You save time and reduce the risk of error meeting client, firm, bar association, and law society obligations. No matter how big or small your law firm is, accurate, timely payroll is essential—but it can be time-consuming to complete manually. Legal accounting software with billing features (such as the ability to create or track invoices) or that connects with your practice management software helps simplify your workflows. Take Xero and Clio Manage, the integration lets your firm automatically connect your client invoices and expenses from your practice management software to your accounting software—streamlining the process. Most law firms opt to use cash basis accounting because it’s simple to maintain. Cash accounting makes it easy to determine when a transaction has occurred (the money is either in the bank or out of the bank) and there’s no need to track receivables or payables.
- For bookkeeping purposes, ensure you’re only tracking transactions that occur within your law firm’s accounts.
- While on-premise accounting software ties you to a physical location and requires high maintenance costs and time-consuming updates, cloud-based accounting software is accessible anywhere.
- Suppose you choose accounting software that automatically syncs payroll functionality with time-tracking and expense apps.
- In fact, some basic rules dictate how you must handle this money to ensure compliance.
- When you later earn your fee, you would debit Trust Account Liabilities and credit your revenue account.
- That’s why using the right financial management software saves time.
Though rules vary from state to state, most state Bar Association rules permit debit, credit and other electronic payment processing for law firms. For an in-depth discussion about the rise of electronic payments in the American legal profession, check out this guide to payment processing from the American Bar Association. Once you’ve determined what kinds of payments your firm will accept, you’ll then need to choose a payment provider to work with.
Accrual accounting
The types of expenses you can deduct on your tax return will depend on the expenses you incur in the course of doing business. Each of these records should be kept for a specific length of time—some for 10 years, some for as few as three. You can learn more about record retention periods in our guide to business recordkeeping. You should also keep any other documentary evidence that supports an law firm bookkeeping item of income, a deduction, or credit shown on your tax return. IOLTA accounts are tricky, because they have very specific rules around what you can and can’t do with them, and the penalties for breaking these rules can be severe, including disbarment. Having too many accounts creates headaches later on, as it takes more time to review the books and increases your chances of making mistakes.
By keeping client information organized and synced securely and easily, lawyers can have peace of mind. But the real power of using QuickBooks for lawyers rests in its integrations (like with Clio) to support the unique needs of lawyers and firms. Once you have a strategy and budget in place, the work of day-to-day management sets in. Reviewing your finances is not an annual event completed at tax time! You need to keep a pulse on your numbers to know if your business is healthy.
Attorney Bookkeeping Tips for starting a Law Practice
That involves confirming that your trust ledger, client ledgers, and trust account statement balances agree with each other. The cash basis of accounting involves recognizing revenues when you receive cash and deducting expenses when you pay them. Because it’s the easiest to implement, lawyers often prefer this method. As an attorney, you’re aware that when you receive money that belongs to a client, you must place those funds in a trust account separate from your own money. These funds are stored in IOLTA or “interest on lawyers trust accounts” accounts.