will be recorded. As splits are prone to error, verify that the right amounts were subtracted from the right subaccounts. You can do so by viewing the subsidiary ledger for each client. If there were errors, you would delete the transactions and re-enter them. GnuCash is a bit less user-friendly about making splits than some accounting programs, so this is an area to be sure you practice in a set of practice accounts before you try it with real ones. Reports Through the course of this guide, you have already seen each of the books and records required by the LPRB: the check register, subsidiary ledgers for each client, trial balance, and the monthly reconciliation report (although the last has to be made by printing the screen, not via a built-in report). Minnesota State Bar Association Page 21 of 23

22 A look at the trial balance after the final transaction entered above shows a potential longer-term issue with reports. Although the Apple balance is now zero, it still appears in the trial balance. Once a matter is closed out, you no longer want to see it in the trial balance, even though you need to keep the data in the accounting program. To eliminate the now inactive account from the trial balance report, right-click in the report and click Report Options in the small box that appears. Select all the accounts, then de-select the Apple subaccount by pressing the control key while clicking on that subaccount to remove the blue highlight. Minnesota State Bar Association Page 22 of 23

23 Click Apply and OK. You now have a cleaner view of just the active accounts. Of course, at any time you can revisit what accounts are shown. Request If you notice any mistakes in this document, or know of a better way to do lawyer trust accounting with GnuCash than the way shown here, please contact the Minnesota State Bar Association to let us know, so that we can help other members with the improved recommendations. - Last Updated 1/5/09 - Minnesota State Bar Association Page 23 of 23