Every business gets busy, and it is easy to get distracted by the work you are doing for your clients. However, your law practice is still a business, so you will need to treat it as a business. If proper attorney bookkeeping occurs, then the law firm can track what money is coming in and going out of your firm. It will be challenging to scale your growth without understanding the money coming in and out.
Becoming familiar with these terms will help you know your accountant and bring you up to date with accounting terminology in general. Gain a better understanding of your firm’s cash flow and ensure that every transaction is accurately recorded with proper supporting detail. Know that your firm’s day-to-day law firm bookkeeping transactions are being accurately recorded to ensure smooth operation of your firm as a business. We strongly recommend that you contact Free Cash Flow (FCF) if you need assistance with Bookkeeping for the law firm. Having worked with law firms for years, FCF has a wealth of experience in this field.
Step 7: Accurately Maintain IOLTA (Trust) Bookkeeping
Bookkeeping requires dedication and attention just like everything else in your firm. We understand what it’s like to have everything fall on your shoulders. That’s also why we recommend eventually hiring a professional bookkeeper to ensure nothing falls through the cracks.
The IRS won’t require you to use the specific rules necessary to implement the accrual method until you’re making $10 million a year. The cash basis accounting method is easier and more straightforward, which will free up your time to work on building your practice. Or maybe you’re just starting your firm and want to begin on the right foot. Either way, law firms succeed or fail on client trust, and accurate, thorough bookkeeping is essential to building a reputable, compliant, and trustworthy firm.
Develop a bookkeeping system
However, it’s easy to make attorney bookkeeping and data entry mistakes when you have to maintain and complete your day-to-day transactions manually. Only a small mistake or duplicated data entry may result in wasted time, mismatched records, billing complications, and even compliance violations. Double-entry bookkeeping or double-bookkeeping accounting is a method that keeps track of where your money comes from and where it’s going. Every financial transaction involves at least two accounts, including debit and credit.
Similarly, if you entertain clients frequently, you will want to keep track of those expenses as well. By tracking these costs throughout the year, you can ensure that you maximize your tax deductions come tax time. In order to stay afloat financially, a well-thought-out budget is essential for a law firm. When creating a budget, it’s important to think about mandatory expenses, like employee salaries and office expenses, as well as potential surprises. For example, if the trust account statement balance does not match the trust ledger balance, it could mean that client funds have been misappropriated. For example, you can use the “Legal Billing” app to track your time, and then enter all of your billable hours into your accounting software.
What are the benefits of effective bookkeeping for a law firm?
The benefits of bookkeeping for a law firm include having accurate financial data, staying compliant with regulations, and being able to track finances. An accountant or bookkeeper can help a law firm by providing experience with the WSBA and getting their bookkeeping in order. An admin as the bookkeeper is the number one area that I see accounting in a law firm fail. The partner or attorney doesn’t place the value on having an expert handle these records. They figure it’s just data entry and whoever has the best work ethic and is good at paperwork gets this job.
- Proper integration with other bookkeeping tools is essential in order to maximize the benefits of practice management software.
- When it comes to law firm accounting, there are a lot of things that can go wrong.
- Some accountants record financial transactions, and some bookkeepers assist with business decisions and prepare financial statements.
- Not all income is revenue — this is a distinction that needs to be made or you could have to deal with inaccurate bookkeeping.
- The goal of bookkeeping is to have an accurate picture of your current financial standing.
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. Bookkeepers record the financial transactions and balance the financial accounts for your firm. Legal bookkeeping takes place before any accounting can occur and is an important administrative task for any law firm. Learn about different accounting methods and find which one suits best for your law firm. You might need to consult a legal accounting expert before you make a decision.