Legal Bookkeeping: Every Bookkeeping Solution for Law Firms

To learn more about financial management and law firm growth, watch our podcast, where Sasha Berson and Ryan Kimler discuss increasing a law firm’s revenue by optimizing numbers. A strong accounting practice will also allow you to plan strategically for the future. Clearly presented financial data will help you identify areas in your business accounts that may need tweaking for optimal functionality. This data fixed assets will also aid in determining the financial feasibility of planned projects or actions, such as taking on a particular client, hiring more staff, or acquiring real estate and other assets. MyCase Accounting is a comprehensive legal accounting solution that houses case and financial data in one IOLTA-compliant platform.

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Legal bookkeeping ensures accurate and complied bookkeeping for law firms, solicitors, attorneys, sole practitioners. At legal bookkeeping, we understand that accounting compliance is absolute necessity for law firms operating within the legal industry. To do this, you’ll first compare the bank statement with the trust account ledger to ensure all entries match.

What is Legal Bookkeeping?

Law Firm deployed a comprehensive legal bookkeeping software solution Coffee Shop Accounting tailored to their specific requirements. The software provided real-time time tracking, customizable billing structures, and automated invoicing capabilities. Moreover, it facilitated adherence to IOLTA regulations through built-in compliance checks and transparent record-keeping functionalities. The legal landscape is constantly evolving, with new regulations, technologies, and market trends shaping the industry.

Essential Tips for Effective Legal Accounting

From creating a budget to choosing the right bank and hiring the correct advisors can feel overwhelming. It’s also a good idea to reconcile trust accounts at least once a month and prepare monthly reports for each client, listing all of the activity in and out of the account and the ending balance. If there are any differences between the three, your trust reconciliation report should show the reason for the discrepancy. For example, say you deposited a check for $10,000 to the trust account on December 30 but the deposit didn’t clear the bank until January 2. The December 31 bank statement shows a balance that is $10,000 less than your books or the client’s trust ledger due to a timing difference.

• One of the biggest compliance issues that law firms face is commingling client funds with operating funds, which is a major violation of legal ethics rules.
• With cash accounting, you don’t have to pay taxes on earned money until it has been deposited into your account.
• Creating a budget is one of the most important steps to ensuring the financial health of your law firm.
• From creating a budget to choosing the right bank and hiring the correct advisors can feel overwhelming.
• Easily breaking your business down per user, client, task, frequency, and more, means bringing new clarity to your work.

Make sure to consult with a CPA before settling on the method you’ll use. 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. While there are many law firm accounting options to choose from, the key is to look for options that have the features that matter most to your firm.

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• 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.
• Ensure the software complies with legal accounting regulations and standards.
• Law firms need to keep these records up to date, create invoices, and administer the employee payroll.
• Trust funds are funds of the client that are left in the care or trust of the attorney.
• Online payment solutions like Clio Payments also streamlines your collections and accounting workflows.

Keep these records for a specific time—some require 10 years, and some as few as three. The IRS doesn’t require you to keep records of certain expenses under $75, but we still recommend, to be safe, you keep copies of all records. Your bookkeeper, CPA, and the IRS all require you to keep documents proving your income, credits, and tax deductions. Our 2024 Legal Industry Report revealed that those who offered online payments had a 50% invoice recovery rate compared to those who legal accounting services offered checks and cash. IOLTA accounts are tricky because they have very specific rules around what you can and can’t do with them, and the penalties for breaking these rules can be severe—including disbarment.

Clio Accounting: Accounting made approachable

To further streamline your accounting processes, use a legal-specific accounting solution. Bookkeeping is the process of recording all financial transactions and the balance of all financial accounts in a business. These records must be kept up to date, in chronological order and in a systematic manner. Bookkeeping for attorneys is called ‘legal bookkeeping’ and without this process, it would be impossible to keep track of the money coming in and going out of your firm.

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With the accrual method, on the other hand, you enter an expense or revenue the moment it is incurred or earned. For example, when you invoice a client for services, the money they owe you is entered into the books as revenue. Expertise in QuickBooks Online, Xero, and LEAP legal software, ensuring seamless and efficient financial management. Hannah DeFreitas is a Senior Content Writer for leading legal software brands, including MyCase, Docketwise, CASEpeer, and LawPay—the #1 legal payment processor. She distills industry trends and data into strategic insights that empower legal professionals to streamline workflows, increase revenue, and gain a competitive edge. Accounting for lawyers may be new or challenging to you, but it doesn’t have to be scary.

The journey through the multifaceted world of legal accounting underscores its critical role in the success and integrity of law firms. From navigating trust accounting and compliance challenges to selecting the right law firm accounting software and implementing best practices, legal accounting is an indispensable element of law firm management. It extends beyond mere financial tracking, embodying the ethical stewardship of client funds, adherence to stringent regulatory standards, and strategic financial planning.