Double-entry accounting is a system of bookkeeping where every entry to an account (i.e., every financial transaction) requires a corresponding and opposite entry to a different account. A double entry system, therefore, has two equal and corresponding sides—or debits and credits—and creates a balance sheet consisting of assets, liabilities, and equity. Reliable bookkeeping for attorneys also provides accurate financial data for legal accountants to work with. We’ll also show you how legal accounting software can make the whole process easier (and more effective). The cost of bookkeeping services can vary depending on the size of your business and the features you need. Some bookkeeping services charge a monthly fee while others charge by the hour.

• Entering numbers manually often leads to mistakes and duplicated data entry in the accounting process.
• Let our team of legal bookkeeping experts start doing the work for you.
• Controllers often oversee the bookkeeper’s work, reconcile the accounts, and make more significant ledger adjustments.
• Your best bet is likely to hire both a legal bookkeeper and a legal accountant.
• Also, many outsourced companies are now offering a team approach where you get the benefit of their bookkeeper, controller, and outsourced CFO for higher-level financial analysis.
• For example, you might have an operating account, lawyers trust accounts, accounts receivables, and fixed assets within the assets category.

A balance sheet is an essential tool for law firms in financial decision-making. It helps in assessing the firm’s ability to meet its financial obligations, manage client funds responsibly, and plan for future growth or investments. To ensure you don’t intermingle, keep separate accounts for your business and your personal finances. For bookkeeping purposes, ensure you’re only tracking transactions that occur within your law firm’s accounts. If for any reason you make a mistake (such as depositing a personal check in your business account), make sure to track it in your books.

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Keeping client funds separate ensures the money isn’t inadvertently used for your business or personal expenses. When clients are slow to pay or don‘t pay their bills, you may find yourself unable to pay your staff or cover other overhead expenses. At least once a month, review your receivables and follow up on outstanding client invoices to keep your cash flow strong. Both general accounting and trust accounting are necessary for your firm’s success—and integrations seamlessly tie the two areas together. Poor accounting practices, such as struggling to track billable hours or sending out invoices late, can lead to money leakage.

Speaking of expenses, one of the most common mistakes attorneys make is losing track of business expenses. It’s best to capture and record your business expenses on the daily, so you don’t lose those receipts or invoices. Then, set aside a time each week to make sure they are coded properly in your books. 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.

Law Firm Accountant / Bookkeeper

In fact, some basic rules dictate how you must handle this money to ensure compliance. We recommend choosing one or the other to prevent confusion and for the most accurate overview of your firm’s finances. The key is to actively monitor things so you know when and what to adjust. If you’re missing your budgeted numbers, you can reduce expenses, delay one time purchases, increase sales through more aggressive marketing or advertising, or lower your profit expectations. When you know and monitor your numbers, you can quickly see when you’re off target and cut costs or make strategic investments to increase revenue.

You can add as many accounts to your chart of accounts as you need to prepare accurate and informative financial statements, but don’t let your chart of accounts get too unwieldy. 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. Legal bookkeepers and legal accountants work with your firm’s financials, with the shared goal of helping your firm financially grow and succeed. Accounting for law firms is often intimidating—even for seasoned lawyers. While you’ve spent years honing your skills to become a great lawyer, you didn’t learn about accounting or bookkeeping for attorneys at law school. A small business can likely do all its own bookkeeping using accounting software.

Best Legal Accounting Software for Lawyers

Of course, the line between bookkeeping and accounting can get blurred. Some accountants record financial transactions, and some bookkeepers assist with business decisions and prepare financial statements. Legal bookkeeping refers to the specialized practice of managing and recording the financial transactions of a law firm. Effective legal bookkeeping requires maintaining accurate financial records and adhering to the ethical standards of legal practice. When it comes to accounting for law firms, there’s no one “right” method (though you may be required to take on the accrual method).

Some software platforms allow you to use accrual-based books for monthly management of the firm while also creating cash-basis statements for preparing tax returns. Look into the pros and cons of both methods for your firm, then be consistent going forward to ensure your records are accurate and easy to track. For many law firms, managing legal bookkeeping in-house can be overwhelming. Outsourcing this specialized service to NorthStar Bookkeeping can bring numerous benefits.

Many of the operations are automated in the software, making it easy to get accurate debits and credits entered. Request a free assessment and talk with our Managing Director to discover how your firm benefit from Practice Alchemy’s law firm specific bookkeeping and accounting services. Let our team of legal bookkeeping experts start doing the work for you. Practice law firm bookkeeping Alchemy gives you a complete “plug and play” bookkeeping solution to manage your accounts and give you the necessary insights you need into your firm’s financials. With this guide, you’ll understand key financial concepts, financial levers affecting your business, best practices for billing and collecting money, and how to manage and outsource financial work.