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A Foolproof Guide to 8 Common Law Firm Bookkeeping Mistakes

Updated: Dec 29, 2022

Bookkeeping is essential for every law firm, even if it brings back unpleasant memories of "math classes" in school. You can make informed business decisions based on a clear picture of your firm's performance with proper law firm bookkeeping. Many lawyers make the same common diy bookkeeping mistakes when it comes to legal accounting. Mistakes that will make your accounting harder than it needs to be. However, a few small changes in how you handle your law firm bookkeeping can simplify your entire experience. In this article, you probably find some way to make no more mistakes. Also, we will let you know some tips to find the most ideal professional support from a law bookkeeping service (in case you needed).

If you are a lawyer, you may have already attempted to maintain accounting for law firms without proper oversight. If that's the case, you've probably been forced to admit that you cannot do it. Law firm bookkeeping can snowball quickly, just like dishwashing. A daily process of washing dishes keeps your home clean. But wait a week... a month...or even a year... what you have is a huge mess.

It is essential that you keep your books in good order even if your firm has many other responsibilities. Even seasoned attorneys might be intimidated by law firm accounting and legal bookkeeping even after years of studying and honing their skills to become the best lawyers they can be. Help from the right people and the right technology will come in handy then.

Our Irvine Bookkeeping Services will let’s start with the basics, shall we?

The Difference Between Law Firm Bookkeeping & Accounting

To begin with, we'd like to differentiate between two terms that can sometimes be used interchangeably but shouldn't-bookkeeping and accounting.

Accounting and legal bookkeeping professionals work together to assist your law firm with its financial functions. Regardless of what they do (and when) with that data, they do it differently. Each one of them plays a particular role at your firm. So, the answer is: bookkeeping and accounting aren’t the same things.


  • Bookkeeping happens first and relates to the administrative side of tracking your cash

  • Recording the financial transactions and balance the financial accounts for your firm

  • Creating and sending invoices

  • Running payroll for your team

➨ It's impossible to track how much your firm makes (and loses) without proper attorney bookkeeping. Having a growing firm compromised by this issue is not good for business. Accurate financial data for legal accountants is also provided by reliable law firm bookkeeping. That's why bookkeeping requires you to be accurate, diligent, and display attention to detail. So we need to avoid accounting and bookkeeping mistake


  • Accountants analyze, interpret, and summarize financial data

  • Recognizing and adjusting entries that weren't originally accounted for

  • Preparing financial statements and other reporting tools

  • Planning for tax liabilities

  • Completing tax returns

➨A legal accountant prepares financial statements, provides financial forecasting and captures expenses for law firms.

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Keeping a Law Firm Chart of Accounts

First off, what is a chart of accounts? In short, it’s an index of all the financial accounts in your company’s general ledger. It allows you to break down all your business's transactions during a specific period into different subcategories.

By creating a simple bookkeeping procedure, you can effectively manage your finances. Don't worry if you're not sure how to get started. The first thing you should do is create a Chart of Accounts, the framework for organizing data such as:

  • Revenues

  • Expenses

  • Client expenses

  • Trust accounts

This financial statement is an index of your firm’s financial accounts, all in one place.

The Chart of Accounts typically includes five main categories: assets, liabilities, owner’s equity, revenue, and expenses, plus many subcategories depending on your business. Using a Law Firm Chart of Accounts, bookkeepers ensure that financial data goes into the correct accounts for reconciling them.

8 Common Law Bookkeeping Mistakes & How to Avoid Them

mistake law accounting - diy bookkeeping mistakes

Diy bookkeeping mistakes can lead to problems with your business, income tax, and licensing. Fortunately, these errors can easily be avoided. Let's go through it together.

1. Expenses From Both Business And Personal Accounts Combined

You're more likely to have intermingled accounts when you don't separate business from personal accounts or when you do not keep proper records documenting transactions between personal and business accounts. You can experience many unintended consequences when using your personal checking account for business finances. You should never combine business and personal expenses when running a legitimate business. IRS also "frowns upon" it.

Keep your business and personal finances separate in order to prevent commingling. To keep your books up-to-date, make sure you are tracking only the transactions associated with your firm's accounts. Keep track of any diy bookkeeping mistakes (like depositing a personal check in your business account) in your books.

2. A Lack of Tracking of Business Expenses

Attorneys often lose track of business expenses, which is one of the most common mistakes they commit. Your business expenses should be logged on a daily basis so that your receipts and invoices don't get lost. Afterward, each week spend some time in your books ensuring that they are coded properly.

business expense

Additionally, keeping detailed records of each expense is a great idea. For instance, if you're eating out, you may record whom you're with and what you discussed. It's probably best to keep these records anyway, just in case you need to prove your expenses were related to your business.

3. Not Seeking Professional Help

As with any other part of your business, bookkeeping demands dedication and attention. It's tough to have your shoulders burdened with everything. Thus, there is an increasing need to hire a professional bookkeeper for a law firm or law firm bookkeeping services eventually in order to ensure everything runs smoothly.

law firm bookkeeping service

4. Procrastinating

Keeping track of your finances should not be put off until right before tax season. The reality is that you cannot wait even a week to enter your transactions. Keeping track of your finances at least weekly is a good idea.

Schedule it now. In fact, it is that crucial. It will save you hours of frustration trying to catch up if you take a few minutes every week.

5. Errors Made During Data Entry

Have you ever struggled to balance your checkbook, only to realize you are somewhere? One number diy bookkeeping mistakes in your law firm can huge problem. Unintentional money loss is often caused by human error in entering data. Because of this, it is important to double-check your entries.

The only way to accomplish it is to not procrastinate. Each day, take a few minutes to enter your numbers and make sure your work is accurate.

6. Losing Track of Transactions

A bookkeeper's main responsibility is to keep you informed about your financial standing. You can incur costs if you miss transactions. Your taxes could be affected if you lose track of crucial transactions.

Every transaction, no matter how small, should be recorded and a receipt should be obtained. It's important for you to maintain records of everything, even the smallest business expenses, in case you're audited by the IRS.

Automating some of the processes with accounting software can help you avoid these types of situations. Tracking invoices or recurring expenses is a good example. Record your firm's transactions on a daily basis, too.

7. Confusing Owner’s Pay & Draws

Drawings in accounting terms represent withdrawals taken by the owner. As such, it will impact the company’s financial statement by showing a decrease in the assets equivalent to the amount that is withdrawn.

owner pay

Taking money out of your business for personal use is called a draw. Owner’s pay refers to paying yourself a salary directly from your business. Using both can result in confusing transactions that are difficult to manage. Our recommended practice is for attorneys to pay themselves from their business a fair salary. Your firm's finances and your own will benefit from it.

8. Fumbling Cash Reconciliation & Accrual Statements

In law firm accounting, two types of methods exist the cash method and the accrual method. With the cash method, transactions are recorded as soon as the cash is exchanged, regardless of when they happen. Accounting records a transaction when it actually takes place.

You should choose either one or the other to avoid confusion and to provide an accurate financial picture of your business.

IOLTA (Trust) Bookkeeping

If you're an attorney, you know that you must place the client's money in a separate account from your own when you claim their money. A lawyer's trust funds are held in IOLTA accounts. We already have an article to discuss IOLTA. If you want to have detailed information about IOLTA, please read our previous article: What Is An IOLTA Account? The difference between IOLTA and Attorney Trust.

IOLTA accounts don't have to be complicated. A few basic rules show the way you must handle this money to ensure compliance.

  1. Is the balance in your IOLTA trust bank account the same as the balance in your IOLTA trust liability account?

  2. What is the detailed ledger for each client's trust balance, showing each inflow and outflow transaction?

  3. Last but not least, does the total amount reflected on each client's IOLTA trust account balance in your firm's books equal the amount reflected in your IOLTA bank account?

To ensure your firm doesn't run afoul of these rules, make sure you keep track of client funds every day.

Integration of Bookkeeping and Practice Management Software

Is practice management software used in your practice? There's no reason not to. There are some bookkeeping tools that integrate with practice management software, such as QuickBooks and Xero, so you can track your client information, invoices, and more. If you are using more than one tool, make sure the two integrate well or use all-in-one software for both.


Considering hiring a law firm bookkeeper is another option you should consider. If you pay close attention to detail, you may be able to do it all yourself, but "an extra pair of eyes" could be helpful. The other benefit of delegating bookkeeping tasks is that you make sure nothing gets missed as the owner of a law firm juggles all the other things you need to do every day.




Law Firm Bookkeeping Service

law firm bookkeeper

Here are a couple of things to keep in mind if you are planning to hire professional help. There is no one size fits all approach, and how you move forward is unique to your firm.

Here are some questions for you to answer:

  1. What's the best option: hiring an employee or paying a contractor?

  2. What technology and procedures will they use, and what will you use?

  3. What tasks does your bookkeeper handle and how often will they do them? (if you still wondering about what bookkeepers do, let read this article to figure out the answer: What does a bookkeeper do?)

  4. What are the ways to avoid fraud?

  5. What are your expectations regarding the management of IOLTA accounting by your bookkeeper?

  6. How to Hire the Right Bookkeeper

  7. What is the best way to make sure your law firm bookkeeper is a good fit? What are your options?

If you are wondering about how to find an ideal law firm bookkeeping service, our recommendations are:

  1. It's good to trust those around you, including colleagues, friends, and family. Wouldn't it be great if they could refer you to someone? It is fine to ask social media to cast a bigger net.

  2. It isn't necessary to hire an attorney's bookkeeper inside your office to provide bookkeeping services. You can also hire a virtual law firm bookkeeper via a service. Irvine Bookkeeping has more than 15 years of experience in bookkeeping services for law firms, we also provide a virtual law firm bookkeeping service.

  3. If you're planning to use software, ensure the bookkeeper you choose is certified for that software. When you use QuickBooks, for example, ensure your attorney's bookkeeper is certified in the platform.

It is well known that lazy bookkeeping costs you money and time, will produce sweaty nightmares, and may put your license at risk. In addition to accurate reports, good law firm bookkeeping can simplify billing and provide a more clear picture of your law finances on demand.


Irvine Bookkeeping offers a full range of bookkeeping services and promises that in 2-3 weeks, we clean up a whole book for you to prepare for tax seasons. We believe knowing your company's financial health is the key to maintaining control of your business.

As a business owner, if you see that you cannot handle accounting on your own, consider hiring an accountancy service for contractors to help you with it.

Call Irvine Bookkeeping now for a Free Quote!


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