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7 Accounting Tips to Keep Law Firms Accounting Numbers In Order

Updated: May 16

Accounting in law firms requires specific skills and care because it is distinguished from accounting in general businesses. In this limited article, we try to summarize some most common accounting tips for law firms that would help to keep your accounting numbers in order. Some of these tips may be familiar to you but they should not be neglected for they will help you to better manage your business in the long run, particularly when you look at cash flow and profitability.

Don’t forget to follow our law firm accounting guide’s articles! Let’s get started with these detailed tips below.

treasured accounting tip - accounting in law firms

1. Take Great Care of Your Trust Accounts

Our first tip is to take great care of your trust accounts and accounting in law firms. We put this on top because Trust Accounts have always stay one of the most concerning subjects in lawyers when it comes to legal accounting. One of the elements making law firm accounting different from most businesses is client trust accounts. Very often lawyers handle settlements on behalf of your clients or use retainers to secure ‘deposits’ from clients. Though these amounts are in the firm’s possession, they don’t actually belong to the firm until they have been earned.

Take care of your trust accounts
Take great care of your trust accounts

Law firms practicing in different areas will have multiple clients with multiple trust ledgers. It is required by law that these trust funds are not commingled with one another and are not used for incorrect purposes, e.g. to pay the firm’s expenses. It is also required by law that all trust accounts are fully and accurately reconciled with your accounting records and practice management system. This is typically known as the three-way reconciliation. Our law firm bookkeeping services can help you do it more smoothly.

2. Avoid Double Data Entry & Errors

Most lawyers who operate a law firm have two separate systems for law practice management, accounting in law firms, and law firm bookkeeping. This means that in many cases, it may require entering the same data into two different systems. This will definitely increase the chance of errors, especially when your firms accept credit card payments because the money trail is lost.

It is suggested that you should consider integrating your practice management and business accounting into one central system where all of your transactions, journal entries, accounting activities, etc. are recorded accordingly. When you place all accounting into one single system, it builds a stronger money trail, reduces costly errors and the data entry time.

3. Well manage your firm’s costs and expenses

documents not organized
Are your costs and expenses managed well?

Another accounting in law firms tip is to manage your cost and expense well. Managing a law firm involves many costs and expenses such as court fees, expert or consultant fees, witness subpoena fees, bailiffs, medical records, court reporter costs, long-distance telephone charges, payroll, advertising, rent, etc. There are costs and expenses billed to clients whereas others are absorbed by your law firm.

A great tip for you is you need to understand the difference between direct and indirect costs otherwise you will be in deep trouble when the tax season comes.

Direct costs refer to any payments or reimbursement your law firm pays as direct expenses to vendors on behalf of your clients. Filing fees, expert or consultant fees are examples of direct costs.

Indirect costs refer to your firm’s expenses associated with client matters e.g. long-distance phone calls, courier, fax, etc.

Allocating these costs and expenses to the accurate accounts in accounting could increase or reduce your firm in a certain tax year. This means if you manage these costs and expenses well, you will benefit from important cost savings in terms of tax liability & credits. However, if you don’t do it properly, your firm may not avoid legal audit and compliance issues in the future.

4. Create Invoices Correctly

Another great accounting tip is to pay attention to your client invoicing. Ensure to create invoices correctly and accurately. As other general businesses, you want your law firm to generate income and pass on related costs and expenses to your clients as soon as possible.

Accurate invoicing has the following advantages:

  • Allow you to detect clients who often delay their payment or don’t pay at all.

  • Reduce chances of making changes or write off invoices.

  • Improve your cash flow because it correctly reflects relevant costs and expenses billed to your client

5. Keep Accurate Records

This tip is about keeping your law firm accounting’s correct records. No matter how small or large your business is, this is also one of the most important factors. Imagine financial transactions for your law firm in a year, if you don’t keep accurate records, you could miss a considerable amount of money.

You should keep all your accounting data in one place or one central repository. Besides, you could use legal accounting software to help you to manage your firm's accounting, trust accounts, and accounting records.

When you keep accurate records of all your financial transactions, this practice helps to correctly reflect your income, reimbursement, disbursement, and other expenses. It also helps your law firm to avoid issues with tax liability and compliance.

bookkeeping services

6. Manage Your Revenue by Practice Area

Your law firm may specialize in one area or multiple areas. Unless you work in one area, you will need to manage your revenue by practice area. Many firms adopt different ways to bill clients based on case types. When you manage your law firm revenue by practice area or case type, you could realize which practice areas are the top income-generating. This will help you to timely make valuable and strategic decisions for your firm direction.

7. Use Legal Accounting Tools

using legal accounting tools - law firm bookkeeping

Legal accounting has its unique elements that are not associated with generic business accounting. That’s the reason why it is very essential to employ the use of legal-specific accounting software for your law firm and law firm bookkeeping whether it is large or small. You need to ensure the software used must help with the 3 most important functions:

  • manage retainers

  • manage client trust accounts

  • track billable hours by the client

Good legal accounting software not only saves time to customize your need as in general accounting tool, but also improves your business operation by allowing you to easily track your firm’s key performance indicators, and keep accurate records of your firm’s activities and/or financial transactions.




Customized & timely reports also help you to manage your firm’s overall financial health better. Accurate data and information are certainly crucial for decision-making when it comes to various critical stages of business. Many benefits of a good legal accounting tool can be listed as follows:

  • Manage trust accounting

  • Online invoicing and billing

  • Split fees for multiple clients in different practice areas

  • Easily make changes to invoices

  • Track forgotten invoices & set up auto payment reminders

  • Real-time reporting customized at your need

Hopefully, the above accounting tips are useful and help bring value to your business growth. Obviously, there are more tips when you get to the details of specific areas in legal accounting. We would talk about these in other blogs. You could find more of our blogs about legal accounting in our series of law firm accounting guides.

If you experience the following:

  • You’re unsure whether you’re doing your books the right way

  • Your books are behind

  • Tax season is a nightmare

  • Bookkeeping takes too much time that should be spent on other areas.

It is time for you to hire a bookkeeper!


Irvine Bookkeeping offers a full range of law firm bookkeeping services and promises that in 2-3 weeks, we clean up a whole book for you to prepare for tax season. 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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