Any funds that go into a CTA are a liability on your balance sheet because it’s money you’re holding but didn’t earn. Law firms can get in trouble when they withdraw unearned funds from CTAs. The money in a CTA isn’t immediately yours — you’re called a fiduciary, requiring you to exercise the highest standard of care with your client’s funds. You can only move CTA funds into your business operating account after your client approves an invoice.

• If everything is jumbled into one account, come tax time, you or your CPA will have to go through your bank records to figure out which expenses are related to your business.
• You should never, ever borrow money from your IOLTA before you’ve earned those fees.
• LeanLaw was built specifically with QuickBooks integration in mind.
• Xero is substantially cheaper than Quickbooks, so it might make sense if you’re just getting started.

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 https://www.bookstime.com/ around the world love it, too. LeanLaw is a best of class integration with QuickBooks Online. It supports classing, LEDES invoicing, expense invoicing and legal trust accounting.

Set and stick to a budget

Law firms will hire legal accountants to prepare financial statements, provide financial forecasting, and capture expenses to give your business a clearer picture. Recording financial transactions and balancing financial accounts for a law firm law firm bookkeeping is done by bookkeeping. Before any accounting, there needs to be legal bookkeeping performed as an administrative task for all law firms. However, every law firm owner needs to know what bookkeeping and legal accounting are for their business.

• It’s important to adhere to best practices, or you may accidentally commingle funds and put your firm at risk.
• No more wondering if your reports were produced before or after a data sync.
• Fortunately, you usually don’t have to hire a full-time accountant for your law firm.
• Cash accounting makes it easy to determine when a transaction has occurred and there’s no need to track receivables or payables.

Once you’ve chosen a bank to work with, you’ll want to open a business checking account, a savings account, and an IOLTA . Whether you’re a small law firm or large, follow the steps in this guide, and get on the path to financial clarity and success. In fact, some basic rules dictate how you must handle this money to ensure compliance. In the cash method, you record transactions as the cash is exchanged, regardless of when the transaction takes place. In the accrual method, you record a transaction when it actually occurs.

Legal News for Lawyers

Daily bookkeeping gives you better information about the financial state of your law firm, while monthly bookkeeping will keep you guessing. Some states oblige law firms to use IOLTAs in certain situations, so check with your state bar association for rules for your firm. There are four subscription levels which means that you can start small and upgrade to a higher plan as your business grows. In addition, Clio integrates with a good deal of third-party apps, including QuickBooks Online and Xero. It has a neat Accounting Export feature that lets you export time entries to other accounting software. We have experience with several other practice or matter management systems.