Accounting for Law Firms: A Guide Including Best Practices

Whether you’re a solopreneur or run a firm with a hundred lawyers, knowing where every dollar is going will help you make better decisions for the firm’s health. You’ll also identify what areas of your firm (practice areas, types of clients, etc.) are most profitable. This way, you can focus on working with the kinds of clients that bring in the most money. At its core, you must always know who’s entitled to the funds in your trust account and give it to that person.

For example, if you are a lawyer who frequently travels for work, you will want to keep track of all your travel expenses so that you can deduct them on your taxes. This includes things like airfare, hotel expenses, rental car expenses, and so on. You can’t wait until right before tax time to start tracking your finances. In fact, you can’t even afford to wait a week until you make time to enter your transactions.

Bookkeeping for Non-Profit Organizations

Two core tasks of a legal bookkeeper include data entry and bank reconciliation. To do this, legal accountants capture expenses, provide financial forecasting, and prepare financial statements. Legal accountants look at the bigger picture, using the data your bookkeeper provides to determine law firm bookkeeping how your firm can improve its financial health. Without a trusted bookkeeper for attorneys, a legal accountant won’t have any data work off of. For example, you can use the “Legal Billing” app to track your time, and then enter all of your billable hours into your accounting software.

• With our dedicated and experienced bookkeepers, you have the potential to transform your law firm’s financial management.
• As your budget year crawls on, you can adjust numbers to more accurately reflect reality and plan the rest of the year accordingly.
• You can’t use Excel spreadsheets to maintain all of your financial books and records for an entire year.
• While you don’t need to familiarize yourself with an accounting encyclopedia, it will pay off to learn some common terms.
• But the way they go about it is different, doing different tasks for the good of your law firm.
• Bookkeepers track your finances so you can view at a glance how much money is entering and leaving your business.

When using legal accounting software to simplify and automate your cash accounting, hiring a professional legal accountant, or both, don’t be afraid to delegate. When you work with an accountant from the beginning, accounting for law firms becomes much easier. Bookkeeping is a vital task for law firms, as it helps them to record and monitor financial transactions and keep accounts in balance. Accountants must ensure that bookkeeping for law firms is done properly in order to provide reliable financial data.

Take Advantage of Accounting Software & Tools

5) Regularly audit accounts – Make sure books are regularly reviewed by an independent party so any discrepancies or errors can be identified and corrected. Following these best practices will help law firms ensure that their bookkeeping activities are conducted ethically and in compliance with relevant regulations. To keep things even more streamlined, consider using online payment software together with legal accounting software.

And it will be a lot easier to work with bookkeepers, accountants, new partners, and buyers, if you ever decide to sell the business. If you’re the owner of a small law firm, you need to know the essentials of bookkeeping and accounting for law firms. This way, your firm can stay compliant with ethics rules—and you can ensure you aren’t leaving money on the table. Even though funds may be in the firm’s possession, they do not belong to the firm until they have been earned. Firms also handle personal injury settlements that belong to the client. It is mandatory that all trust accounts are reconciled on a monthly basis, and in the event of an audit this is the first thing the auditor will look for.

Payments

It’s called the “corporate veil,” and it protects business owners and their personal assets from legal action taken against the company. You should only ever charge your clients fees directly related to their account. You should also consider a savings account, despite interest rates often being low. Having cash in your savings account can improve your chances of being approved for loans and other lines of credit in the future. Your checking account is self-explanatory — its primary purpose is managing business revenue.