Law Firm Accounting Guide: Securing Your Law Firms Future

You can also make a difference in your firm by creating opportunities for financial growth. Having an activity statement that shows your starting balance, deposits in, payments out, and the ending balance is the Client Trust Ledger. 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. Under Dennis’ leadership, Uptime Legal has grown organically and through acquisitions to become the nationally-recognized legal technology company it is today.

If you want your firm to stay compliant, be financially successful, and grow, you need to have an accurate and clear bookkeeping system for your law firm to follow. This could mean taking on bookkeeping tasks in-house or hiring a professional bookkeeper with experience working with law firms. Why has accounting for law firms traditionally been such a hassle? It involves a ton of inefficient, manual work—involving a lot of spreadsheets, paper invoices, inputting data entry, and struggles with collections. 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.

Accounts Receivable Services

With the accrual method, you record revenue when it’s earned and expenses when they’re incurred—whether they’re paid right away or not. This creates a better matching of costs to the revenues earned in a given month or year. It allows for more meaningful financial management that isn’t influenced by the ups and downs of cash flow. An accountant who specializes in accounting for law firms is beneficial. Your best bet is likely to hire both a legal bookkeeper and a legal accountant.

Speak to your accountant to make sure you are correctly withholding each payroll tax. Also, ask if you are eligible to receive a tax credit for paying timely state unemployment taxes. Employment taxes are reported using a Form W-2 for each employee, and Form 940 and Form 941 if you withhold any taxes from an employee’s paycheck.

Bookkeeping Integration With Practice Management Software

You can learn more about record retention periods in our guide to business recordkeeping. Bookkeeping tasks are ongoing and can be performed daily, weekly, or monthly. Whether you do the task yourself or outsource it to a pro, the goal is to make sure your books are accurate, up-to-date, and useful to you and your CPA. Ask a CPA to help you determine which accounting method is best for your business, and stick with it. One reason why people incorporate their businesses in the first place is that it provides a legal separation between them and their company.

Accounting is a world of numbers, and, for law practices, it helps efficiently manage the money flowing in and out of business. The next step is to determine how your law firm is going to receive money from clients. Instead, employ good accounting and budgeting practices, so you don’t need to dip into these fees in the first place. Your COA will look different depending on your jurisdiction, law firm’s size, and practice area, but will always have these categories.

Importance of a Bookkeeper for a Law Firm

It is essential for business owners to familiarize themselves with the compliance regulations specific to their jurisdiction before starting a law firm. Accounting for law firms may be new or challenging to you, but it doesn’t have to be scary. What’s most important is that you get the details right so that you can stay compliant with ethics rules and help your firm grow to its full potential. If you’re not sure what tax deductions you should be watching for, our post covering the top tax deductions for lawyers and law firms is a good place to start. Both general accounting and trust accounting are necessary for your firm’s success—and integrations seamlessly tie the two areas together. So, with double-entry accounting, every financial transaction gets sorted into a specific category (assets, liabilities, or equity).

• Sync your legal accounting software to apps that organize clients, billing, and documents in one place.
• All the taxation related aspects are considered appropriately to ensure accuracy while filing the year-end returns.
• Cloud services like FreshBooks let you set up recurring invoices and record project expenses while also letting your clients pay outstanding invoices online using their credit card.
• It is too easy to put the funds in the wrong bank account, mismanage an account, accidentally use funds that need to be saved, or fail to report it correctly.
• At its core, you must always know who’s entitled to the funds in your trust account and give it to that person.

This is an active implementation of tactical pieces of your business. It’s OK to admit if you don’t really understand where to check your trust. Process vendor bills with the proper approvals and timely payments. Your bookkeeeping shouldn’t law firm bookkeeping be handled by the same accountant who services your plumber. Tell Anna about your business’ unique challenges, goals, processes, and resources. Or add something like – and don’t worry its free and everything you discuss is confidential.