IOLTA Trust Accounting
Maintaining correct IOLTA trust balances and reconciliations is extremely important for your law firm. It seems boring and tedious but is required.
Let’s face it, you went to law school to practice law, not to do accounting. Accounting for law firms can seem overwhelming and time consuming. Actual it is both of those, but it’s a requirement and there are standards to follow if you want to keep your license and ability to practice law.
The Basics of IOLTA Trust Accounting from The Florida Bar
Here’s an overview of your requirements. This is not to be an all encompassing list, but the basics of what is required.
Maintain a Separate Bank Account. You are required to keep trust funds separate than operating funds. No commingling is allowed. When setting up your trust bank account, let your bank know this is an IOLTA trust account. The only deposits that go into this account are advances for legal fees, prepaid fees, and advances for costs and expenses of the client. The only expenses paid from this account will be the legal fees earned and payment of direct client costs.
Monthly Reports. Each month you should prepare these IOLTA trust accounting reports:
Bank Reconciliation- comparing what is in your accounting system with what has actually cleared the bank.
Cash Receipts Journal- a report showing all deposits for the month including, date, amount, description of what it’s for, and client name.
Cash Disbursements Journal- a report showing all of the disbursements made from your trust account for the month including date, check number, amount, description of what it is for, and client name.
Client Ledger- a report by client showing their trust account including deposits made into trust, expenses paid out, and remaining balance.
Record Retention. At a minimum you should keep:
Copies of all deposit slips including the items that make up the checks
Receipts for wire transfers in
Receipts for wire transfers out
Receipt book for cash received from clients
Documents to support any checks or expenses paid
Copies of all cleared checks, front and back
I advise clients that more is better. It’s better to keep too much information rather than not enough.
Let’s face it, you went to school to practice law, not to do legal Accounting.
In order for you to bring the most value to your clients your time is best spent on client matters, business development, and training staff. Not paperwork and legal accounting.
You should understand the IOLTA trust accounting rules because, ultimately it is the attorney’s responsibility, but you shouldn’t be doing the day to day accounting. Consider the benefits of outsourcing your law firm accounting. You will be able to focus your time on what matters and while experts care for your business, which leads to happier clients and more profits!
Here’s more information on outsourced accounting services.
Aligned CPA helps solo and small law firms. We’d love to talk with you and see if we would be a good fit for your firm. Contact us for a consultation today.
I help solo and small law firms GROW by providing coaching, growth planning, accounting, and tax 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.