Two core tasks of a legal bookkeeper include data entry and bank reconciliation. And while you learned the ins and outs of the legal system in law school, they didn’t teach you about accounting and bookkeeping. When an invoice is paid, you must first allocate the payment to the incurred cost. Nevertheless, many attorneys fail to separate revenue that covers incurred costs from their actual income. Failure to allocate appropriately can lead to inaccurate books, and battle compliance issues.

• Taxes, property expenses, legal dues, and payroll are typical expenses law firms must deduct from revenue to get income.
• Trust account liability almost operates like strict liability, where simply committing an act is proof enough for guilt.
• Everyone makes mistakes, including lawyers (and bookkeepers, and accountants).
• Many legal billing platforms also include case management so that you can organize matter documents and information in one place along with client billing.
• There will come a point when you need to call in professionals for legal accounting, so don’t be afraid to delegate when you need help.

If you have never seen your general ledger or don’t look at it very often, it is time to change that. Finances are one of the most critical areas of your law firm, and you should be involved with them. A standard report can tell you the first piece of information but not the second one.

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Consistently keeping up with your books will be the most important thing to keep your firm’s finances in check. However, when a firm fails to separate revenue that covers incurred costs from its actual revenue, its records will not be correct. If a firm does not separate its revenue https://dodbuzz.com/running-law-firm-bookkeeping/ from incurred costs from their actual revenue, the documents will be inaccurate. The expenses are not income, so they need to get logged separately. We recommend choosing one or the other to prevent confusion and for the most accurate overview of your firm’s finances.

It will save you a lot of time and money, not to mention, frustration. With cash accounting for law firms, revenue is recognized when cash is received and expenses are recognized when the expenses are paid. With cash accounting, accounts payable and accounts receivable are not recognized. To offset this risk, it’s important to carefully monitor cash flow with accounts receivable (AR) and accounts payable (AP), which appear on your balance sheets.

What to look for in a legal bookkeeper

Anyone wanting to run a legit business should never combine personal and business expenses. Intermingling the two makes it nearly impossible to claim your expenses, not to mention track the financial wellness of your firm. As a solo attorney, managing your books via accounting software may get you started. Yet, if you own a small firm with multiple attorneys, employees, or contractors, hiring a bookkeeper is more than worth it.

Your legal bookkeeper will be able to keep accurate records and review and update your books on a weekly or monthly basis. With that information, you can better understand your firm’s financial health and plan for the coming months. Putting time and effort into your accounting and bookkeeping will help you keep track of what money is coming in, how you’re spending it, and who it belongs to. It’ll keep you organized, ensuring you meet all of your financial obligations to your clients, your firm, your employees, and more. It would be best if you chose your legal accountant for their experience working with law firms, specifically those in your practice area and jurisdiction.