Law Firm Bookkeeping with Essential Tips for Clio Users

Remember that your trust account is your client’s money, not yours. Here are five common law firm accounting obstacles and mistakes you should be aware of so you can avoid them. Accrual accounting gives you an idea of what income and expenses you have during a period of time, but doesn’t give a good picture of your actual cash flow. And with proper legal accounting and bookkeeping, it couldn’t be easier to get a big-picture overview at a glance. As a business owner, you’re required to keep your law firm compliant. You must follow the ethics regulations governing law firms in your area.

• It pays to have an effective system that will prevent this from occurring.
• Total assets are also required to equal total liabilities plus equity (net worth or capital) of a law firm).
• Interest is transferred from the account and used for social justice programs, such as legal aid services.
• Refundable retainers — where the client may have a refund for hours prepaid but not worked during the month — are what accountants call unearned or deferred revenue.
• We’ll dive more into the specifics of why you need a CPA later on in this piece, but trust us when we say hiring one will make your life much easier.

PCLaw is an all-in-one accounting software for law firm use, suitable for large companies with more advanced needs. Built by LexisNexis, it integrates seamlessly with other LexisNexis products. It comes with a good deal of features to help you manage matters, track time, pay vendors, accept online payments, and manage trust accounts.

Organize Your Finances with Ease

With the matter management features, you’ll be able to manage items and events related to matters, including expense cards, trust transactions, and time cards. Other features law firm bookkeeping include balance sheets, accounts receivable and payable, and general ledger tools. You can also set up payment reminders, recurring invoices, and auto credit card charges.

Data entry errors lead to wasted time, as you comb through records to figure out what the error is, as well as billing complications and compliance violations in the worst cases. Not all income is revenue — this is a distinction that needs to be made or you could have to deal with inaccurate bookkeeping. And with one error comes many more, so it’s crucial to keep things organized. But every payment provider has a different fee structure (for example, credit card payments often come with a fee) so look into that beforehand.

How to Choose the Right Law Firm Accounting Software

Here are some reasons why accounting is key to your firm’s success. If you want your firm to be financially healthy and thrive well into the future, you need to pay attention to your finances. At a glance, the COA should communicate all the financial transactions that your firm engaged in during a specific period. It’s broken down into categories and contains a name and description for ease of use. While you don’t need to familiarize yourself with an accounting encyclopedia, it will pay off to learn some common terms.

FreshBooks accounting software offers online billing and payment options to get you paid faster. In many law firms, one employee handles all the bookkeeping and other back-office functions, leaving the company vulnerable during instances of illness, sick leave, or vacation. Monthly fees such as fees in lieu of minimum balance, federal deposit insurance fees, per-check and per-deposit charges, and sweep fees may be charged by the bank against interest earned. If the bank does not waive monthly and other fees in excess of interest or dividends earned on an account, those expenses may be charged to the attorney. In that case, the State Bar’s taxpayer identification number will be removed from the account, and the attorney will be responsible for all fees and charges incurred to maintain the account. Client funds that can earn revenue for the client in excess of the costs to hold those accounts must be deposited for the benefit of the client.

IRVINE BOOKKEEPING

The credit card service fees can’t come out of the trust account because they’re the law firm’s fees to pay, not the client’s. But the client’s payment can’t initially be deposited in the law firm’s operating account. Interest on Lawyer Trust Accounts, also known as IOLTA accounts, are bank accounts used to hold client retainers, settlement funds, and other money that belongs to clients. By tracking their finances accurately, law firms are able to make more strategic decisions that lead to long-term success. Bookkeeping is critical for any business, but especially so for law firms. Poor bookkeeping can lead to cash flow problems and even money leakage.

This is the most common type of trust account used in a law office. It is also called “pooled” trust account or operating trust account. There are specific rules regarding opening or closing a mixed trust account. The interest earned on these bank accounts is remitted to The Law Foundation of Ontario. You should deposit any trust money you receive by the end of next banking day.