IOLTA accounts are designed to keep client funds separate from your typical business or operating account—where you are allowed to accrue interest. This is a list of all your firm’s financial law firm bookkeeping accounts, giving you a framework for where to record every transaction. Without proper attorney bookkeeping, it’s impossible to track what money is coming (and leaving your firm).

Lawyers spend years honing their legal skills, but they often have little knowledge of accounting practices. The following tips can help you get a better handle on your finances. You can try MyCase today risk-free with a 10-day free trial, which includes access to MyCase Accounting.

Law Firm Bookkeeping 101

For example, if a law firm provides services to a client in December but doesn’t receive payment until January, the accrual method would require the firm to record the revenue in December. So, for example, if a law firm provides services to a client in December but doesn’t receive payment until January, the accrual method would require the firm to record the revenue in December. Time is the most precious asset a lawyer possesses, and we’re here to ensure you have the tools to maximize your law firm accounting efficiency. And the security in your ability to satisfy Trust/IOLTA compliance, along with the financial reporting to make informed decisions. You need an accounting partner with industry expertise and applied knowledge, and at Lescault and Walderman, your satisfaction is our benchmark for success.

This can cause serious issues and stunt your firm’s growth (more on that later). Next, you’ll withdraw money from the IOLTA account and transfer it to your firm’s account after invoicing a client and receiving their approval to pay the fees. Anyone who has started a business has been guilty of this mistake. Intermingling expenses isn’t a fatal mistake but it causes problems for your business when it comes to claiming expenses and tracking the financial health of your business. For example, if you purchase office supplies for your business, you should have an “Office Supplies Expense” account. But you don’t want to set up separate accounts for legal pads, pens, printer ink, etc.

The Importance of Bookkeeping & Accounting for Law Firms

You might have also done the same and are now probably running your law firm. All these years, your professional life must have been around laws and the legal system but not accounting. However, if you are aware of bookkeeping and accounting basics, you wouldn’t know the core roles and responsibilities of professional bookkeepers and accountants. Regardless of the size of your law firm, it’s essential to understand the best practices of accounting and bookkeeping to ensure that your business is on the right track. A minor accounting error could result in significant reputational damage, hindering future growth opportunities and client referrals. Many business owners think that they will hire an accountant but not a bookkeeper.

• Similarly, if you entertain clients frequently, you will want to keep track of those expenses as well.
• In this system, all transactions are categorized as one or the other.
• We know that lazy bookkeeping practices will cost you real money and time, result in sweaty nightmares, and put your license and firm at risk.
• Making the jump from an attorney to running a law firm can bring a ton of new intimidating challenges.

If you commingle your personal and business funds, you’re “piercing the veil,” and courts will ignore the legal protection that comes with incorporating. Plus, the more time and effort your accountant has to put into organizing your transactions, the more you pay them. If you make purchases for your business on your personal account, you can easily lose track and forget all about them. When tax season comes around, you could forget to claim it and miss out on those deductions.

Accounting and Bookkeeping for Law Firms

When choosing an accountant or bookkeeper for a law firm, it is important to select someone who has experience working with businesses in the legal industry. This will ensure that the accountant or bookkeeper understands the unique financial needs of a law firm. Lawyers are required by law to maintain separate trust accounts for their client’s funds. They are not allowed to commingle these funds with their own money or use them for any purpose other than holding them in trust for their clients.

Some accountants record financial transactions, and some bookkeepers assist with business decisions and prepare financial statements. Bookkeeping is a vital task for law firms, as it helps them to record and monitor financial transactions and keep accounts in balance. Accountants must ensure that bookkeeping for law firms is done properly in order to provide reliable financial data. These errors can lead to wasted time and complications for a law firm’s bookkeeping process.