How is law firm accounting different from other types of business accounting?

Misbah Jalal Siddiqui

How is law firm accounting different from other types of business accounting?

You are here:

Law Firm Accounting

Law firms, like all businesses, need to produce financial statements in order to evaluate their operations, financial position, and cash flows.[1] All general and many legal-specific accounting programs can produce these statements provided the business enters all financial transactions into the software.

Because law firms receive retainers and advanced fee deposits from clients and must hold these funds in trust until earned, law firm accounting is more complex than plain business accounting.[2][3] Additional accounting requirements imposed on law firms include, but are not limited to, the following:

  1. Ensuring that law firm funds are not commingled with client funds
  2. Tracking client trust funds in individual client ledgers
  3. Performing monthly trust account reconciliations
  4. Giving each client an accounting of all deposits and disbursements from their trust account
  5. Promptly withdrawing all funds earned by the attorney
  6. Ensuring that all settlement checks have cleared before disbursing funds
  7. Properly training all staff who works with client trust accounts

Each state has its own rules governing trust accounts, so you should check with your state and local bar to determine if there are additional trust accounting requirements imposed on your firm besides the ones listed above.


1. The Purpose of Financial Statements
2. IOLTAs and Client Trust Accounts
3. The Dos and Don’ts of Client Trust Accounts

Sign up now to get more tips and news from CosmoLex

How can CosmoLex improve your law practice?

Book A Demo

Search Resources

Recent Articles

Table of Contents