Law Firm Bookkeeping 101: Choosing The Best Accountant for Your Firm

Accountants work with numbers and financial details all day long. Therefore, those who do not like math, get confused easily when making simple calculations, or are generally opposed to number crunching should not apply. QuickBooks tracks every dollar coming in and going out of the firm.

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. This creates a better matching of costs to the revenues earned in a given month or year. It allows for more meaningful financial management that isn’t influenced by the ups and downs of cash flow. An accountant who specializes in accounting for law firms is beneficial.

Working with Xero allows me to act like the CFO of my own law firm.

Accrual accounting records revenues and expenses when they are earned and incurred, regardless of when the money is actually received or paid. For example, when you send an invoice to a client, you’ll mark it as revenue, even though you might not get paid for 30 days. Your business’s accounting method will affect cash flow, tax filing, and even how you do your bookkeeping.

In many cases, these programs typically suit non-law professionals. In looking at how to become a tax attorney, some people elect to pursue these degrees instead of LLMs. LLM degrees are advanced professional credentials usually pursued by learners seeking to enhance their knowledge of specific legal areas. In most cases, a candidate must already have a JD to enroll in an LLM program. The FUTA tax rate is 6%, which taxes wages up to the first $7,000 earned by the employee during the year. There are also state and sometimes municipal payroll taxes to be collected.

Accounting

Because of poor training, lack of accounting help, or differing IOLTA rules across state lines, many attorneys are unfamiliar with what they are and aren’t allowed to put into an IOLTA account. Once you’ve chosen a bank to work with, you’ll want to open a business checking account, a savings account, and an IOLTA (Interest on Lawyers Trust Account). Essentially, double-entry accounting is an excellent safeguard against errors. When using double-entry accounting, all financial transactions will get sorted into specific categories (assets, liabilities, or equity), then once sorted; the two sides should match each other. Each will work together but serve a different purpose at your firm. Whether you need just a little bit of hand holding or more, we are here to help your law practice!

But rules do vary by state, so consult your State Bar Association and a professional accountant before finalizing your accounting setup. Your bookkeeper will help you track all information that is sent in and out of your business. Hiring an accountant is so much more than just to be used when it is tax time, and you are looking to file your tax return. They also exist to help you with financial statements, forecasting, and capturing expenses. Imagine if the team at a law firm recognized the importance of being prepared for tax time and the law firm accounting throughout the year to be prepper for the end of the year.

Financial reporting to find opportunities

The advantage of hourly pay is you receive 1.5 times your average wage for hours worked more than 40 per week. In bookkeeping, extra hours are typical during the busy tax season of January to mid-April. How much you make as a first-year accountant depends mainly on the specific career path you pursue. While accounting can be a lucrative long-term career, most accountants, unlike corporate attorneys or investment bankers, do not command huge salaries during the first few years. Like many other fields, networking can help emerging tax lawyers land their first jobs.

• Whatever the reason, borrowing from an IOLTA is one of the most common ways to get disbarred.
• If proper attorney bookkeeping occurs, then the law firm can track what money is coming in and going out of your firm.
• To fix it, you have to go over each transaction to make sure it was entered into your accounting system properly.
• This is because a professional legal bookkeeper and accountant can help you manage your firm’s revenue and ensure your firm’s financial transactions are handled ethically and accurately.
• Although they share a common goal, they occur at different stages of managing your firm’s finances.

We work hand-in-hand with the law staff, and we can be that outside source that is chasing the older outstanding accounts receivable. I can’t tell you how many times I’ve heard from the law firm admin/bookkeeper that they are so happy we handle this body of work. They don’t want to contact a client they may have met in the firm face-to-face. We can help collect law firm bookkeeping and manage accounts receivable at a higher level of detail. One of our firm’s goals is to be sure that we get you to that only under the 30-day column for open and outstanding accounts receivable. Our natural progression is to let the admin know that we’re not a threat to their job, we are here to assist and support you while the books are cleaned up.