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An example of a compliance regulation violation could be mishandling client funds. When you don’t collect funds that you’re owed, you miss out on revenue and are essentially working for free. And when you’re missing out on 12% of your billable hours, that’s 4.8 hours in a standard 40-hour workweek. Trust accounting (including IOLTAs) isn’t a part of standard business accounting. Because it’s an industry-specific account, it’s a common area to make mistakes.
But rules vary by state, so consult your State Bar Association and a professional accountant before finalizing your accounting setup. Accounting for law firms may be new or challenging to you, but it doesn’t have to be scary. What’s most important is that you get the details right so that you can stay compliant with ethics rules and help your firm grow to its full potential. If you’re not sure what tax deductions you should be watching for, our post covering the top tax deductions for lawyers and law firms is a good place to start. Accounting for law firms lets you collect and analyze information, and make data-driven decisions based on what money comes in and leaves your firm, so it’s worth it to pay attention. A full-time bookkeeper handles the day-to-day accounting functions for your office.
A process for your people
On top of that, ZipBooks is more than reasonably affordable; it’s highly affordable compared to many options. No additional software is necessary to access the powerful accounting and bookkeeping tools that you would expect to find in high-quality programs. Whatever it is you need to do, you are likely able to do it with CosmoLex. Successful law firms know everything about their money, from where it came from to where it will go. If you don’t have a strong accounting practice handling your affairs, you might be surprised at all the expenses you incur and pay each month.
There are several standard methods of bookkeeping, including the single-entry and double-entry bookkeeping systems. While these may be viewed as “real” bookkeeping, any process for recording financial transactions is a bookkeeping process. The responsibilities of a bookkeeper include a fair bit of data entry and receipt wrangling. They’re responsible for recording every financial transaction in your general ledger using double-entry bookkeeping—usually called recording journal entries. That sounds like a mouthful, but often that just looks like inputting all your transactions into accounting software. The best bookkeeping services ensure you receive an accurate monthly snapshot of your company’s financial picture.
Cash Flow & Collection Issues
Setting up and recording the chart of accounts for law firms isn’t just suggestions, they are requirements. A chart of accounts is a list of all your firm’s financial accounts, usually used by an accountant and available for bookkeepers. Account numbers of the chart of accounts are structured to suit the needs of your law firm, the jurisdiction, and the practice area. Typically, there are 5 core categories consisting of assets, liabilities, owner’s equity, revenue, and expenses.
This can be done by setting up different income and expense accounts for each partner, as well as setting up a trust account to track client funds. There are a few key things that lawyers need to keep in mind when it comes to bookkeeping for their law firms. Lawyers are required by law to maintain separate trust accounts for their client’s funds. They are not allowed to commingle law firm bookkeeping these funds with their own money or use them for any purpose other than holding them in trust for their clients. Many lawyers assume their bookkeeper can or should help them with their financial analysis and get frustrated when they don’t. If you understand the different roles and skillsets each position has, you’ll be able to assess what type of help they can provide to you.
How to Choose an Accounting Software for Your Firm
If you want your firm to be financially healthy and thrive well into the future, you need to pay attention to your finances. Make sure your trust account and/or IOLTA are included in your COA. At its core, you must always know who’s entitled to the funds in your trust account and give it to that person. Being familiar with this concept gives you an understanding of how a balance sheet should look and can help safeguard against errors. For example, an accountant might examine your firm’s profitability and make recommendations to improve your bottom line. We recommend choosing one or the other to prevent confusion and for the most accurate overview of your firm’s finances.
Share and receive files quickly and securely – safe in the knowledge they won’t fall into the wrong hands – and enjoy straightforward invoicing and payment processes so you get paid quicker. “One of my favourite things about Soluno is that it’s completely cloud-based so I have full peace of mind that I will never lose data… I can docket in real time straight from court.” Finding the right staff member requires asking the right interview questions. You need to know specific things about your potential hire to honestly know if they are up to handling your bookkeeping needs.