Top 5 Legal Accounting Software for Modern Law Firms

These are two different types of transactions and need to be managed accordingly. Having a bookkeeping and accounting system in place will ensure that the payments to yourself are recorded appropriately as salary. Your bookkeeper will help you track all information that is sent in and out of your business. Hiring an accountant is so much more than just to be used when it is tax time, and you are looking to file your tax return. They also exist to help you with financial statements, forecasting, and capturing expenses. With this picture, you can see opportunities for growth and see options before less organized competitors. The Chart of Accounts is where you track transactions with your firm’s financial accounting information.

• We’ve completely automated and simplified this task on behalf of law firms.
• We recommend you reach out to a professional, like a legal accountant or bookkeeper, to assist with your business’ accounting.
• These are trained professionals who can keep you on track, ensure you’re always compliant and find ways to optimize your finances for future success.
• Clients often pay retainer fees to commit their counsel’s time to their legal matters.
• Unfortunately, that often makes filing their first tax return a headache since they must go back and sort out what belongs where.

While this primarily applies to new law firms, ensuring that the basics are determined and set up correctly is critical. Make better business decisions with the help of a real-time view of your firm’s cash flow. QuickBooks is fully customizable so you can manage retainers based on your state’s specific IOTLA programs rules.

Accounts Payable

The asset is the bank account — just like your cash account — and the liability recognizes that the bank account balance doesn’t belong to your business. The asset and liability amounts should always match, making no impact on your financial statements. Make sure your bookkeeping staff knows law firm accounting procedures. Your bar license is at stake any time your firm improperly moves client funds, even if you didn’t do it. While other CTAs earn interest for clients, IOLTAs send the interest to state-sponsored programs that fund law school scholarships and law services for the poor. Some of FreshBooks best accounting software’s features offer you real time to put back in your day.

Once you grasp these basic methods, we recommend bringing in an expert bookkeeper to help you keep the most accurate books. Hire a tax professional like a CPA to help you with your business taxes. Bring in a legal accountant to help you strategize how to help run your business through financial reports. The most common and dangerous legal accounting areas to make a mistake in are trust and IOLTA accounts.

Not asking professionals for help

Whether it means using legal accounting software to simplify and automate your accounting, hiring a professional legal accountant, or both—don’t be afraid to delegate when you need to. Accounting for law firms becomes so much easier when you work with an accounting professional from the beginning. Number two, it is extremely difficult to be objective with ourselves and to hold ourselves accountable for our budget, budget variance report and our cash flow projections. That’s why the owners of the most successful solo and small law firms have an outside chief financial officer. This officer is appointed to sit there and go over the budget, variance report, cash flow projections,and make a plan based on the accounts receivables report. Once you have someone appointed to this job, you won’t go deeper and deeper with the client month after month and they owe you tons of money.

These funds are stored in IOLTA or “interest on lawyers trust accounts” accounts. Speaking of expenses, one of the most common mistakes attorneys make is losing track of business expenses. It’s best to capture and record your business expenses on the daily, so you don’t lose those law firm bookkeeping receipts or invoices. Then, set aside a time each week to make sure they are coded properly in your books. First things first, bookkeeping and accounting aren’t the same things. Although they share a common goal, they occur at different stages of managing your firm’s finances.

PCLaw: best law firm accounting software for large companies

Say your client paid you $20,000 in advance, knowing the attorney fees will far exceed that amount. Since you have yet to earn the $20,000, you’re required to put it in a CTA. With FreshBooks there are no contracts, and you’re not locked into an agreement. If you want to cancel at any time you can – no questions asked.

Cosmolex combines legal practice management software with legal accounting software for a complete solution. It’s actually completely cloud-based, so you don’t have to install it on a computer, rather it’s accessed online through a browser. Bookkeepers record the financial transactions and balance the financial accounts for your firm. Legal bookkeeping takes place before any accounting can occur and is an important administrative task for any law firm. Without proper attorney bookkeeping, it’s impossible to track what money is coming . Reliable bookkeeping for attorneys also provides accurate financial data for legal accountants to work with. Accurate and timely time tracking is crucial to the success of your law firm, so it is also a top reason why you need the right legal accounting software.

Do lawyers need accounting?

You can even track time on the go with its mobile timekeeping app, PCLaw Go. If your law firm doesn’t already have business bank accounts, it’s time to open them. Most firms will need three business bank accounts at a minimum—checking, savings, and a separate IOLTA or trust account. Without the proper business bank accounts, you risk inaccurate bookkeeping, messy records, and potential compliance violations regarding trust funds. Committing to accounting for law firms will allow you to be better equipped to identify growth opportunities. The right legal accounting software gives your staff the tools they need to quickly and efficiently track the time they spend on client tasks. It also provides true mobility, so your attorneys can track that time whether they are sitting in their offices or having a working lunch.

• You can quickly set up a free Wave account and get started right away.
• Track money held in both trust retainers and general retainers.
• That’s challenging in any industry, but it can be especially difficult for a small law firm.
• Using this information, you can make informed decisions about the future of your business.
• And even you have an overview of what is bookkeeping and accounting, you wouldn’t know what involve when it comes to bookkeeping and accounting for law firms.

Utilizing information on financial reporting will allow you to make data-driven decisions to impact your company positively. The bookkeeping system that every entry to an account requires corresponding opposite access to a different accounting. This is a double-entry system, so there are two equal corresponding sides at all times. Double-entry accounting can create a balance sheet made of equity, liabilities, and assets. It is easy to get caught up in your practice as it is a law firm. Every business gets busy, and it is easy to get distracted by the work you are doing for your clients.

Clio: great legal accounts software if you care about scalability

And with proper legal accounting and bookkeeping, it couldn’t be easier to get a big-picture overview at a glance. Your COA will look different depending on your jurisdiction, law firm’s size, and practice area, but will always have these categories. You’re responsible for recording the receipt and disbursement of these funds and posting the transactions to the ledger accounts of clients. When a lawyer holds onto a client’s money, they store it in a trust account. While not necessary, we recommend working with a bookkeeper who has experience working with law firms. Employing a mileage tracker app can ensure that you and your employees are reimbursed for all of your business mileage. Many mileage trackers can run in the background on your phone and automatically start and stop trips based on the movement of your phone.