Why QuickBooks trips up law firms
QuickBooks often organizes money in around Customers and money out around Vendors. A personal injury client does both: their settlement arrives in trust, then the firm pays their share back to them. The Customer and Vendor lists are not a trust ledger.
A settlement deposit is not the firm's revenue. Until properly disbursed, it is money owed to clients or other entitled parties. Record the trust bank asset and the matching Client Trust Liability. Only earned fees belong in firm income.
QuickBooks will record a payment even when the individual client's trust ledger would become negative. A positive pooled IOLTA bank balance does not mean this particular client's money is available. Check collected funds and the client ledger before release.
The universal setup
- Create the real IOLTA bank account in the chart of accounts. In QuickBooks Online, choose Bank and the Trust account detail type where available. Use a clear name such as IOLTA - Main. Keep operating funds in a separate bank account.
- Create Client Trust Liability as Other Current Liabilities. In Online, choose Trust Accounts - Liabilities where available. Desktop uses account types rather than the same Online detail-type menus. The total trust liability must equal the corresponding trust book bank balance.
- Create one Customer per client. Use a sub-customer, Project or Customer:Job for each matter when a client has multiple matters. Use the same client and matter identifier throughout the settlement.
- Create doctors, lien holders, referral attorneys and other third-party payees as Vendors. Pay the client's own share to the existing Customer on a Check or supported Expense form. Do not create a second Vendor record just to pay that client.
- Use Client Trust Liability on every trust deposit and payout line, with the correct Customer or matter on the line. Enable the Customer column where needed. The payment's header payee identifies the recipient; the line's Customer identifies whose money is being used.
- Load opening client balances from verified ledgers. Confirm that their sum equals the trust bank book balance. Do not invent an income deposit to make an opening difference disappear.
- Test one settlement before relying on the report. Record its deposit, doctor payment, client payment and earned-fee transfer. Confirm every trust line appears under the right client and that no client ledger goes below zero.
Two ways to track each client's funds
This guide recommends the Customer field on every trust transaction line. Here, Customer tag means the Customer or Customer:Job allocation field, not the separate QuickBooks Tags feature. One shared liability account avoids creating a new chart-of-accounts entry for every case.
A separate liability sub-account per client can work for a small practice with few open matters and a controlled chart of accounts. It is not a requirement to use both methods. Pick a policy with your accountant and make sure the resulting ledger has the required client and matter detail.
| Method | How it works | Best fit | Trade-off |
|---|---|---|---|
| Customer tracking, recommended | One Client Trust Liability account; Customer or matter on each deposit and disbursement line | Small or high-volume firms in any version | An untagged or incorrectly tagged line breaks the client report. Review missing names every month. |
| Liability sub-account per client | A child liability account for each client or matter | Small firms with a limited number of active client ledgers | Each active sub-account consumes a chart-of-accounts slot. QBO Plus permits 250 active accounts across the whole company. |
Which QuickBooks version fits your firm?
US subscription limits were checked against Intuit's sources on October 21, 2026. Unlimited below applies only to the named list, not to every feature or user count. Confirm your current subscription and file version before a migration.
| Capability | QBO Plus | QBO Advanced | Desktop | Intuit Enterprise Suite |
|---|---|---|---|---|
| Best for | Small firms with up to five billable users | Higher-volume firms needing more users and custom roles | Firms maintaining Desktop files or choosing Enterprise | Multi-entity groups and multi-state operations |
| Chart of accounts | 250 active accounts | Unlimited accounts | 10,000 Pro/Premier; 100,000 Enterprise | No numerical cap identified in the reviewed sources; confirm contracted limits |
| Classes | 40 classes and locations combined | Unlimited classes and locations | 10,000 Pro/Premier; 100,000 Enterprise | Classes plus custom dimensions; up to 20 dimensions in total |
| Names | No published cap in the usage source reviewed | No published cap in the usage source reviewed | 14,500 combined Pro/Premier; more than 100,000 Enterprise, with up to one million in version 17.0 and later | No published cap in the sources reviewed |
| Line tag | Customer column plus sub-customers or Projects | Customer column plus sub-customers or Projects | Customer:Job column | Customer plus applicable dimensions |
| Still sold new in the US | Yes | Yes | Enterprise only; new Pro Plus and Premier Plus subscriptions stopped September 30, 2024 | Yes |
Record a settlement, line by line
Record the settlement deposit and confirm the funds are collected and available before writing any check against it. A bank feed entry or provisional bank credit is not proof that the deposit has cleared. Follow applicable trust rules and bank confirmation requirements.
The example trust deposit is $100,000. The $15,000 doctor payment, $50,000 client share and $35,000 earned fee total $100,000. The separate $500 operating case cost does not reduce that trust ledger. If the settlement authorizes reimbursement of a prior case-cost advance, record that separately with accountant-approved treatment.
An earned-fee payment reduces trust liability. The operating-side receipt then recognizes earned income or settles an existing receivable. Do not use a bare bank-to-bank Transfer as the whole entry: it does not by itself reduce the client's liability or explain the fee. Do not recognize the fee twice.
The Customer column is an allocation field, not a second payee. Use the client or matter on each category line, including a check payable to a Vendor. Use a Check or supported Expense form for the client's payout if a bill-payment workflow requires a Vendor. Check the report after posting.
| Transaction | Screen and bank account | Payee / received from | Account on the line | Customer on the line |
|---|---|---|---|---|
| Settlement deposit: $100,000 | Bank Deposit / Make Deposits into IOLTA | The client's Customer record in Received from | Client Trust Liability | Client or matter; Received from supplies the deposit name |
| Doctor or lien holder: $15,000 | Check / Expense, or Write Checks, from IOLTA | Doctor or lien-holder Vendor | Client Trust Liability, not a firm expense | The client or matter whose funds are being used |
| Client's share: $50,000 | Check / supported Expense, or Write Checks, from IOLTA | The existing Customer, not a duplicate Vendor | Client Trust Liability | The same client or matter |
| Earned attorney fee: $35,000 | Check / Write Checks from IOLTA to the firm; record the operating receipt separately | The law firm / operating account | Client Trust Liability on the trust payment; earned fee income or receivable settlement on the operating side | The same client or matter on the trust line |
| Case cost from operating: $500 | Check / Expense, or Write Checks, from operating only | Court, expert or other Vendor | Client-cost advance asset or appropriate cost account under the accountant's policy, not Client Trust Liability | The client or matter receiving the cost |
How to see each client's balance
Run Transaction Detail by Account. Filter Account or Distribution Account to Client Trust Liability, including its sub-accounts if used. Group by Customer, show the Customer or Customer:Job column, and include the matter identifier. Report menus vary by version and reporting view.
Use all dates through the reporting cutoff, or include a verified opening balance. A subtotal over only this month's activity is a change in balance, not necessarily the amount still held. On a liability report, credits increase the amount held and debits reduce it; check the report's sign convention with your accountant.
Each client's ending subtotal is what the firm still holds for that client. Separate matters when required. Review blank or Not specified groups, investigate negative balances, and confirm the sum equals Client Trust Liability and the trust bank book balance. Save the report with its filters and date basis.
Three-way reconciliation
Compare the adjusted bank balance, trust book balance and total client ledgers at the same cutoff date. A bank reconciliation alone is not the complete review.
Read the full article for the three balances, the written review package, common shortcuts, selected state rules and how Disbo supports the work. The automated monthly report is clearly labeled In beta.
Common mistakes and the fix
| Mistake | What it causes | The fix |
|---|---|---|
| Client created as both Customer and Vendor | Separate name histories make it harder to connect the receipt to the client's payout | Use the existing Customer as the client-share payee and the client or matter on every trust line |
| Client's share booked as an expense | Firm expenses are overstated and trust liability stays too high | Use Client Trust Liability on the trust payout line |
| Settlement deposited as income | Revenue and the firm's available funds appear overstated | Deposit into the trust bank against Client Trust Liability |
| Checks cut before the deposit clears | The payment may use another client's collected money | Record the deposit, confirm collected funds and check that client's available ledger first |
| Trust lines with no Customer | The total may balance while client ledgers do not | Require a client or matter on each line and investigate the blank-name group |
| One class per case on QBO Plus | The firm exhausts the 40 combined class/location limit | Use the Customer or Project field; assess Advanced only if a class-based reporting need remains |
| Firm expenses paid from trust | Client money is used for the firm's obligations | Pay firm expenses from operating. Handle authorized client-cost reimbursement as a separate documented transaction |
Before you rely on the books
Ask the firm's accountant to review opening balances, the client-ledger report, earned-fee recognition and case-cost treatment. Confirm what happens to the Customer allocation when a bank-feed item is matched or a connector posts a payment. Test the actual configured transaction screens, not only a spreadsheet example.
Keep a record of the settlement statement, deposit clearance, approvals, payee instructions and disbursements. A software setting is not permission to release disputed or uncollected funds.