Bookkeeping for Law Firms: Complete Guide to Legal Accounting

While you’re building the technology stack for your law firm, don’t forget to ensure you have the Bookkeeping for Law Firms best document management system. Geared toward time tracking and billing, TimeSolv also includes key accounting tools. A complete legal practice management system with robust accounting capabilities. Next, you’ll withdraw money from the IOLTA account and transfer it to your firm’s account after invoicing a client and receiving their approval to pay the fees. Accrual accounting records revenues and expenses when they are earned and incurred, regardless of when the money is actually received or paid.

Better Cash Flow Management

• The WGU B.S. Accounting degree program is an affordable, online way to prepare for a rewarding career in accounting, auditing, or bookkeeping, or as a CPA.
• In addition to sophisticated law practice management and document assembly/form assembly features, LEAP provides time tracking, billing, trust accounting and financial reporting capabilities.
• While this checklist provides a comprehensive framework for law firm bookkeeping, managing every detail on your own requires expertise that you might not have.
• In this course, students will learn to differentiate between financial, cost, and managerial accounting and where these accounting types fit into the business environment.
• Cash accounting is also beneficial because you can look at your bank balance at any time to understand the amount of money available.

A critical part of the accounting process focuses on analyzing financial reports and KPIs for your law firm to uncover critical insights and make informed business decisions. Recording all revenues and expenses when they happen is much easier with accounting software as it connects to your firm’s bank account and automatically records and classifies all transactions. Even minor errors in financial records can lead to significant problems during audits and reconciliations. Having a pro do the work helps ensure financial data precision and accuracy, which can help prevent costly mistakes, potential legal and tax issues, and client dissatisfaction. You must track billable hours accurately to avoid underbilling clients and losing revenue.

Common law firm accounting errors

It is highly recommended to trial 2-3 platforms before committing to ensure the chosen solution aligns with your firm’s specific workflows and client demands. Prioritize systems that offer robust compliance management and automation for tax, payments, and expense tracking (PersistenceMarketResearch.com). The growing complexity of estate administration, including digital assets and evolving tax laws, necessitates specialized tracking capabilities. Cloud-based solutions, which dominate 68.8% of the legal case management software market in 2026 (CoherentMarketInsights.com), offer enhanced accessibility, security, and collaboration.

What’s the difference between accounting and bookkeeping?

If you’re just starting out and think you’ve set up your accounting the wrong way, talk to a professional accountant or bookkeeper with experience dealing with IOLTA. Many attorneys prefer to get paid by credit card (online or in-person), which incur their own special fees. Sometimes these fees can become hard to track, causing you to charge the wrong client’s account. To prevent misappropriating funds from other clients, remember to only charge your clients for fees directly relating to their trust account. The goal of bookkeeping is to have an accurate picture of your current financial standing. For example, you might think you have plenty of money in the bank and buy a new computer before realizing you forgot to record that check to the court reporter.

These transaction records are required for tax purposes and to ensure transparency in billing clients. These are detailed accounts for each client, tracking all financial activity related to their case. Ledgers include retainer fees paid, billable hours worked, expenses incurred on the client's behalf, and invoices sent. Finding the right bookkeeping for small law firms offers several advantages. We encourage you to learn more about other useful software for law firms.

• The course represents a view into different project-management methods and delves into topics such as project profiling and phases, constraints, building the project team, scheduling, and risk.
• Tabs3 provides essential “back-office” functionality including time, billing and accounting; PracticeMaster provides powerful “front-office” capabilities including client and matter management.
• You can add as many accounts to your chart of accounts as you need to prepare accurate and informative financial statements, but don’t let your chart of accounts get too unwieldy.
• TrustBooks is cloud-based, which means you run it from a web browser.
• Solutions that streamline services or work with each other can eliminate platform fees, training time, and headaches and help you optimize your financial processes.
• Automation can also help minimize data entry errors and ensure compliance.
• Either way, law firms succeed or fail on client trust, and accurate, thorough bookkeeping is essential to building a reputable, compliant, and trustworthy firm.

Sign up today for a 10-day free trial or schedule a free demo with MyCase. Mid-sized firms also benefit from using advanced reporting tools to track profit margins, staffing costs, and marketing ROI. These insights can help leadership allocate resources effectively and prepare for expansion or economic shifts. A well-structured accounting process becomes a strategic asset, not just an administrative task. This may sound feasible with one client, but a DIY system can quickly become difficult to manage once you gain more clients and add more lawyers to your team. Files can become difficult to find as they’re stored across different computers and places across your office.