Top 3 Accounting Issues for Law Firms

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What Accounting issues do law firms face?

Managing a law firm is time consuming. Not only are you practicing law, you’re worrying about cash flow, hiring and firing, and making all of the other important decisions. Accounting is usually on the bottom of the list. However monotonous it may seem, it’s one of the most important functions in your firm.

Why? The information can tell your financial position, help you make better decisions, and keep you compliant with the state bar and IRS.

It’s important to keep your accounting up to date, as well as routinely reviewing the numbers.

Here are the top 3 areas where we see issues for most small and solo law firms:

Trust Accounting

There are strict trust accounting rules that law firms must follow. Ignoring or breaking these rules can lead to disbarment so it’s a pretty important issue and something an attorney should pay close attention to.

You are required to reconcile your trust ledger accounts to your trust bank accounts every month. You should have a monthly reconciliation report that shows all money in and money out, by client.

You also cannot commingle funds. If the revenue has been earned you must move it from the trust account to your operating account.

Not only is this important because your state bar says so, but it’s important so you know that you’re not funding client matters and running into cash flow problems.  

Client Matter Costs

Are you paying client costs out of pocket? If so, you should have a process to ensure you are properly invoicing clients and recouping these costs. Not invoicing the client will cut into your profit margins and cash flow.

The best practice would be to review matter costs each week and verify they are marked as billable to the correct client.

You’ll also want to make sure you aren’t expensing these costs on your Profit and Loss. All out of pocket client costs should go to an asset account on your Balance Sheet. This will help you properly track the costs and not skew your firm’s financial reports.

Timeliness of Accounting

Tracking and recording your law firms accounting transactions should be completed in a timely manner. Monthly, at a minimum. Not only should your trust accounting be reconciled every month so should all of your other bookkeeping and record keeping. This will allow you to monitor your cash flow, overhead, and profits.

Your accounting should help you make better decisions in your firm, but if you’re looking at financials that are six months old, it’s going to be irrelevant.

Is your firm suffering from these issues? There’s no better time to get it cleaned up and turned around than now. Accurate and reliable accounting will help you build your practice and reach your goals.


Aligned CPA helps solo and small law firms. We’d love a chance to talk and see if we would be a good fit for your firm.  Contact us for a consultation today.


Joy Lizotte, CPA

Joy Lizotte, CPA

About Joy

I help solo and small law firms GROW by providing accounting and growth planning services that will take their business to the next level.

I promise you, working with a CPA can be much more exciting than crunching numbers and reviewing last year’s taxes. I look at the day-to-day of your business and help you find ways to perform better, grow bigger and generate revenue with greater ease.