1. Home
  2. Accounting
  3. Class Based Accounting
  4. Set Up and Use Class Based Reporting

Set Up and Use Class Based Reporting

Introduction

Class-Based Reporting is a mechanism that allows you to categorize your income and expenses by classes, so that you may see a financial picture of your firm that meets your specific needs. How you choose to use class-based reporting can help pinpoint profit centers and draw comparisons between those profit centers, so that you may improve your business intelligence and make smarter decisions for your firm.  

Practically, think of classes as an attribute or metadata put on top of Chart Of Accounts (COA). So, anytime an account from your COA is used, classes can also be used.

Uses for Class-Based Reporting

Important

In this article, we will show examples of how class-based reporting can be used. However, we recommend that you speak with your accountant and / or take time to really consider what is important to you when understanding your firm’s overall financial picture.

  • Attorney/Parties

There are often multiple parties involved in a matter, such as originators, responsible attorney, and timekeepers. Fee distribution—a form of class reporting—allows you to track income that is brought in by a particular party in order to calculate distributions to the team.

When this information is compared to total expenses per party, you will be able to see a much clearer picture of overall profitability per party.

  • Area of Practice

Whether you’re functioning as a general practice or trying something new, it is important to know which of your areas of practice is the most profitable. Classified tracking can reveal if it’s time to get out of a failing area or to focus your marketing in a certain direction.

  • Departments

No matter the size of your firm, activities fall into certain categories, including marketing, sales, and services. When testing several different lead generation activities, you may want to be able to see—in detail—the profit that came from each department.

  • Multiple Locations

Many firms with multiple offices or branches choose to view the financial breakdown for each one. By reviewing this hard data, you can make informed decisions about certain locations based on profitability.

Step 1. Create a Class

Before getting started with using Class-Based Reporting, you will want to create your classes. You will be using these classes to categorize your transactions and generate Class-Based reports.

1. Click the Setup Tab

2. Click List Items, then click on the Classes tab

3. Click  Add to add new classes

4. Complete the Add Class window

  • Name: Type in a Class Name. Some examples can be an attorney name, Firm Name, or Area of Law.

  • Sub-Class Of: You have an option to associate a sub class for the class your creating. An example would be Law office of Gordon Hall as the Class and the subclass can be an area of law such as Family or Criminal.

  • Description: Enter a description for the class, if necessary.

  • Active: This will be automatically checked. If you ever want to inactivate a class, but still leave it in the system, you can come back and un-check this box.

5. When ready, Click Save

Step 2: Associate Classes to Transactions

After creating your classes, you will need to ensure that all of your transactions are assigned to their appropriate classes. To automate some of this activity, you can assign classes to various components within your CosmoLex account. 

For example, adding a class to a particular Area of Law will automatically categorize all transactions, associated to matters that fall under that area of law, under the same class. 

Set Up Class on Matter Level

You can assign a class you have created to an individual matter. This will automatically link all transactions, that are related to that matter, with that class. 

There are various ways to use this method, however let’s review a quick example for better understanding:

Example: A firm has multiple locations, and has created a class for Office A and a class for Office B. The firm has decided that it wants to track profitability of each location by the matters being worked on. Therefore, it must categorize all of its matters under its pertinent location’s class. All matters being handled out of Office A will be categorized under the Office A Class. All matters being handled out of Office B will be categorized under the Office B Class. 

Now that we understand why you would want to assign a class on a matter level, let’s learn how:

1. Make sure the needed classes are created. See how to create a class.

2. From the Matters tab, select an existing matter and click  Edit. You can also do this while adding a new matter. 

3. Click Advanced Settings, then click the General tab

4. On the “Class” field, select the desired class for this matter

5. When ready, click Save at the top right

All set! Now all income and expense transactions related to this matter will be automatically linked to the selected class.

Set Up Class on Matter Owner Level

You can assign a class to an individual Matter Owner. This will automatically link all transactions, that are related to that matter owner, with that class.

There are various ways to use this method, however let’s review a quick example for better understanding:

Example: A firm would like to track profitability by attorney, and creates individual classes for Attorney A, Attorney, B and Attorney C. Now, it must categorize its attorneys using the classes created. When this is done, all matters where Attorney A is the Matter Owner, will be categorized under the “Attorney A” Class, all matters where Attorney B is the Matter Owner, will fall under the “Attorney B” Class, and so on.

Now that we understand why you would want to assign a class on a Matter Owner level, let’s learn how:

1. Make sure the needed classes are created. See how to create a class.

2. Click the Setup Tab

3. Click Matter Owners

4. Select the desired matter owner and click  Edit

5. In the Class field, select the desired class for the matter

6. When ready, click Save

All set! Now all income and expenses related to each Matter Owner will be automatically linked to their respective classes.

Set Up Class by Area of Law

You can assign a class to each Area of Law. This will automatically link all transactions, that are related to that Area of Law, with that class.

There are various ways to use this method, however let’s review a quick example for better understanding:

Example: A firm has several practice areas, and would like to track profitability by each area of law. First, the firm must create a class for each Area of Law it wishes to track (i.e. Family Law class, Personal Injury Law class, Real Estate Law class, etc.). Next, the firm will want to categorize the corresponding Area of Law in CosmoLex with the appropriate classes. After this is completed, all transactions related to matters that fall under each affected Area of Law, will be automatically linked to the appropriate classes.

Now that we understand why you would want to assign a class by Area of Law, let’s learn how:

1. Make sure the needed classes are created. See how to create a class.

2. Click the Setup Tab, then click List Items

3. Click the Area of Law tab

4. Select the desired Area of Law and click  Edit

5. In the Class Field, and select the appropriate class

6. When ready, click Save

Next, you will have to correctly categorize each matter.

6. From the Matters tab, select an existing matter and click  Edit. You can also do this while adding a new matter. 

7. In the Area of Law field, select the appropriate Area of Law

8. When ready, click Save at the top right

All set! Now all Income and Expenses related to those matters designated with an Area of Law, will fall under the appropriate classes.

Manual Selection / Splitting of Classes

In addition to automating the assignation of classes by Matter, Matter Owner, and Area of Law, you also have the ability to manually assign classes to transactions – and even split into different classes if necessary. 

This would probably be most applicable when entering transactions through your Operating Bank. For example, a firm may have an expense to be shared among various Office Locations or Matter Owners and may want to split that expense into multiple classes.

To manually categorize a transaction by class

From any transactions window (when adding or editing), you will need to select an account from your Chart of Account. At this point, you will be able to assign a class or split by class if needed. Don’t know how to add Operating Bank transactions? Learn more here.

1. On the “Add” or “Edit” Transaction window, after completing the appropriate information, click the  icon (normally used to split among multiple COA accounts)

2. In the Split Accounts window, click the  icon to go to the Transaction Classes

3. In the Transaction Classes window, click  Add to add a new line item for classes. If you would like to split the transaction across multiple classes, click Add until you’ve reached the desired number of rows

4. Select the desired classes from the Class field. If splitting, type the desired dollar amount in the Amount field. This will update the percentage fields automatically.

5. When ready, click OK

6. Now back on the Split Accounts screen, you will see a green  icon showing that class(es) have been set up correctly. When ready, click OK

7. Now back on the Add Transaction window, you will notice the green  icon next to the account.

8. When ready, click Save

Tip

Going back to apply classes to a large amount of transactions? Use the Accounts Register to make it easier to find all transactions under a particular Chart of Account in one place.

When the desired Accounts Register is found, you can edit the transactions and apply a class as shown above.

Step 3: View and Use Class-Based Reports

In CosmoLex, you can retrieve three Class-Based Reports. Each report will show the same information in different ways. 

  • P&L by Matter Owner Class
    • This Profit and Loss report will show your firm’s Income vs Expenses by classes assigned to your Matter Owners. Learn more here.
    • In this example of a P&L by Matter Owner, the firm has created classes for each attorney. Now it’s time to see which attorney has been most profitable. Here is the first page of a sample report.

  • P&L by Area of Law Class
    • This Profit and Loss report will show your firm’s Income vs Expenses by classes assigned to your Area of Law items. Learn more here.
    • In this example of a P&L by Area of Law, the firm has created classes for each of its practice areas. Now it’s time to see which practice area has been the most profitable. Here is the first page of a sample report.

  • P&L by Matter Custom Class
    • This Profit and Loss report will show your firm’s Income vs Expenses by classes assigned to your Matters. Learn more here.
    • In this example of a P&L by Matter, the firm has created classes for each office location. Now it’s time to see which office has been the most profitable. Here is the first page of a sample report.

To understand what a P&L is, read more about the general Profit and Loss (P&L) Report

Updated on September 6, 2018

Was this article helpful?

X
X