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 legal professionals who take on the lawyer 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.
In this law firm accounting guide, we’ll cover:
- A brief overview of lawyer accounting
- The difference between accounting and bookkeeping for law firms
- How law firm accounting software can help you easily manage accounting tasks, while boosting productivity and maintaining compliance
What is Law Firm Accounting?
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 lawyer accounting involves more than simply preparing tax returns and complying with relevant ethical and regulatory guidelines.
Accounting for law firms 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.
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Unfortunately, far too many firms utilize outdated and ineffective tools to perform their accounting functions.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 law firm accounting software can lead to excessive billing process errors and inaccurate time tracking.
Accounting Vs. Bookkeeping for Law Firms
A law firm 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 and KPIs 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.
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
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. 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
How Law Firm 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 a highly trained law firm accountant. And frequently, the required customization can make the software cumbersome and more difficult to use.
Law firm accounting software like MyCase, offers law practice management and accounting features in a single package, so 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, including:
1. Easy Three-Way Trust Reconciliation Management
MyCase three-way trust reconciliation tools enable you to stay in compliance with bar regulations.
2. Housing all Financial Data in One Location
MyCase helps increase accuracy and peace of mind by providing you with all financial data (billing, payments, expenses, banking) under a single platform. You can also sync QuickBooks Online with MyCase, which further helps eliminate duplicated data entry or the hassle of reconciling accounts.
3. Full Transparency
View your financial data, banking transactions, and case information side-by-side, and gain a clear understanding of your firm’s overall health and outlook.
4. Full Support
MyCase provides a user-friendly setup with simple accounting enablement and data migration
If you’re not already taking advantage of law firm accounting software, there’s no time like the present to get started. Your clients and your firm’s bottom line will thank you!
You can try MyCase today risk-free with a 10-day free trial, which includes access to MyCase Accounting. We offer affordable monthly and yearly subscriptions. Plus, no commitment or credit card is required, and you can cancel anytime.