Law Firm Accounting Guide: 11 Steps to Boost Efficiency

Manually tracking hard and soft law firm expenses can become time-consuming. Even if you use apps or other solutions to track expenses, it can be tedious to consolidate data into one spot. A comprehensive cloud-based accounting solution can help you keep your data organized in one spot—and is available from anywhere. Solutions like MyCase Accounting allow you to streamline accounting work, case data, and client billing to give you control and visibility over your firm’s finances. This may sound feasible with one client, but a DIY system can quickly become difficult to manage once you gain more clients and add more lawyers to your team.

It’s intuitive, reliable, and the industry standard for accepting payments online. For a CPA to work effectively, they will need you to provide accurate, up-to-date financial statements. Whether you’re good with numbers and spreadsheets or not, every lawyer needs to understand the basic role that bookkeeping plays in their business. Cash accounting recognizes revenues when cash is received, and expenses when they are paid. Once your business bank accounts are up and running, you should avoid mixing your personal and business finances. Every state has an IOLTA program, and it’s likely tips to using credit cards wisely that the bank where you opened your regular business checking account also offers IOLTA accounts.

Choosing the Right Accounting Software

As a result, you take comfort in allowing yourself to offload financial tasks and turn your attention exclusively to business development and legal cases. The Trust ledger provides a summary of all the transactions involved in a trust account. Some jurisdictions may require you to complete financial reporting periodically. For example, the ABA requires firms to do three-way trust reconciliation at least quarterly. Correctly setting up payroll helps ensure everyone gets paid on time, your staff understands how they’re compensated, and that you have the information needed for taxes and other requirements.

1. Trust account liability almost operates like strict liability, where simply committing an act is proof enough for guilt.
2. This is essentially FICA and Medicare, only your payment covers both a withholding from your wage and the matching contribution from your company.
3. Although you now understand the common mistakes in accounting for law firms, you’re still an accountant or bookkeeper.
4. Stay diligent in managing trust accounts, and keep up-to-date with jurisdiction-specific rules to maintain a thriving, ethical law practice.
5. Law firm bookkeeping is a more traditional version of accounting that essentially lays the groundwork for incoming and outgoing cash flow.

Equally important is choosing the right accounting method and hiring a certified public accountant (CPA) to ensure compliance with state Bar Association rules and accurate financial reporting. When clients trust a firm with their legal issues, they also expect that their money will be handled correctly. A single mistake in handling finances can damage the trust clients have in a lawyer or the whole law firm. Managing money matters can be tricky for law firms, with lots of rules to follow. Our blog will guide you through the basics of legal accounting and how to avoid common pitfalls. A career in law firm accounting typically requires a strong background in accounting principles, finance, and business management.

Legal accounting and attorney bookkeeping mistakes have catastrophic consequences for your business, income taxes, and license. Setting up and recording the chart of accounts for law firms isn’t just suggestions, they are requirements. State Bar association rules require law practices to record transactions meticulously so there is no impropriety when dealing with Interest on Lawyers Trust Accounts (IOLTA), or other trust accounts. The good news is, we’ve made this guide to help you know the essentials of bookkeeping and accounting for law firms. Each aspect of law firm accounting is explained understandably and concisely.

Handling Revenue and Expenses

In other words, if your law firm even considers borrowing from its IOLTA account, you may not be in the best position to handle clients. While you spent most of your life becoming a seasoned lawyer, accounting is a different area and not your expertise. Although you now understand the common mistakes in accounting for law firms, you’re still an accountant or bookkeeper.

Not Distinguishing Between Revenue and Income

Bookkeepers record the financial transactions and balance the financial accounts for your firm. Legal bookkeeping takes place before any accounting can occur and is an important administrative task for any law firm. Accounting and financial management mistakes can threaten the well-being of any law firm. Fortunately, you can easily avoid many of them if you know which types of errors are the most common.

Step 7: Pick An Accounting Method

Handling client trust accounts demands strict adherence to ethical guidelines and best practices. It is crucial to never commingle trust funds with the law firm’s operating funds and to promptly disburse funds as required. Effective legal accounting and bookkeeping practices are not just operational necessities; they are strategic assets that can significantly influence a law firm’s growth trajectory. Ready to elevate your law firm’s financial management and operational efficiency? Consider RunSensible’s legal case management software and CRM for an integrated approach to legal accounting and overall firm management. Discover how RunSensible can help your firm navigate the complexities of legal accounting with ease, ensuring compliance, enhancing client trust, and supporting your growth objectives.