7 Accounting Tips to Keep Law Firms Accounting Numbers In Order

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

1. Take Great Care of Your Trust Accounts


Our first tip is to take great care of your trust accounts. We put this on top because Trust Accounts 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 practice 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.


2. Avoid Double Data Entry & Errors

Most lawyers who operate a law firm have two separate systems for law practice management and law firm accounting in place. 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 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.