When a lawyer makes the decision to make the jump from being an attorney, to managing their own practice, they absolutely need to consider their legal accounting. Rarely do lawyers have accounting expertise and accountants who understand all the intricacies and regulations associated with legal accounting may be hard to find.
Every law firm needs access to a legal specific chart of accounts. One way or another, your firm will need to create and use a full range of legal specific accounts in your accounting system. The question becomes, how will you get there? Like many things, there is an easy way and a hard way. Unfortunately, the easy way isn’t always the first way that comes to mind.
The Hard Way To Gain Access To A Legal Specific Chart of Accounts
The first mistake many firms make in trying to gain access to a legal chart of accounts is that they employ a non-legal specific accounting solution to manage their legal accounting. Making this mistake will lead to you having to take the following steps to setup your legal chart of accounts.
Setting Up A Legal Chart of Accounts With General Business Accounting Software
- Create separate bank accounts, to avoid any commingling of client funds & operational funds.
- Create Trust liability accounts where all trust bank transactions will be posted.
- Create separate general ledger expense accounts to differentiate between expenses incurred for your firm and expenses to be billed and reimbursed by your clients.
- Client expense accounts may further need to be separated in Advanced Client Costs (Asset Account), Reimbursable Client Costs (Expense Account) or Non-Reimbursable Client Costs (Expense Account).
- Create separate general ledger income accounts to differentiate between fee income and reimbursement of expenses. A separate Discount account will also be needed.
- Income accounts may further be split to track income by practice area or income by partners.
Even after navigating through these time-consuming steps, your firm runs the risk of making legal accounting errors as general business accounting software will not enforce correct use of chart of accounts. For example, it will not prevent posting of trust transactions to an income or expense accounts, a grave mistake.
The Easy Way To Gain Access To A Legal Specific Chart of Accounts
For firms looking for an easier and more effective way to access a legal specific chart of accounts, pay attention!
It’s actually really simple, employ a legal specific accounting solution that not only provides access to a wide range of legal accounts out of the box, it enforces correct use of these accounts. Too often lawyers try to twist, bend, and customize general business accounting software to meet their needs. This is not only costly but it can be ineffective.
CosmoLex offers our clients a complete legal specific chart of accounts out of the box. You can try CosmoLex for free and get access to the following legal specific accounts:
- Client Trust Funds (Liability)
- Client General Retainer – Trust (Liability)
- Client General Retainer – Operating (Liability)
- Advanced Client Costs (Asset)
- Reimbursed Client Expenses (Direct) (Income)
- Inhouse Reimbursed Expenses (Indirect) (Income)
- Fee Income (Income)
- Discount (Income)
- Reimbursable Client Costs (Expense)
- Non-Reimbursable Client Costs (Expense)
- Unrecovered Client Expenses (Expense)