Bookkeeping for Attorneys and Law Firms

You also get smart software to help you monitor your finances and stay in control of cash flow. Lawyers are not accountants and they often make the same common mistakes when it comes to accounting for law firms. Legal accounting and attorney bookkeeping mistakes have catastrophic consequences for your business, income taxes, and license. Below we’ll show you the most commonly fall short in accounting practice.

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 law firm bookkeeping office expenses, as well as potential surprises. The purpose of double-entry accounting is to act as a safeguard against errors and to provide an accurate record of all financial transactions.

Client trust accounting

This is because a professional legal bookkeeper and accountant can help you manage your firm’s revenue and ensure your firm’s financial transactions are handled ethically and accurately. While it’s essential to understand the fundamentals of accounting for law firms, you still aren’t an accountant or bookkeeper. Hiring professionals is common for law firms, and it’s an easy route to peace of mind. Just as your clients rely on your expertise with the law, there comes a point when you need to call in accounting professionals. Whether it means using legal accounting software to simplify and automate your accounting, hiring a professional legal accountant, or both—don’t be afraid to delegate when you need to.

Thankfully, there are a lot of tools available to help you manage your trust accounts, so you don’t have to go at it alone. Here are five common law firm accounting obstacles and mistakes you should be aware of so you can avoid them. Your bookkeeper, accountant, and the IRS will thank you for holding onto documents proving your income, credits, and deductions.

Failing to Accurately Maintain Your IOLTA (Trust) Bookkeeping

You need to keep a pulse on your numbers to know if your business is healthy. While a bookkeeper keeps the day-to-day data accurate and updated, a Controller can help you set up and oversee your financial system and accounting infrastructure. Controllers often oversee the bookkeeper’s work, reconcile the accounts, and make more significant ledger adjustments. Accrual accounting records revenues and expenses when earned and incurred, regardless of when the money is received or paid.

Once you understand the basics, consider hiring an accountant, either as a contractor or as an employee. They can help level up your firm and make the legal accounting process even smoother by adding legal accounting and legal practice management software to your firm’s toolkit. Using legal technology can ease the workload of manual tasks while helping your firm meet its goals—avoiding errors, ensuring compliance, and staying organized.