Georgia Firm Fights for $35 Million Conservation Easement Credit

The terms bookkeeping and accounting can sometimes be used interchangeably. Legal bookkeepers and legal accountants work with your firm’s financials with the shared goal of helping your firm financially grow and succeed. Accrual accounting records revenues and expenses when earned and incurred, regardless of when the money is received or paid. For example, when you send an invoice to a client, you’ll mark it as revenue, even though you might not get paid for 30 days.

Operational Aspects of Law Firm Accounting

Additionally, the total debits recorded must equal the total credits recorded. Total assets are also required to equal total liabilities plus equity (net worth or capital) of a law firm). People tend to use the terms bookkeeping and accounting interchangeably, but bookkeeping is actually just the first step in the accounting process. It involves recording and classifying financial transactions, preparing bank reconciliation, and tracking all income and expenses. Cash accounting recognizes revenues when cash is received, as well as expenses when paid.

• Because of poor training, lack of accounting help, or differing IOLTA rules across state lines, many attorneys are unfamiliar with what they are and aren’t allowed to put into an IOLTA account.
• Deciding between the two methods will depend on a law firm’s specific needs, size, and reporting requirements.
• Cloud services like FreshBooks let you set up recurring invoices and record project expenses while also letting your clients pay outstanding invoices online using their credit card.
• Legal bookkeepers and legal accountants work with your firm’s financials, with the shared goal of helping your firm financially grow and succeed.
• However, if a firm fails to separate revenue that covers incurred costs from actual revenue, their records will be off.

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Every state has an IOLTA program, and it’s likely that the bank where you opened your regular business checking account also offers IOLTA accounts. But rules vary by state, so consult your State Bar Association and a professional accountant before finalizing your accounting setup. If you’re not sure what tax deductions you should be watching for, our post covering the top tax deductions for lawyers and law firms is a good place to start. Both general accounting and trust accounting are necessary for your firm’s success—and integrations seamlessly tie the two areas together.

Three-way Reconciliation

In fact, some basic rules dictate how you must handle this money to ensure compliance. For example, if you’re expensing a meal, you might record who you were with and what you discussed. After all, if the IRS audits you (shudder), you’ll want these records to prove your expenses were for business purposes.

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It’s an interest-bearing account that offers a higher yield than traditional business savings accounts (interest rates for money market accounts sit at an average of 0.11% nationally). You’ll be required to maintain a higher minimum amount in the account, and have limited law firm bookkeeping check-writing options. Instead of debiting cash and crediting income, you should debit the IOLTA account with a corresponding credit to Trust Account Liabilities. When you later earn your fee, you would debit Trust Account Liabilities and credit your revenue account.

Never record a trust deposit as income

Help you process and send invoices, process your accounts payable, and run your payroll. Your bookkeeper can also run routine financial reports for you, including the income statement and balance sheet described in Chapter 1. Once your business bank accounts are up and running, you should avoid mixing your personal and business finances. You can’t, for example, pay for your firm’s operating expenses directly out of an IOLTA account.

Mastering the Ledger: The Crucial Role of Effective Bookkeeping for Law Firms

Best Law Firm Accounting Software