If you choose to use PCLaw for your law firm accounting software, you will want to partner with an accountant or bookkeeper who is well-versed in the system. PCLaw’s certified partner program can help with this, or you can choose to have a member of your team become a PCLaw Power User. Clio is a complete practice management software option for law firms of all sizes. It comes highly recommended by more than 50 bar associations across the U.S., and law societies around the world love it, too.
Each aspect of law firm accounting is explained understandably and concisely. Conversely, cash basis accounting recognizes revenue when you’re paid (i.e., when the cash is received) and expenses when they’re paid. The tax implications of this method also allow your firm to pay tax on income once it’s received and in the bank. 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.
Related: Building Out Your Law Firm Tech Toolbox
Industry specific accounting software is always the way to go and attorney-specific software actually does exist. More errors occur with trust accounting than any other area of accounting for law firms. In fact, trust accounts are a unique law firm bookkeeping component of legal accounting. Law firms must follow certain legal industry regulations based on their jurisdiction. A bank account allows tracking all incoming and outgoing funds, which is necessary for accurate record-keeping.
In this article, we’ve covered the best law firm accounting software packages. In addition to accounting, your law firm likely needs other software. We encourage you to learn more about other useful software for law firms. CosmoLex includes client and matter management, time, billing, business accounting and trust/IOLTA accounting, thereby eliminating the need for QuickBooks or other accounting software.
Best Law Firm Accounting and Bookkeeping Services
Learn more about the legal chart of accounts and view examples of formatting. Dropbox was the first, and is possibly the most well-known basic cloud storage solution. Having a Virtual Law Firm gives way to better flexibility, cost-effectiveness, and overall happiness of both your firm and your clients. MyCase is less robust than competitors and a better fit for small firms without complex accounting and reporting needs. Amicus Attorney and AbacusLaw are downloadable software you can use on local servers or through a private cloud for easy access and sharing that’s still secure.
The most common mistakes are putting funds in the wrong account, accidentally or intentionally withdrawing funds, fail to report monthly, and so on. Poor management of trust accounts can lead to penalties, suspension, or even losing the right to practice law. A trust account is a special bank account where client funds are kept safe and in a separate account from law firm operating funds. While you spend many years honing your expertise and experience to become a professional attorney and run your law firm, you didn’t learn about bookkeeping and accounting for law firms.
Invoicing & Accounting Features Designed for Your Law Firm
Importantly, you can determine your practice’s progress at any time when you have accurate financial statements. Also, you will find it much easier to work with bookkeepers, partners, colleagues, and accountants. Bookkeeping for lawyers will always involve using and managing a general ledger. A general ledger is a complete record of a law firm’s financial transactions, separated into transaction types, including assets, liabilities, revenues, expenses, and owner’s equity. This data is required to create accurate, defendable financial statements. The general ledger will also be the basis for your double-entry bookkeeping system.
Bookkeeping is the process of tracking the cash coming into and out of your business, and it’s the foundation for proper legal accounting. Typical bookkeeping tasks are (1) recording financial transactions, (2) creating and sending invoices, and (3) running payroll. When it comes to accounting for law firms, there’s no one “right” method (though you may be required to take on the accrual method).
Types of Law Firm Accounting Software
Online payment services are more than just cloud software for law firms, they are a service that provides payment clearing, authorization and other financial tools to help manage your practice. Financial reporting is a critical component of accounting and bookkeeping for personal injury law firms. This includes creating monthly or quarterly financial statements, such as a balance sheet, income statement, and cash flow statement. It is important to ensure that all financial statements are accurate and up to date. In other industries, it is allowed to keep clients’ prepayments in your operating account and use the money to fund client projects.
- You can understand the financial health of your practice through the income statement (together with the balance sheet and cash flow statement).
- Bookkeeping is an administrative task that involves recording all of the law firm’s business transactions and reconciling and balancing the firm’s financial accounts.
- You can use manual or electronic systems to track your time and chargeable expenses.
- Track status, send reminders, and have payments matched to invoices for you.
- Legal accountants look at the bigger picture, using the data your bookkeeper provides to determine how your firm can improve its financial health.
It includes lightweight practice management (clients, cases and calendars), coupled with robust time tracking, billing and accounting (including robust financial reporting). While PCLaw is thought of as law practice management software, accounting is deeply embedded into the product. One of the most important decisions your law practice will make is deciding on your firm’s financial structure and management style. This decision will affect how you accept payments, manage trust accounts, and the accounting practices you will use to reduce your taxes and costs. Not only will properly setting up your finances make it easier to file your taxes, but it will also save you money, time, and stress.