Many businesses are focused on the day-to-day operations of their businesses, including their revenues and expenses. They are usually not as focused on the recording of those transactions and keeping their books in order. However, bookkeeping is a vital aspect of all businesses, including for law firms. Learn why bookkeeping for law firms is important and some important information on what this type of bookkeeping entails below.
Bookkeeping For a Law Firm: What It Entails
Bookkeeping for a law firm is a bit different from bookkeeping for businesses in other industries, including retail and ecommerce. When it comes to quality bookkeeping for a law firm, one specific aspect that is unique to a law firm’s books is IOTLA accounts, which stands for “Interest on Lawyer Trust Accounts.” These refer to bank accounts that are used to hold settlement funds, client retainers, and other funds that belong to a law firm’s clients.
Like other record keeping for other businesses, the company entrusted to keep track of the law firm’s bookkeeping is ensuring that revenues, expenses, assets, liabilities, and equity are clearly tracked and recorded properly to ensure that they can be easily presented for taxes and other purposes.
Tips To Ensure This Type of Bookkeeping Is Done Correctly
When performing this type of bookkeeping, it is very important to keep in mind that deposits made to IOTLA accounts are NOT income for the law firm, as the income is actually for the law firm’s client. Thus, it is recommended to debit the IOLTA account and put a corresponding credit to Trust Account Liabilities. When the law firm earns the corresponding fee, debit Trust Account Liabilities and credit the law firm’s revenue account.
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