This guide demystifies law firm bookkeeping with practical insights tailored to founders and operations leads. We’ll explore key bookkeeping challenges for law firms, actionable best practices, and modern solutions to bring your financial data into sharp focus. To stay compliant, firms should never withdraw unearned fees or commingle trust money with operating funds. Every deposit and disbursement should be clearly documented, and trust accounts must be reconciled regularly—ideally each month—to match client ledgers with the bank balance. Law firms must not commingle client trust account funds with funds from other accounts.
- Proper bookkeeping can help your practice track billable hours, manage trust accounts, and handle client funds appropriately.
- Outsourcing bookkeeping services can be a cost-effective and efficient way to manage your firm’s financial management.
- To prevent misappropriating funds from other clients, remember to only charge your clients for fees directly relating to their trust account.
- Unleash the full potential of your team with powerful workflows that automate routine, time-consuming tasks like scheduling and task follow-up.
Law firm accounting & bookkeeping 101: Your guide for 2026
A chart of accounts is a list of all your firm’s financial accounts, usually used by an accountant and available for bookkeepers. Account numbers of the chart of accounts are structured to suit the needs of your law firm, the jurisdiction, and the practice area. Typically, there are 5 core categories consisting of assets, liabilities, owner’s equity, revenue, and expenses. Though rules vary from state to state, most state Bar Association rules permit debit, credit and other electronic payment processing for law firms.
Streamlining Bookkeeping Processes
- These tools continuously monitor your accounts and flag discrepancies as they occur, rather than waiting for monthly reconciliation.
- We have a capable team that is privy to the various types of business planning has years of experience of financial planning, practice management accounting, and tax services you need.
- Keeping accurate records of your law firm’s accounts is a challenging yet vital part of running a legal practice.
- Ultimately, the best accounting method for your firm depends on your business structure, financial complexity, and long-term goals.
- The chart will include a list of your accounts and transactions for each.
- If you have no prior knowledge or experience, you can expect to spend hours on the course content.
You can’t, for example, pay for your firm’s operating expenses directly out of an IOLTA account. Some firms will also intentionally use their IOLTA accounts to hide assets, or will leave funds in their IOLTA even after they’ve been earned, using it as a savings account. Manage business revenue in your checking account, and set aside money you’ll need at a later date (for emergencies, to pay taxes, etc.) in a savings account. Even though interest rates on business accounts are traditionally low, having a cash surplus in a business savings account can improve your likelihood of being approved for a loan.
How to Calculate (and Use) the Accounts Receivable Turnover Ratio
Finding bookkeepers who are not only competent but proficient in PC Law and law firm accounting is extremely difficult. We would highly recommend their services to other law firms and sole practitioners. We would not hesitate to recommend Accounting for Law to our fellow lawyers and firms. Accounting for Law has provided our bookkeeping services for our eight member law firm with offices in downtown Toronto and Bowmanville, Ontario, since 2013. We have been very impressed and satisfied with the level of service we have received from this firm.
We’ll also share tips, resources, and details about how law firm accounting software can help you manage accounting tasks more easily while boosting productivity and maintaining compliance. Trust accounting rules requires law firms to closely manage each of their Bookkeeping for Law Firms client’s trust funds to avoid misappropriation. As easy as it may sound, it can quickly become a major hurdle for those who are manually tracking funds.
