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When pressed for time, it’s tempting to let recordkeeping fall by the wayside. But if your law firm bookkeeping isn’t up to date, it’s tough to stay on top of cash flow and ensure client funds are handled properly. Or maybe you’re just starting your firm and want to begin on the right foot. Either way, law firms succeed or fail on client trust, and accurate, thorough bookkeeping is essential to building a reputable, compliant, and trustworthy firm. By keeping accurate records of assets, liabilities, equity, revenue, and expenses, businesses can ensure they have the resources they need to operate and remain profitable.

Efficient Financial Decision-Making

• But rules vary by state, so consult your State Bar Association and a professional accountant before finalizing your accounting setup.
• Total assets are also required to equal total liabilities plus equity (net worth or capital) of a law firm).
• Making the jump from an attorney to running a law firm can bring a ton of new intimidating challenges.
• By doing this, your client’s records will clearly show what those funds are for in the IOLTA account.
• Assign a unique account number to each account in your chart of accounts.
• If you’re seeking a unified solution for case management and legal accounting, Clio could be the perfect fit.
• If you’re trying to handle bookkeeping on your own in addition to putting in all those billable hours, it’s easy to overlook workflow steps or make mistakes.

Most firms will need three business bank accounts at a minimum—checking, savings, and a separate IOLTA or trust account. Without the proper business bank accounts, you risk inaccurate bookkeeping, messy law firm chart of accounts records, and potential compliance violations regarding trust funds. However, manually creating a chart of accounts can present challenges.

Why Is a Chart of Accounts Important for Lawyers

Creating an accurate, detailed legal chart of accounts is an important tool to give you an accurate picture of where your firm’s financials stand. Once set up, this information can give the visibility you need to ensure your firm stays compliant with accounting and trust accounting rules. Moreover, you can use the information from your law firm’s chart of accounts to help determine key financial details about your firm—which is necessary for making data-driven decisions. Xero is ideally suited for small to medium-sized law firms, offering a flexible, feature-rich, and user-friendly accounting solution. Its cloud-based nature allows for easy access to financial data from anywhere, enabling busy law firm owners to stay on top of their finances whether they’re in the office, in court, or on the go. If your law firm doesn’t AI in Accounting already have business bank accounts, it’s time to open them.

Cash Flow and the Pulse of your firm

Poor accounting practices, such as struggling to track billable hours or sending out invoices late, can lead to money leakage. With Clio Accounting you can generate all sorts of financial reports to help you make data-driven decisions for the growth of your firm. Legal bookkeepers and legal accountants work with your firm’s financials, with the shared goal of helping your firm financially grow and succeed. Switching to LawAccounting on the Salesforce platform transformed our accounting processes. The streamlined workflows and automations have significantly reduced staff time and costs.

Client account records track the money the firm handles on behalf of its clients. Firm account records, however, track the firm’s own financial transactions and expenses (such as salaries, rent, and utilities). As detailed in our guide to QuickBooks trust accounting, you can set up an advanced client cost account in QuickBooks Online. When set up, hard costs incurred by your law firm (such as filing fees) will automatically push back into Clio. When it comes to law firm finances, knowledge is more than just power—it’s key for succeeding long term and staying compliant with ethics rules. One crucial source of financial knowledge for any firm is its law firm chart of accounts.

Accounting terms you need to know

For example, if you purchase office supplies for your business, you should have an “Office Supplies Expense” account. But you don’t want to set up separate accounts for legal pads, pens, printer ink, etc. Lawyers spend years honing their legal skills, but they often have little knowledge of accounting practices.

While most folks will use Clio, ActionStep, or another practice management software, cash flow you may choose to invoice directly out of Xero. You can personalize your invoices to reflect your law firm’s branding. You can add your logo, choose your colors, and even customize the layout. Time saved on administrative tasks can be redirected to billable work, improving profitability. Integration can automate tasks like billing, expense tracking, and financial reporting, freeing up attorneys and staff to focus on serving clients.