In order to be a successful, profitable business, accurate records of your profits and losses is a must. Without accurate bookkeeping, you have no accurate assessment of whether your business is actually in profit or not. This holds true for all businesses, including those in the legal profession. Law firm bookkeeping is as important for law firms as traditional bookkeeping is for other businesses, but bookkeeping for law firms is a bit different than other types of bookkeeping. Learn how and why this is the case below.
What is Law Firm Bookkeeping?
Law firm bookkeeping, much like traditional bookkeeping, keeps track of the financial transactions that occurs at a law firm in an effort to track revenues and expenses and assess whether the law firm is making a profit or taking a loss. All financial transactions are recorded to account for all transactions involving the law firm’s clients, as well as the expenses the law firm incurs from serving these clients and doing business. However, there is an important factor that must be taken into account for any company keeping track of a law firm’s financial transactions.
How This Type of Bookkeeping Differs from Traditional Bookkeeping
One key difference in bookkeeping for law firms involves “Interest on Lawyer Trust Accounts,” commonly referred to as IOTLA accounts. These accounts are bank accounts that are used to hold any funds belonging to a law firm’s clients, often in the form of client retainers, settlement funds, and other similar funding. A company doing the law firm’s bookkeeping must know that the firm only earns revenue when the legal service has been rendered to the client and the corresponding fee has been earned; IOTLA account funds are not revenue for the firm.
