Law Firm Bookkeeping 101 Bench Accounting

Law Firm Bookkeeping 101 Bench Accounting

Monitor and manage Trust/IOLTA accounts and client trust liabilities to meet strict state bar regulations. If you’re not using external legal billing software, you must find a workaround to represent this transaction in a three-way bank reconciliation accurately. One possible solution is to indicate that the invoice has been cleared and reverse the transaction during the reconciliation process. To avoid this situation when using QuickBooks only as a standalone solution, one suggestion is to create the invoice but then delete it.

• They’ll be more familiar with the ins and outs of law firm accounting, including the rules and regulations that could get you into trouble.
• Much like practicing law, accounting requires extensive training and in-depth knowledge of intricate rules.
• After all, you have many more exciting things to pull your attention, such as winning clients and providing services.
• To ensure your firm’s financial statements are accurate, complete, and up-to-date, you need to use sound bookkeeping for attorneys.

Now that you understand that bookkeeping happens first, I suggest you figure out the best way to handle bookkeeping before we move on to legal accounting. Some firms will even use accrual for their monthly reports but then submit their year-end tax return as the cash method. The business will need to look at the firm’s finances and see what makes the most sense for your business structure. Once you choose a type, you cannot change it in the coming years.

Interest in Lawyers Trust Accounts (IOLTA)

Suppose you understand exactly what your firm is collecting and your firm’s expenses; you lower your chances of accidentally missing out on revenue. If billed hours are not recorded properly, or you miss out on tax deduction opportunities, you miss out on many opportunities. Legal accounting will let you analyze and collect information to make decisions with data in mind. These numbers are based on money that is coming into your firm and leaving your firm. So understanding this information is worth your time and energy.

You’ll also want to decide how your firm will track incoming and outgoing funds. Your business’s accounting method will affect cash flow, tax filing, and even how you do your bookkeeping. You’ll need to choose an accounting method before your firm files its first tax return, and then stick with it on all subsequent returns.

Take Advantage of Accounting Software & Tools

Legal bookkeepers manage your finances on a transaction-by-transaction level while ensuring the books are balanced. They take count of every transaction the firm makes, watching what money https://www.bookstime.com/ comes in and goes out. While a bookkeeper keeps the day-to-day data accurate and updated, a Controller can help you set up and oversee your financial system and accounting infrastructure.

• Typical accounting tasks are (1) preparing monthly income and balance sheet statements; (2) preparing and completing tax returns; and (3) forecasting future cash flow.
• When you have a trust account, you’re required (by the State Bar) to perform a three-way trust reconciliation every 30 to 90 days.
• Though rules vary from state to state, most state Bar Association rules permit debit, credit and other electronic payment processing for law firms.
• At least once a month, review your receivables and follow up on outstanding client invoices to keep your cash flow strong.

A simple mistake could send your firm into the red for the month. Or, you might lose track of critical transactions that affect your taxes. Have you ever tried to balance your checkbook, only to find you’re a quarter off somewhere?

Nationwide Bookkeeping Services for Law Firms & Lawyers

With that said, there are some basic regulations that you’ll want to abide by regardless of where you’re practicing. These rules and regulations change with every jurisdiction, so it’s a good idea to become familiar with what’s expected of you before jumping in. Being familiar with this concept gives you an understanding of how a balance sheet should look and can help safeguard against errors. Whenever there’s a change in one category, there should be a corresponding and equal change in another in order to keep the sheet balanced.

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. Before meeting with law firm bookkeeping a bank representative, call ahead and ask what paperwork you need to bring to your initial appointment. We recommend choosing one or the other to prevent confusion and for the most accurate overview of your firm’s finances.

You may lose legal protection

When the law firms outsource their requirements to us, they can focus on business development tasks such as administration, networking, etc. The lawyers can get confused over the calculation of taxes and GST for disbursements and activities, thus, it is important to opt for a reliable bookkeeping service provider like us. For example, many banks are unfamiliar with lawyer trust accounts. As a result, you could accidentally use a regular business checking account to store your clients’ funds, which violates trust accounting rules. Each month, a team of professional bookkeepers with experience in legal accounting gathers your data for you and turns it into accurate financial statements. You also get smart software to help you monitor your finances and stay in control of cash flow.

As a solo practitioner or small law firm owner, you have more important things to do with your time then manage your books. My team and I take care of your books for you, so you can get back to doing what you really love, practicing law. As a solo practitioner or small law firm owner, you have more important things to do with your time than manage your books. 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.

Next Up: A Certified Public Accountant

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. I have over 20 years experience as a legal assistant/accounting manager for a small law firm. My philosophy and work ethic is that I am the extension of the law firms business so it is my job to keep it organized, compliant and current so that the lawyer can focus on their services. No matter what level of support you need, Giersch Group teaches the best accounting practices for law firms.