How to Best Maintain Law Office Financial Records
If you aspire to be a practicing attorney with your own law office, you need to understand what records you need to maintain. You may be an expert in the practice of the law, but you may not feel as confident in your accounting knowledge. Understanding the fundamentals and using specialized accounting software can keep your practice secure.
Accounting Systems for a Law Office
A good accounting system for any small business will include strong internal controls to monitor both revenues and expenses.
As an attorney, you need to ensure that your accounting system has strong internal controls, both fees billed and costs and expenses advanced, for clients.
Regardless of whether bills based on a specific retainer, annual retainer, contingent fee or referral fee, your fee is based on time spent on your clients’ projects. That is the reason why attorneys usually maintain detailed records to track the time spent on cases.
You can use manual or electronic systems to track your time and chargeable expenses. Client ledger cards were used to record that information before the advent of legal time and billing software. Regardless of the record-keeping method you prefer, you will usually want to record this track your time spent on client matters, along with any chargeable expenses, by the client.
From time to time, you may pay for expenses on behalf of your client for filing fees or other charges.
Most practicing attorney’s record these advanced costs are recorded into the system in a similar fashion to other accounts receivables.
Accounting software will have special journals to record a single type of frequently occurring transaction. For attorneys, the cash receipts journal will show a breakdown of (1) fees received and (2) expense reimbursements, including an allocation between regular overhead expenses paid and client costs paid.
The complexity of the cash receipts journal will vary depending on the size of the law firm, the most basic of which is just the bank statement and check copies.
Other Essential Records
In addition to the records discussed above, attorneys usually maintain at least the following:
- Appointment book: An appointment book contains records of appointments, usually in a calendar format.
- Accounts receivable journal: The accounts receivable journal shows the receivables billed but not collected.
- Individual client ledgers: These ledger accounts include a description of services rendered, charges and credits, a summary of non-billable charges and final invoices.
- Case time records: Time records are recorded for each client.
- Cases-in-progress register: This register summarizes any legal work in process and is usually organized by client's name.
- Time summary reports: Time reports can usually be sorted by the attorney or by the client and contain information such as the time, dates worked, billings and other chargeable expenses.
These are the basic books and records that most attorneys, regardless of specialty will have on file for their firms. Many lawyers use accounting software and legal practice management software to maintain their books and records in electronic formats.
NOTE: This article is intended for educational purposes only; you should consult with a tax professional to discuss any questions or issues you have with your accounting, record-keeping or income.