Chart of Accounts Defined: The Ultimate Guide

Chapter 2 of FinCEN’s Small Entity Compliance Guide (“Who is a beneficial owner of my company?”) has additional information on how to determine if an individual qualifies as a beneficial owner of a reporting company. Please see Chapter 2.1 of FinCEN’s Small Entity Compliance Guide, “What is substantial control? There are five instances in which an individual who would otherwise be a beneficial owner of a reporting company qualifies for an exception.

Compliance with Regulations

The liabilities account may list items like the company’s credit lines, accounts payable, and payroll liabilities.
For example, you may need to add accounts for expenses related to legal research, continuing education, or office supplies.
The unaffiliated company itself cannot be a beneficial owner of the reporting company because a beneficial owner must be an individual.
Are old files stacked all over your office, or is your file room running out of space, or are you paying huge bills to store your closed files off site?

It allows you to accurately categorize and report income, expenses, and other financial transactions in accordance with accounting standards and legal guidelines. This compliance not only helps you avoid penalties and legal issues but also enhances your firm’s reputation and credibility in the eyes of clients, stakeholders, and regulatory bodies. By customizing your chart of accounts to include these key categories for law firm chart of accounts revenue, expenses, trust accounts, and client costs, you can enhance the financial management of your law firm. With accurate and detailed financial reporting, streamlined bookkeeping, and improved decision-making capabilities, you’ll be well-equipped to navigate the complexities of running a successful law practice. Generic Charts of Accounts fall short when it comes to addressing the unique needs of law firms.

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The simplest way to keep track of these is to create one or many billable expense accounts in your law firm’s Chart of Accounts. You need to check if your client wants to separately keep track of filing fees, medical records, travel & other expenses. A well-designed chart of accounts is like the backbone of your law firm’s financial infrastructure. It plays a crucial role in ensuring accurate financial reporting, streamlined bookkeeping, improved decision-making, and compliance with regulations. Let’s delve into each of these benefits to understand why a well-organized chart of accounts is essential for your law firm’s success. First and foremost, a well-designed chart of accounts enables you to generate accurate financial reports.

A domestic entity such as a statutory trust, business trust, or foundation is a reporting company only if it was created by the filing of a document with a secretary of state or similar office.
In the next section, we will explore how you can tailor the chart of accounts specifically for law firms, including categories for revenue, expense, trust accounts, and client costs and expenses.
A paper filing is required if a foreign person that does not have an Individual Taxpayer Identification Number (ITIN) applies for an EIN.
FinCEN’s Small Entity Compliance Guide provides additional guidance on triggers requiring an updated beneficial ownership information report (see Chapter 6.1 “What should I do if previously reported information changes?”).
This ensures that any changes made in one part of the system are automatically reflected throughout.
A company applicant may not be removed from a BOI report even if the company applicant no longer has a relationship with the reporting company.

Inventory Management

In this section, we will delve into the definition and purpose of a chart of accounts, explore its key components, and discuss the best practices for setting up this vital financial framework. Lastly, a well-organized chart of accounts ensures compliance with regulations. As a law firm, it’s crucial to adhere to applicable financial regulations and reporting requirements. A properly structured chart of accounts enables you to accurately track and report financial information in accordance with these regulations. This not only helps you avoid penalties and legal issues but also enhances the credibility and trustworthiness of your law firm.

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You can track trust bank accounts—like your IOLTA or pooled trust accounts and separate interest bearing trust accounts—on your law firm chart of accounts. All lawyers or law firms holding client or third-party funds must maintain either an interest-bearing attorney trust account or an IOLA account (i.e., “interest on lawyer account”). While lawyers who are not holding client or third-party funds are not required to maintain trust accounts, it is often less bother to have an established and permanent account than to open and close accounts as you need them.

Create new lines in the chart of accounts:

Records for Each AccountAs noted, a proper chart of accounts facilitates the appropriate recording of the transactions within those accounts. Following accounting best practices, each transaction requires a debit from one account and a credit to another. It’s also a good practice for the parties, or their attorneys, to require a copy of the written agreement, and a periodic status report from the escrow agent regarding the current balance in the escrow account, if any, and its location. An individual or reporting company is not required to obtain a FinCEN identifier. A “FinCEN identifier” is a unique identifying number that FinCEN will issue to an individual or reporting company upon request after the individual or reporting company provides certain information to FinCEN. A company does not need to report to FinCEN that it is exempt from the BOI reporting requirements if it has always been exempt.

Beneficial owners and company applicants should also be aware that they may face penalties if they willfully cause a reporting company to fail to report complete or updated beneficial ownership information.
Chapter 4.2 (“What do I report if a special reporting rule applies to my company?”) specifically provides details on what information must be reported pursuant to special reporting rules.
FinCEN’s Small Entity Compliance Guide provides more information about enforcement of the requirement (see Chapter 1.3, “What happens if my company does not report BOI in the required timeframe?”).
Please see Chapter 2.1 of FinCEN’s Small Entity Compliance Guide, “What is substantial control?

If there is any change to the required information about your company or its beneficial owners in a beneficial ownership information report that your company filed, your company must file an updated report no later than 30 days after the date of the change.
Consider trust accounts if applicable and create sub-accounts to monitor client funds.
This makes sure your client’s records will reflect correctly what these funds are for in the IOLTA account.
This listing also provides a structure for correctly managing funds between operating accounts and pooled trust accounts.
There are five instances in which an individual who would otherwise be a beneficial owner of a reporting company qualifies for an exception.

By doing this, your client’s records will clearly show what those funds are for in the IOLTA account. FinCEN anticipates extending access to the BO IT system to financial institutions subject to customer due diligence requirements under applicable law, along with their supervisors, in the spring of 2025. FinCEN intends to provide additional guidance regarding any specific supervisory expectations for financial institutions that choose to access the BO IT system prior to those institutions receiving access to the system. Foreign requests for beneficial ownership information are not yet being processed. As specified in the Corporate Transparency Act, a person who willfully violates the BOI reporting requirements may be subject to civil penalties of up to $500 for each day that the violation continues. ” of FinCEN’s Small Entity Compliance Guide has additional information about the reporting timelines.

If your clients refer clients to other professionals, they may receive referral income. Since this income doesn’t actually come from practicing the law, it should be made on the chart of accounts as “other income.” On the profit and loss statement, it will appear at the bottom, and not at the top with all the other income earned from the main business. Although you may not have studied accounting/bookkeeping in college, it’s important to understand your firm’s financial big picture to maximize your business profit and ensure compliance. This overview covers the elements that comprise a standard accounting chart, along with practical tips for implementing the chart into your firm.