As an aspiring practicing attorney with own law firm, you must understand what type of records you must keep. Been an expert at law practice does not make you proficient in accounting systems nor bookkeeping. Your knowledge of accounting is certainly limited so you need professional help.
The mastering of the accounting fundamentals and using specialized accounting software can keep your practice running smoothly and guarded.
What is an accounting system?
An accounting system is a system used to manage the income, expenses, and other financial activities of a business.
An accounting system allows a business to keep track of all types of financial transactions, including purchases (expenses), sales (invoices and income), liabilities (funding, accounts payable), etc. and it is capable of generating comprehensive statistical reports that provide management or interested parties with a clear set of data to aid in the decision-making process.
Now, the system used by a company is generally automated and computer-based, using specialized software and/or cloud-based services. However, historically, accounting systems were a complex series of manual calculations and balances.
A Sound accounting system for a law firm and any other small business will include strong internal controls to monitor both revenues and expenses. As an attorney-at-law, you need to ensure that your accounting system has strong internal controls, both fees billed and costs and expenses advanced, for clients.
Regardless of whether bills are based on a specific retainer, annual retainer, contingent fee or referral fee, your fee is based on time spent on your clients’ projects. That is the reason why attorneys should maintain detailed records to track the time spent on cases.
You can use manual or electronic systems to track your time and chargeable expenses. Client ledger cards were used to record that information before the advent of legal time and billing software. Regardless of the record-keeping method you prefer, you will usually want to record your time spent on client matters, along with any chargeable expenses.
From time to time, you may pay for expenses on behalf of your client for filing fees or other charges. Most practicing attorney’s record these advanced costs into the system in a similar fashion to other accounts receivables.
Accounting software will have special journals to record a single type of frequently occurring transaction. For attorneys, the cash receipts journal will show a breakdown of:
- Fees received and
- Expense reimbursements, including allocation between regular overhead expenses paid and client costs paid.
The complexity of the cash receipts journal will vary depending on the size of the law firm, the most basic of which is just the bank statement and check copies.
The Essential Records to keep:
In addition to the records discussed above, attorneys should usually at least keep the following:
- #Appointment book, Planner or Organizer:
Here is a form of a book, a diary or a piece of software on a computer or phone where you can make a note of things you plan to do. An appointment book contains records of appointments, usually in a calendar format.
- #Accounts Receivable Journal:
The accounts receivable journal shows the receivables billed but not collected. For a better understanding, Accounts receivable can be described as the money that a company has a right to receive because it had provided customers with goods and/or services. For instance, a manufacturer will have an account receivable when it delivers a truckload of goods to a customer on June 1 and the customer is allowed to pay in the next 30 days.
To record a journal entry for a sale on account, one must debit a receivable and credit a revenue account. When the customer pays off their accounts, one debits cash and credits the receivable in the journal entry. The ending balance on the trial balance sheet for accounts receivable is usually a debit.
- #Individual client ledgers:
These ledger accounts include a description of services rendered, charges and credits, a summary of non-billable charges and final invoices. The ledger is a permanent summary of all amounts entered in supporting journals which list individual transactions by date. Every transaction flows from a journal to one or more ledgers. A company’s financial statements are generated from summary totals in the ledgers.
- #Case time records:
Time records are recorded for each client.
- #Cases-in-progress register:
These are the records of interesting matters currently being handled by a Law Firm. This register summarizes any legal work in process and is usually organized by the clients’ names.
- #Time summary reports:
Time reports can usually be sorted by the attorney or by the client and contain information such as the time, dates worked, billings and other chargeable expenses.
These are the basic books and records that attorneys, regardless of specialty will have on file for their firms. Many lawyers use accounting software and legal practice management software to maintain their books and records in electronic formats. While some law offices use QuickBooks, many other firms use legal industry-specific software programs, such as Abacus Next, Clio or ProLaw to manage their practices.
You are sincerely welcome to discuss any questions or issues you have with your books,record-keeping or income etc. @ #cloudaccountingnow