Law Firm Chart of Accounts and General Ledgers Made Easy

An example specific to law firms would be the sub-account of segregated liabilities. Under the heading of segregated liabilities, your chart of accounts should include pooled trust accounts and separate, interest-bearing trust accounts. Specific to law firms, a workable chart of accounts helps you keep trust funds and operating funds separate. It also allows for the organization and documentation of advanced client costs so that the firm can bill for them. For example, you must track pooled trust account balances by client, and you cannot commingle operational funds and client funds. Addressing those compliance issues requires a proper, lawyer-specific chart of accounts.

QuickBooks for Lawyers

Santander has taken a hit after a Court of Appeal ruling that some motor income statement finance commissions banks paid to car dealerships were unlawful. The legal landscape is dynamic, requiring law firms to adapt to changes in regulations, client needs, and industry trends. Regularly reviewing and updating the Chart of Accounts is crucial to ensuring alignment with the firm’s evolving financial requirements.

How to Set Up the Chart of Accounts for Law Firm Clients

Essentially, legal bookkeeping involves recording and balancing financial transactions at your firm, while accounting involves analyzing, interpreting, and summarizing that financial data. You’ll also need separate ledgers for tracking all funds in trust accounts and interest accumulated on those accounts, as per legal requirements. This is known as Interest on Lawyers Trust Accounts (IOLTA) and listed as a segregated liability. It’s essential to train your staff on how to use the chart of accounts and accounting software. This training should include how to record financial transactions, reconcile accounts, and generate reports.

Law firm chart of accounts sample

For instance, calculating total assets or expenses becomes effortless by summing up the corresponding accounts within their types.
The income statement shows your firm’s aggregate revenues and expenses over a specified timeframe.
Together, these statements show how your law firm is performing financially.
Nested under these you would find business credit card accounts, pooled trust accounts, and bank loans, among other things.
These rules mandate that client funds be kept separate from the firm’s operating accounts to prevent commingling, which can lead to severe penalties and reputational damage.
One crucial source of financial knowledge for any firm is its law firm chart of accounts.

Law firms must comply with all applicable tax regulations for their jurisdiction—such as income tax and payroll tax. Also known as double-entry accounting, this is a method of bookkeeping that uses a two-sided accounting entry where every transaction impacts at least two accounts. This article is purely information and applies specifically to U.S. practices.

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Learn more about the legal chart of accounts and view examples of formatting.
One of the easiest ways to make accounting for lawyers quicker, simpler, and more accurate is to use accounting software built for law firms.
Your firm’s various financial accounts are organized under these categories.
Lawyers, whether operating as solo practitioners or part of a law firm, must maintain a clear and organized financial structure to manage their accounts effectively.
With a comprehensive chart of accounts, law firms gain valuable insights into their financial health.

By assigning specific codes and names to various accounts, a chart of accounts enables accurate tracking. It facilitates streamlined bookkeeping, simplifies tax preparation, and ensures compliance with regulatory requirements. With a comprehensive chart of accounts, law firms gain valuable insights into their financial health. This allows them to make informed decisions, monitor profitability, and evaluate the success law firm chart of accounts of different practice areas or client engagements.

Non billable entries flow into the reporting, so you can monitor and manage them.
It’s also important to keep accurate records and track funds in general retainers.
The funds are owed to the client until they are earned by the lawyer or disbursed in some other way.
Learn more about the benefits of adopting evergreen retainers at your law firm.
Intuitive legal practice features to help large-sized firms attain peak efficiency.

Firm Management

Regular financial audits, conducted internally or by third-party auditors, verify the accuracy and completeness of these reports, enhancing financial integrity and preparing firms for regulatory scrutiny. Documenting billable hours and expenses ensures clients are appropriately charged for services rendered. Integrated legal practice management software consolidates time-tracking, billing, and accounting functions, enabling firms to provide clear, comprehensive invoices.

What is accounting for lawyers?

Once you have chosen a template, you must customize it to fit your law firm’s needs. Start by reviewing the accounts listed in the template and adding or deleting accounts as necessary. For example, you may need to add accounts for expenses related to legal research, continuing education, or office supplies. Attorneys use the application to record billable and nonbillable time and expenses. Non billable entries flow into the reporting, so you can monitor and manage them.

Key financial statements for lawyers

It’s actually really simple, employ a legal specific accounting solution that not only provides access to a wide range of legal accounts out of the box, it enforces correct use of these accounts.
In conclusion, accounting and bookkeeping are crucial for law firms to comply with regulations, foster growth, and protect their reputation.
A chart of accounts holds immense significance for any law firm, serving as a fundamental tool for effective financial management.
That way, the software’s capabilities align with law firms’ unique accounting challenges.
Instead, the credit and debit should be marked as an interest payable account.
Trust accounts must be treated carefully, and lawyers must ensure that they adhere to the regulations for their jurisdiction to stay compliant and avoid negative consequences.
As we discuss in more detail in our guide to trust accounting for law firms, it’s essential that lawyers and law firms correctly manage client funds in trust.

This helps track and review transactions, which is particularly useful during audits or when investigating discrepancies. It bookkeeping and payroll services also simplifies the generation of financial statements, saving time and ensuring accuracy. By tracking historical financial data, you can make more accurate projections for future expenses and revenue, allowing for better financial planning and resource allocation. Another resource to check is the State Bar of Georgia’s sample chart of accounts for lawyers.

For example, an error in inputting a single transaction can throw off the entire balance of the ledger, making it difficult to reconcile accounts. Each account in the general ledger also needs reconciliation with third-party reports, such as bank statements, which can be a tedious process if discrepancies arise. By creating specialized accounts within your COA, you can track performance metrics specific to your legal practice.