Being familiar with this concept gives you an understanding of how a balance sheet should look and can help safeguard against errors. If you have a debit in one account, it follows that there will be a credit in another account. In this system, all transactions are categorized as one or the other.
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 receipts or invoices. Then, set aside a time each week to make sure they are coded properly in your books. A bookkeeper keeps the day-to-day data accurate and updated.
Trust Accounting 101 for Law Firms
Some software platforms allow you to use accrual-based books for monthly management of the firm while also creating cash-basis statements for preparing tax returns. Look into the pros and cons of both methods for your firm, then be consistent going forward to ensure your records are accurate and easy to track. Committing to accounting for law firms will allow you to be better equipped to identify growth opportunities. Accounting and bookkeeping happen at different stages while managing your small law firm’s finances. Bookkeeping is the process of tracking the cash coming into and out of your business, and it’s the foundation for proper legal accounting.
Accrual accounting gives you an idea of what income and expenses you have during a period of time, but doesn’t give a good picture of your actual cash flow. It’s not as dire as comingling your business and trust accounts, but it’s a slippery slope toward unorganized accounting. If your data isn’t kept up to date, then your legal law firm bookkeeping accountant won’t be able to do their job as effectively. Every lawyer that manages trust accounts should know what three-way reconciliation means. A fundamental concept in accounting and bookkeeping, double-entry accounting states that all financial transactions have equal and opposite effects in two different accounts.
Will you require catch-up bookkeeping services?
Interest on Lawyer Trust Accounts, also known as IOLTA accounts, are bank accounts used to hold client retainers, settlement funds, and other money that belongs to clients. 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.
However, if a firm fails to separate revenue that covers incurred costs from actual revenue, their records will be off. Bench offers some valuable premium services, such as income tax filing, and add-ons, and it falls on the lower end of the pricing spectrum for online bookkeeping services. Bench uses its own accounting product, however, and doesn’t integrate with popular accounting software, which could make for a trickier software transition down the line if you outgrow Bench. When you work with Ignite Spot Accounting, you’ll get bookkeepers certified in a variety of popular programs, such as QuickBooks and TSheets. If you choose its chief financial officer (CFO) services, your CFO will be a certified public accountant (CPA) at a minimum. Its features include automation of tasks, Gusto payroll processing, balance sheet production, income statements, accuracy checks and transaction databases.