law firm bookkeeping

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. Beyond just staying organized and compliant, following best practices for accounting for law firms will help you identify growth opportunities.

law firm bookkeeping

This is a list of all your firm’s financial accounts, giving you a framework for where to record every transaction. Accounting software with a robust client relationship management system (CRM) saves time and streamlines your firm’s invoicing and billing workflows. Gain a better understanding of your firm's cash flow and ensure that every transaction is accurately recorded with proper supporting detail. Practice Alchemyʼs team of legal bookkeeping experts know how to build and deploy successful bookkeeping programs to ensure your books are diligently and accurately kept. We at Fincent intend to be a game-changer for law firms, by offering a host of benefits that simplify and elevate bookkeeping. Expenses are the silent undertow in the financial waters of any law firm.

Benefits of using legal accounting software

Your business may also be required to pay state taxes in both your home state (where your business is registered) and in any states where your business has nexus. Unless the IRS requires you to use the accrual method—for law firms, this rule only kicks in once you start making $10m a year—which method is best will depend on your accounting needs. Your business’s accounting method will affect cash flow, tax filing, and even how you do your bookkeeping. Cash accounting recognizes revenues when cash is received, and expenses when they are paid.

Comprehensive records not only support financial transparency and compliance but also enhance the firm’s ability to analyze financial data for strategic planning. Achieving mastery in legal accounting is vital for the financial health and operational success of any law firm. Beyond compliance and regulatory adherence, effective legal accounting practices can significantly enhance decision-making, client trust, and long-term firm growth. Here are essential tips that law firms can implement to ensure their accounting practices are not only compliant but also strategic and efficient. In the ever-evolving landscape of the legal industry, Technology plays a pivotal role in transforming legal accounting practices. The integration of advanced technological solutions into accounting processes not only streamlines operations but also enhances accuracy, efficiency, and compliance.

Timekeeping and Billing for Law Firms

Having a separate business account allows for greater control over the accounting of clients’ funds. It also establishes credibility with existing and potential clients, showing that the law firm is taking its financial affairs seriously. Trust accounting is the bookkeeping of clients' income and expenses that are held in trust. This type of accounting for law firms may include assets from settlements or retainers fees. These funds held in a trust are not the law firm's property but are individuals or institutions known as trustees. Once you understand the basics, consider hiring an accountant, either as a contractor or as an employee.

Accrual accounting records revenues and expenses when they are earned or incurred, whether or not the money has been received or paid. For example, all invoices sent to clients are recorded as revenue, regardless of the expected payment date. The advantage of this method is that it gives you a more realistic idea of (expected)  income and expenses over a period of time. Without a professional accountant, you risk mixing up revenue and income, two different types of proceeds.

Client management

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. Interestingly, tax deductions can ease the burden when used correctly—yet not all lawyers are up-to-date on their tax deductions.

law firm bookkeeping

It’s best to work with a CPA who has experience working with law firms. Any CPA should be willing to sit down with you for a free consultation. Accounts receivables, also known as A/R, are amounts owed to you by clients. Staying on top of receivables is essential to the financial health of your business. Grow Law Firm is a top law firm SEO agency with the sole mission of helping law firms take their operations to the next level.

You can research this on your state government’s website, and consult with your CPA. You should also keep any other documentary evidence that supports an item of income, a deduction, or credit shown on your tax return. Bookkeeping tasks are ongoing and can be performed daily, weekly, or monthly.

Double entry accounting is a helpful practice for lawyers to know about, as it provides an extra guard against errors. For example, the Clio Manage and Xero integration lets you apply a tax to an expense category in Clio, and that same tax amount will be applied to the client invoice in Xero. Implement the right accounting software for your firm to save time, work, and money. Let our team of legal bookkeeping experts start doing the work for you.

RunSensible’s Legal Case Management software exemplifies the transformative impact of technology on legal accounting. Moreover, its integration capabilities ensure a cohesive workflow between accounting and case management, enhancing overall operational efficiency. Handling client trust accounts demands strict adherence to ethical guidelines and best practices. It is crucial to never commingle trust funds with the law firm’s operating funds and to promptly disburse funds as required. Of course, the line between bookkeeping and accounting can get blurred.