Four different types of trust bank accounts used in a law office

Typically, the accounts’ chart will have five core categories of assets, liabilities, owners equity, revenue, and expenses—along with numerous subcategories. We have created this guide to give you an overview of the fundamentals of bookkeeping and accounting for attorneys and help anyone who is a small law firm owner. Insights on running a successful law firm with case management, client intake, billing and payments, tech innovation, and more. Solutions without built-in, specialized law firm accounting features require a high degree of customization and can only be used by a highly trained law firm accountant. And frequently, the required customization can make the software cumbersome and more difficult to use.

We always recommend working with a legal-specific merchant to avoid unintended trust accounting violations. Most of the accounting trouble law firms run into has to do with their trust or IOLTA accounts. Regulations do vary by state, but keep in mind the following dos and don’ts no matter where you law firm bookkeeping practice. Understanding these terms and how they relate will help law firms properly manage their finances. Additionally, maintaining accurate books helps ensure that all financial information is correct and up-to-date. Within each of those categories, you may have dozens of general ledger accounts.

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If you know where you are most successful and least successful, you can allocate resources to provide stimulation for future growth. Law firms must know that there is essentially no wiggle room for errors. Trust account liability almost operates like strict liability, where simply committing an act is proof enough for guilt. Finding the right staff member requires asking the right interview questions. You need to know specific things about your potential hire to honestly know if they are up to handling your bookkeeping needs. After selecting a candidate, provide adequate training to ensure they are prepared to handle the job.

Failure to allocate appropriately can lead to inaccurate books, and battle compliance issues. While there are a lot of factors to balance, here are the essentials for law firm accounting and bookkeeping success that you should get a handle on ASAP. Entering numbers manually often leads to mistakes and duplicated data entry in the accounting process.

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LawPay also ensures your law firm accepts payments that comply with your state bar’s regulations surrounding trust (IOLTA) accounts and the American Bar Association (ABA) guidelines. To keep things even more streamlined, consider using online payment software together with legal accounting software. For example, if you were using LawPay to collect payments and invoice clients, you could easily sync all your transactions into QuickBooks for easy reporting and reconciliation. The basis of good legal accounting always starts with a well-thought-out budget. A budget helps you set expectations regarding cash flow and expenses for the year, reducing the likelihood of missing a payment or bouncing a check. Your law firm will also be able to set revenue benchmarks, which will help you determine if you are meeting your goals or need to adjust your business plan.

• Law firms also benefit from being able to keep client and financial data perfectly in sync.
• This is quite important, as you could be fined by the IRS for any errors.
• We recommend choosing one or the other to prevent confusion and for the most accurate overview of your firm’s finances.
• You should budget for an accountant and bookkeeper to assist you with managing your firm’s finances and ensuring you’re compliant with ethics regulations.
• A professional legal accountant’s role will generally focus on interpreting, collecting, and utilizing financial data to help a firm stay compliant and grow.

Whether you’re a small law firm or large, follow the steps in this guide, and get on the path to financial clarity and success. Having a legal bookkeeper on your team can save you a lot of time and money in the long run. For example, if a law firm has multiple partners, each with their own areas of focus and billable hours, the bookkeeper will need to be able to track this information correctly. For example, if you have a business credit card that employees can use for business expenses, you can set up an online system where they can submit their receipts and be reimbursed automatically. For example, if a law firm has a goal of saving money, they may choose to cut back on non-essential expenses like office parties or new office furniture. Your firm needs to keep track of your invoices so you know what money is owed (and who you owe money to) to avoid this problem.