Law Firm, Accounting & Tax Advisory

With a variety of payment options, including online payments, electronic payments, and credit card payments, it’s easier for your clients to pay invoices. Plus, one-step bank reconciliation shows you exactly what’s outstanding and where you stand financially. Most law firms should start by using the cash basis accounting method. The IRS won’t require you to use the specific rules necessary to implement the accrual method until you’re making $10 million a year. The cash basis accounting method is easier and more straightforward, which will free up your time to work on building your practice. Many law firms use legal accounting software, which often comes with reports and other tools to assist you with planning for the future.

When lawyers obtain a smaller sum, they can place it into a pooled trust account. In the past, however, these pooled funds could not earn interest. According to the ABA, Interest on Lawyers’ Trust Accounts (IOLTA) offers a way to raise money for charity from the interest attorneys earn from their trust accounts.

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The intuitive platform empowers law firms to perform essential accounting functions to manage their trust accounts while remaining compliant with state bar regulations. Keeping accurate records of your law firm’s accounts is a challenging yet vital part of running a legal practice. When it comes to accounting for law firms, there’s no one “right” method (though Running Law Firm Bookkeeping: Consider the Industry Specifics in the Detailed Guide 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.

These are funds you must keep separate from your firm’s operating funds. And without proper care, it’s easy to slip up and make a dangerous error. If you’re going to make an accounting error, it’ll likely be with your trust and IOLTA accounts. Businesses are complex, and you may need to set a budget for different categories like marketing, technology, etc. With money flowing in so many different directions, it’s easy to lose track.

Key pointers for your practice

A chart of accounts is a list of all your firm’s financial accounts, usually used by an accountant and available for bookkeepers. Account numbers of the chart of accounts are structured to suit the needs of your law firm, the jurisdiction, and the practice area. Typically, there are 5 core categories consisting of assets, liabilities, owner’s equity, revenue, and expenses. To effectively manage legal accounting for law firms, it’s wise to start with a foundation that works for all aspects of running your firm. An accountant who specializes in accounting for law firms is beneficial. Your best bet is likely to hire both a legal bookkeeper and a legal accountant.

AGA member firms represent their clients all over the world and will ensure service is of a consistently high standard wherever it is needed. Now that you have an idea of what trust accounting software is, let’s dive into the key features and functionality your firm should look for when choosing a trust accounting software. Sure, FreshBooks is built for small business owners, packed with legal accounting software options. But you can also invite your accountant to get access to do general accounting tasks, gather info, and help you grow your business.

Expenses

Many of our accountants and bookkeepers have worked in finance functions in law firms, meaning they have first hand experience working for firms like yours. Our expertise in the legal sector makes Cashroom an ideal partner for your outsourced finance function. The Less Accounting approach is more of a hybrid between the do-it-yourself approach and true outsourcing.

Legal practice management software solutions that include trust accounting software allow law firms to handle firm financials and legal trust accounts with ease. CosmoLex’s legal trust accounting software was designed for trust accounts, with built-in features that ensure compliance with complex legal standards. We get it, sometimes you want to try before you commit to a new legal practice management software, especially when your firm’s legal compliance with trust accounts is on the line. That is why we offer a free 10-day trial of CosmoLex for interested law firms (with no credit card required) and schedule free demos for interested customers. Trust accounting is a form of law firm accounting that manages client funds held in trust accounts. In the legal industry, trust accounting is governed by specific compliance rules that attorneys must abide by.

Invite Your Accountant

Once your business bank accounts are up and running, you should avoid mixing your personal and business finances. While mismanaging an IOLTA account carries stiff penalties, many law schools offer little to no training when it comes to managing trust accounts. As a result, attorneys often find themselves making several common mistakes again and again. Make sure you’re clear on all of the law firm accounting obligations related to managing and growing your business.