Law Firm Accounting: The Ultimate Guide

By Nichole Naoum

Law firm accounting can be a lengthy process, widely despised by attorneys and other legal professionals who’d instead be practicing law than crunching numbers. 

However, leaving the task to an office manager or assistant can result in inconsistent, error-ridden financial records. And lawyers who take on the law firm accounting duties themselves often end up dedicating hours to non-billable administrative work

So, what’s the solution? If you haven’t explored the option of implementing accounting software for law firms, you could potentially be missing out on making your practice more efficient, competitive, and profitable in the long run.

What is Law Firm Accounting?

Improve your law firm's accounting systems with Case Management Software. Visit MyCase.com to learn more.

 

Nearly every industry requires a seasoned accountant who can handle all of the financial aspects of running a business—and law firms are no exception.

But legal accounting involves more than simply preparing tax returns and complying with relevant ethical and regulatory guidelines. 

Law firm accounting is advanced and specialized, requiring reporting expertise and robust software to streamline it. And contrary to popular belief, the responsibility and penalties for proper/improper legal accounting fall squarely on law firms, not the accountant.

It’s also important to note the differences between accounting and bookkeeping–two terms generally used interchangeably—although they shouldn’t be.

Accounting Vs. Bookkeeping

A legal accountant and bookkeeper typically work towards the same goal–they both want to track your firm’s financial performance and ensure that information is up-to-date and accurate. But, they support your business in different stages of the financial cycle.

Accounting for Law Firms

Law firm accounting is fairly subjective compared to law firm bookkeeping. A critical part of the legal accounting process focuses on analyzing financial reports to uncover critical insights and  make informed business decisions. This allows you to determine which cases are the most profitable, which ones drain the most resources, and where money is being spent but not made.

Other legal accounting tasks include:

  • Capturing expenses that weren’t recorded initially and modifying entries accordingly
  • Planning for tax liabilities
  • Completing tax returns
Bookkeeping for Law Firms

Law firm bookkeeping is a more traditional version of accounting, which essentially lays the groundwork for incoming and outgoing cash flow. Bookkeepers summarize and organize all the firm’s financial transactions chronologically in a systematic manner, which requires careful attention to detail and involves:

  • Recording each financial transaction that occurs (including posting debit and credit transactions)
  • Creating and sending invoices
  • Running payroll for your staff
  • Balancing financial accounts

Accounting for Law Firms Best Practices

Improve your law firm accounting with case management software. Visit MyCase.com today to learn more!

 

Regardless of the size of your law firm, it’s essential to understand the best practices of accounting and bookkeeping to ensure that your business is on the right track. After all, a minor accounting error could result in significant reputational damage, hindering future growth opportunities and client referrals.

Below are a few ways to improve your finances and simplify your law firm tax accounting efforts.

  • Stay on top of trust accounting
  • Perform three-way reconciliations every 30 to 90 days
  • Set a realistic budget for your law firm
  • Stay compliant with ethics regulations 
  • Streamline time and mileage tracking

Why is Accounting for Law Firms Important?

Accounting is a world of numbers, and, for law practices, it helps efficiently manage the money flowing in and out of business. 

Unfortunately, far too many firms utilize outdated and ineffective tools to perform their accounting functions. This could be putting your firm at a significant disadvantage as inadequate software can lead to excessive billing process errors and inaccurate time tracking.

How MyCase Accounting Software Can Help

In most cases, law practice management software doesn’t include an accounting element specialized for law firms.  This leaves you with the purchase of additional non-legal accounting software. As a result, you’re left with multiple platforms and an accounting system that is not tailored specifically for law firms. 

Solutions without built-in, specialized law firm accounting features require a high degree of customization and can only be used by someone highly trained. And frequently, the required customization can make the software cumbersome and more difficult to use. 

MyCase, on the other hand, offers an all-in-one law practice management solution designed to ensure all critical accounting information is current, compliant, and audit-ready. With an all-contained law firm bookkeeping and accounting system, users can enjoy having all their financial data in one place—reducing the risk of critical errors. 

Benefits of using MyCase for your Law Firm Accounting Needs

There are many advantages of using MyCase to fulfill your law firm accounting and law firm bookkeeping needs, which include: 

  • Three-way trust reconciliation that enables you to stay in compliance with bar regulations.
  • Increased accuracy and peace of mind by housing all financial data (billing, payments, expenses, banking) in one location. 
  • The elimination of duplicated data entry or the hassle of reconciling accounts. 
  • Transparency with insights for viewing your financial data, banking transactions, and case information side-by-side, and a clear understanding of your firm’s overall health and outlook.
  • A user-friendly setup with simple accounting enablement and data migration 

If you’re not already taking advantage of accounting software for law firms, there’s no time like the present to get started. Your clients and your firm’s bottom line will thank you!

Get started with MyCase Accounting today. 

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