December 21, 2020

bookkeeping for law firms

The retainer fee goes into a CTA, and you can draw from it as the client approves invoices for services rendered. Expenses are the silent undertow in the financial waters of any law firm. Taming them requires a strategic approach to manage overhead costs effectively.

bookkeeping for law firms

Bookkeeping is an ongoing task that is performed daily, weekly, or monthly (if you’re adventurous). Daily bookkeeping gives you better information about the financial state of your law firm, while monthly bookkeeping will keep you guessing. If you didn’t have a system in place to track what money is coming in and going out of your firm, then you would never know where your law firm stood financially.

Best Practices for Law Firm Bookkeeping

Shoeboxed is an expense & receipt tracking app that helps you get reimbursed quickly, maximize tax deductions, and reduce the hassle of doing accounting. Accelerate invoicing to avoid a cash flow problem where you’re spending money on your client’s behalf without getting it back from them. Refundable retainers — where the client may have a refund for hours prepaid but not worked during the month — are what accountants call unearned or deferred revenue.

Clients need assurance that their funds are handled with the utmost care and transparency. A well-maintained ledger is a testament to a firm’s commitment to financial responsibility, instilling confidence in clients and fostering long-term relationships. Establishing a detailed and realistic budget is foundational to effective financial management. It allows law firms to plan for expected expenses, allocate resources efficiently, and set financial goals. A well-structured budget also provides a benchmark against which to measure actual financial performance, facilitating adjustments and strategic decision-making.

What tools are available to help with efficient legal bookkeeping?

By establishing—and following—best practices for accounting for law firms like the examples below, you’ll be better able to help your firm stay on track. Every law firm has a responsibility to stay compliant with ethics regulations, and your firm is no exception. Ethics rules vary in each jurisdiction, but there are definitely some basics when it comes to accounting for law firms. Maintaining your books on a regular basis ensures that all of your financial transactions are accurately recorded and organized. This makes it much easier for your accountant to prepare financial statements and tax returns.

bookkeeping for law firms

To help you launch your career, you can join other bookkeeping students through the college student community portal to get peer support. At the end of the program, students should expect to have a full understanding of the main tasks of a bookkeeper and can start applying for jobs in the field. The total cost of the program is $989, with options to pay the full amount upon registration, mail a monthly payment, or set up a monthly automatic payment. Financial Accounting progresses through seven modules; each one includes some case studies, key lessons to learn, and exercises and quizzes to cement and test your knowledge.

Use tech to simplify the process

Examples of these expenses are fees for transportation, court filings, expert witnesses, transcripts, medical records, etc. Review financial statements and study trends in the industry to help identify areas of improvement or opportunities for growth regularly. Ensure all tax filings are completed correctly and on time to avoid potential penalties or legal issues. Finding the right staff member requires asking the right interview questions.

  • You can add as many accounts to your chart of accounts as you need to prepare accurate and informative financial statements, but don’t let your chart of accounts get too unwieldy.
  • Recognize the value of unbilled services by creating accounts that reflect consultations or additional research beyond standard billable hours.
  • Your best bet is likely to hire both a legal bookkeeper and a legal accountant.
  • You can learn more about record retention periods in our guide to business recordkeeping.
  • The Chart of Accounts is the financial backbone of any business, including law firms.
  • You can’t, for example, pay for your firm’s operating expenses directly out of an IOLTA account.

Both legal accounting and bookkeeping are integral to a law firm’s financial ecosystem. Effective legal accounting relies on accurate and comprehensive bookkeeping to inform its analysis and strategic decision-making. Bookkeeping, on the other hand, is the day-to-day recording of financial transactions. This includes logging expenses, payments, and revenue, as well as managing invoices and tracking client fund transactions. Bookkeepers ensure that every financial transaction is accurately recorded and categorized, providing a clear and up-to-date picture of the firm’s financial status. This meticulous record-keeping is foundational for legal accounting, as it supplies the raw data necessary for financial analysis, reporting, and strategic planning.

Your tool for financial readiness

In fact, some bookkeeping tools such as QuickBooks and Xero integrate with your practice management tool, allowing you to easily track your clients, invoices, and more. Make sure whatever tool you use integrates properly or choose an all-in-one software for both. Recording all revenues and expenses when they happen is much easier with accounting software as it connects to your firm’s bank account and automatically records and classifies all transactions. Bookkeepers should be up to speed on the rules and regulations of the jurisdictions they work in and have accounting software experience. Legal accountants also need to be intimately familiar with the relevant rules and regulations and be comfortable using different types of software.

With the accrual method, on the other hand, you enter an expense or revenue the moment it is incurred or earned. For example, when you invoice a client for services, the money they owe you is entered into the books as revenue. You can’t use Excel spreadsheets to maintain all of your financial books and records for an entire year. When used for that much data, Excel becomes clunky and lacks features you could use to improve your reporting. Poor accounting practices, such as struggling to track billable hours or sending out invoices late, can lead to money leakage. IOLTA accounts are designed to keep client funds separate from your typical business or operating account—where you are allowed to accrue interest.

Get clear on trust account rules

Streamlined bookkeeping processes, often facilitated by modern accounting tools, save valuable time for legal professionals. This efficiency not only improves productivity but allows lawyers to focus on what they do best—practicing law. Law firms are subject to a myriad of regulations, both within the legal profession and in the broader business landscape. The accurate and timely recording of financial transactions ensures compliance with various regulatory requirements. This is not just a matter of avoiding penalties; it’s about upholding the ethical standards that define the legal profession. The cash basis of accounting involves recognizing revenues when you receive cash and deducting expenses when you pay them.

  • The specific amount you charge your clients for bookkeeping services will depend on your certifications, years of experience and familiarity with the client’s business.
  • When pressed for time, it’s tempting to let recordkeeping fall by the wayside.
  • For example, job costing is a strategy lawyers can use to ensure their financial records are easy to interpret and analyze.
  • It is a great tool for tracking all of the firm’s financial transactions.
  • Staying on top of receivables is essential to the financial health of your business.
  • If you have any trust accounts in your firm, every days you will need to carry out a three-way reconciliation.

This helps in managing client expectations and ensuring that retainer funds are appropriately utilized. While the fundamental principles of bookkeeping are universal, the unique characteristics of the legal profession demand a specialized approach. Effective legal bookkeeping is not just about numbers; it’s about upholding the integrity and reputation of the legal profession.

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