Trust Accounting Software for Attorneys Stay Compliant

This post was written by Kenon Thompson on January 27, 2021

The more methods of payment you have, the higher the odds are of a client working with you. If a bookkeeper performs day-to-day tasks like data entry, a legal accountant looks at the big picture. They collect, analyze, and use financial information to plan for the future. With a legal accountant, you can be certain that your firm is compliant and is set to grow.

• Make sure your bookkeeping staff knows law firm accounting procedures.
• When holding money on behalf of clients or third parties, you need a trust account — which must be separate from your personal or business bank account.
• Accountants sometimes call this the “corporate veil,” and it’s what protects owners and their assets from any legal action taken against the company.
• Working with us will free you from the tedious accounting and bookkeeping tasks that are straining your time and resources.
• You can also use this information to identify what parts of your practice are most and least successful—so you can more thoughtfully allocate resources to stimulate future growth.

From an accounting perspective, a partner with no equity in the firm is still an employee. Refundable retainers — where the client may have a refund for hours prepaid but not worked during the month — are what accountants call unearned or deferred revenue. The retainer fee goes into a CTA, and you can draw from it as the client approves invoices for services rendered. Law firms can get in trouble when they withdraw unearned funds from CTAs. The money in a CTA isn’t immediately yours — you’re called a fiduciary, requiring you to exercise the highest standard of care with your client’s funds. You can only move CTA funds into your business operating account after your client approves an invoice.

Best Law Firm Accounting and Bookkeeping Services

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. This data lets you pick and choose the best clients to work with, identify what expenses you have that might not be worth it, and make sure you handle client money appropriately. Whether you’re a solopreneur or run a firm with a hundred lawyers, knowing where every dollar is going will help you make better decisions for the firm’s health. You’ll also identify what areas of your firm (practice areas, types of clients, etc.) are most profitable.

• 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.
• Get timely and reliable financial information about your firm so you can monitor your performance and make data-driven business decisions.
• We understand what it’s like to have everything fall on your shoulders.
• For a more in-depth look into trust accounting, read this article or download our law firm accounting guide on properly managing trust accounts.
• Bookkeepers record the financial transactions and balance the financial accounts for your firm.

Whether you’re good with numbers and spreadsheets or not, every lawyer needs to understand the basic role that bookkeeping plays in their business. Which method you choose will affect cash flow, tax filing, and even how you do your bookkeeping. Make sure to consult with a CPA before settling on the method you’ll use. It’s best to work with a CPA who has experience working with law firms. Ask other attorneys you know or ask your State Bar for referrals.

My Case Software Review: Our Favorite MyCase Software Features

Law firms juggle their clients’ money more than in most industries. Accountants in law spend much of their time tracking what money the firm earned and what needs to go to clients, the courts, or third parties. Our recommendation is Bench for lawyers looking to grow their practice and spend more time on revenue-generating activities such as client development or billing. Make one mistake when recording your debits and credits, and your entire balance won’t add up.

• We can fill all those functions, giving your firm one comprehensive, cost-effective, long-term solution for your back-office needs.
• When you take funds out of your business for personal use, it can either be classified as a capital withdrawal or as a payment for salary.
• With that said, knowing how to manage your money is also a reputation builder.
• The Trust Reconciliation – the trust bank statement provides a third-party verification to the transactions posted to the trust account.
• Again, you can bill the client to reimburse you for the expenses.

With the accrual method, you record revenue when it’s earned and expenses when they’re incurred—whether they’re paid right away or not. This creates a better matching law firm bookkeeping of costs to the revenues earned in a given month or year. It allows for more meaningful financial management that isn’t influenced by the ups and downs of cash flow.

Track your tax deductions

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.

Your bar license is at stake any time your firm improperly moves client funds, even if you didn’t do it. Once you develop a bookkeeping system, business owners will want to consider working with a CPA or professional tax accountant around tax time to handle tax returns. While there are some outsourced services that offer this functionality, so far I’ve found that working with individuals and small accounting firms is better for this task. Here’s the list of tax accountants that we’ve vetted at the Biglaw Investor. The Less Accounting approach is more of a hybrid between the do-it-yourself approach and true outsourcing. For their initial plan, you can pay a monthly fee to access their software and manage your books yourself.

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This entry was posted on Wednesday, January 27th, 2021 at 2:19 am and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.