Bookkeeping Guide For Lawyers

Bookkeeping Guide For Lawyers

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Bookkeeping Guide For Lawyers

Bookkeeping for lawyers is the process of maintaining accurate financial records for a law firm. This includes keeping track of income and expenses, maintaining bank accounts and trust accounts, and preparing financial reports. The bookkeeping process for a law firm is similarto that of any other business, but there are some unique aspects that are specific to the legal profession.

For example, lawyers are required to maintain strict segregation of client funds from their own funds, and to keep accurate records of all transactions involving client funds. This is known as "lawyer trust accounting" and it is governed by state and federal laws as well as ethical rules.

Additionally, lawyers may have to keep track of billable hours, which are used to calculate fees charged to clients. This requires maintaining accurate records of time spent on each case and may involve using specialized software to track time and generate invoices.

Overall, bookkeeping for lawyers is a critical task that helps ensure compliance with legal and ethical rules, and helps law firms to operate efficiently and profitably.

Bookkeeping Challenges for Lawyers

IOLTA Accounting

IOLTA stands for "Interest on Lawyers Trust Accounts." It is a program in which the interest earned on certain types of client trust accounts, such as escrow accounts, is collected and used to fund programs that provide legal services to low-income individuals and organizations. The program is typically administered by the state bar association or a nonprofit organization. The accounting for IOLTA accounts is typically done by the financial institution where the account is held, and the interest earned is typically reported to the state bar association or nonprofit organization for distribution to legal aid programs.

AmericanBar Association – Client Trust Accounts

Lawyer Trust Accounting

Lawyer trust accounting is the practice of maintaining separate trust accounts for client funds that are held by attorneys. These accounts, also known as "IOLTA accounts" or "client trust accounts," are used to hold funds that belong to clients and are intended to be used for specific purposes, such as paying court fees or settlements. Attorneys are required by ethical rules to maintain strict segregation of client funds from their own funds, and to keep accurate records of all transactions. They are also required to follow state and federal laws regarding trust account management, which may include regular audits and reporting to regulatory bodies. These rules are in place to protect clients' funds and ensure that they are used for their intended purposes.

Time Tracking

Accurate time keeping is critical for accurate invoicing and profitability. We recommend QB Time or LeanLaw since both are easy to use and have phone apps. Accurate time keeping typically only occurs when time is entered immediately, which means any time keeping solution needs to be easy to use and available on any device. If you track KPI's for your firm (and you should) accurate time keeping is even more important when analyzing profitability.

Client Expenses

Categorizing client expenses is another area that requires special attention. While tempting to use “billable expense” and “billable expense income”, both appearing on the Profit & Loss report, this is actually not correct.


For costs paid on behalf of a client, such as a filing fee, a lawyer would post this cost to an asset account, such as "Unbilled Client Costs". This will now appear on the Balance Sheet NOT the Profit & Loss.


When the client is invoiced, the trust account balance will be invoiced against and applied to the "Unbilled Client Costs" balance.

Want to work with us?

When you have monthly Financial Statements and reports done every month, you can track whats actually happening in your firm.

In addition to traditional bookkeeping services, we also provide CFO Services to law firms.

James Fleming III

Sentinel Tax & Accounting