Bookkeeping in Law Firms

What is Bookkeeping

Bookkeeper and Booking – In-house, outsourced or technology

Why Law Firm needs a Book keeper

• Law firms and lawyers can focus their time on billable activities like managing cases and clients, and business development tasks like networking, administration, accounting, etc. As law firm’s business expands, it can become difficult for law firms to manage more advanced financial tasks, as bookkeeping is something that is entirely different from legal processes
• Billable activities must be tracked, and Invoices generated on time for the firm to get paid. Bookkeepers can confirm that activities are accounted for all the fee earners
• Calculating taxes and GST for activities and disbursements cannot be managed by Lawyers
• Understanding of office account and client account to avoid any compliance issues
• Tracking money flow is important, but it is time-consuming and involves accounting skills and intensive labor
• Cash flow complications may usually arise if business finances and personal finances are spent from the same bank account leading to a difficult bookkeeping process
• Irregular Financial Reports or generating financial statements delayed could result in the negative credibility of law firm’s business
• Payroll management is an important task in bookkeeping and the one who does that cannot afford to make mistakes
• Keeping track of receipts and maintaining them methodically is yet another significant challenge faced by law firms
• Bank accounts must be reconciled every month and financial metrics to be made available
• Reading the reports thoroughly, understanding the financial data and interpreting the data based on comparison of financial reports with the income statements / balance sheets can be tedious and confusing

The basic four principles of law firm BookKeeping

Tracking Every Activity

Tracking client billable activities with least effort is imperative. Law firms can employ a proper system for tracking the hours devoted to clients, billing them for those hours, and keeping track of their payments when being received. The main point is to be accurate in tracking and simply not to let anything slip through. Approvals can be in place for Invoices before presented to the client for payment

Tracking Every Expense

Disbursements must be recorded by secretary, and receipts must be attached to the vouchers. Law firms can implement expense workflow process based on their SOP and requirements. Hard and soft expenses must be tracked and reported correctly

Recording in Ledgers

Bookkeeping ledgers hold financial accounts and transactions. Each page of this ledger represents one account from the Chart of Accounts. The ledger must provide the transaction history and current balance in each account, throughout the accounting period. Thereby, ledger provides a summary of income and expenses, on a regular basis and serve as the authoritative source of data for a firm’s financial accounting reports.

Assessing the Profit/Loss Reports

Once the transactions are entered in the ledger and financial reports prepared, the law firm can assess the financial status and health of law firm’s business. The primary rule is that every debit must have an equal credit and all the accounts must get balanced. With all the gathered data on income and expenses of law firms, analysis should be carried out that actually shows what profit/loss the law firm has gained.

Tasks of Book Keepers