We know how important this is; our CEO, Devon Thurtle Anderson, is an attorney licensed in three states, with over 10 years of experience in complex commercial litigation and business law. We understand the challenges, and solutions, of running a law firm, because we’ve lived it. Get in touch to learn more about our virtual accounting solutions today. This software allows us to keep better track of important records without requiring our business clients to spend hours preparing and organizing documents. This bookkeeping software also allows us to separate your accounts for proper categorization, run financial reports on demand, and keep in contact with our clients at the click of a button.

Everyone from your bookkeeper to your CPA and the IRS needs you to keep documents proving the income, credits, and deductions you put on your tax return. Bookkeeping is the process of recording daily transactions in a consistent way and is a key component of building long-term financial success. Putting it off means having to catch up at the end of the year—the more stressful and time consuming approach.

Interest in Lawyers Trust Accounts (IOLTA)

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. First, let’s differentiate between accounting and bookkeeping — two terms that are often used interchangeably but really shouldn’t be.

• And a lack of professionalism can lead to losing your clients, referrals, and growth opportunities.
• Then, set aside a time each week to make sure they are coded properly in your books.
• Every business needs to have a bookkeeping and accounting process.
• 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.
• Lawyers are not accountants and they often make the same common mistakes when it comes to accounting for law firms.

Digging into the available data helps you find when did you face loss and find the reasons behind it – this will define your weaknesses. Similarly, you can find when your firm realized the maximum revenue or profit and why – giving you strong insights on where to invest in the future for growth opportunities. While you might already be having a system to prepare budgets, you need to have a strong strategy in place to prepare an effective one. Without properly differentiating these accounts, your law firm is at risk of inaccurate bookkeeping, unorganized records, and failing to meet compliance requirements.

Bookkeeping for Attorneys and Law Firms

However, if a firm fails to separate revenue that covers incurred costs from actual revenue, their records will be off. 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.

Whenever there’s a change in one category, there should be a corresponding and equal change in another in order to keep the sheet balanced. If you have a debit in one account, it follows that there will law firm bookkeeping be a credit in another account. In this system, all transactions are categorized as one or the other. In 1981, this money started being stored in an IOLTA, which is an interest-bearing account.

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Your bookkeeper goes into your accounting software regularly (at least weekly) and records all the money coming in and all the money going out so that it appears in the correct place. Interestingly, tax deductions can ease the burden when used correctly—yet not all lawyers are up-to-date on their tax deductions. Many lawyers go to one or the other extreme—they either claim everything (and possibly more than they’re allowed to), or they’re so afraid to overstep they miss out on tax deductions. 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.

You can also make a difference in your firm by creating opportunities for financial growth. When it comes to organization, getting off on the right foot should help you stay more organized now and into the future. To keep your firm on the right track, it is helpful to have a list of best practices https://www.bookstime.com/ to follow. Violating compliance regulations purposefully or through neglect can lead to significant repercussions. An example of a compliance regulation violation could be mishandling client funds. Track and code credit card transactions to the GL and ensure statements agree to GL.

Errors in data entry

If you’re trending behind, it is better to know sooner rather than later so you can react accordingly. With all the options available, we know it’s difficult to choose which software is the best choice for your firm. After all, you have to sift through the options alone, convince your partners to agree, and pray that it works as it should. When it comes to key accounting concepts, it’s really about organization.