How should our firm record matter costs?

CosmoLex Team

Matter costs need to be properly recorded in the accounting records due to their tax implications and compliance requirements. To track these costs properly, firms need to determine which category an expense falls into: hard cost or soft cost. Hard costs are any advanced payments the firm puts out to cover matter expenses. These types of costs are typically passed … Read More

How do I read my law firm's balance sheet?

CosmoLex Team

The balance sheet provides a crucial tool in understanding your firm’s financial health at a glance and determine its current value. Many accounting programs can easily produce this report for you. Not only can this help guide decisions, but you may also need to present this information in order to obtain a loan. The balance sheet follows a straightforward formula: … Read More

What Should Be Included in a Settlement Statement?

CosmoLex Team

Once settlement funds are received and deposited into the trust account, a lawyer should always draft a settlement statement. This statement shows the proposed distribution of the funds to cover fees, case expenses and any outstanding payables associated with the matter. The purpose of the statement is to make it clear to the client how the money is being handled … Read More

Can general accounting programs like QuickBooks generate required legal reports?

CosmoLex Team

There are some specific reports that law firms are required to generate due in order to meet ethical obligations – such as a three-way reconciliations report for trust accounts. But there are also other non-trust account-related reports that attorneys are required to produce in certain situations. For example, under the lodestar method of calculating a reasonable attorney fee recovery, the … Read More

How does double-entry bookkeeping work?

CosmoLex Team

Accountants use your law firm’s , to generate the balance sheet and profit & loss (income) statement. The trial balance contains all general ledger accounts and shows the balances in those accounts. Debits appear on the left side of the trial balance and Credits appear on the left side of the trial balance.[1] Assets and expenses increase with a debit … Read More

What is a cash-flow analysis?

CosmoLex Team

Most small businesses, including law firms, go out of business in the first five years due to poor cash flow management.[1] One method law firms can implement to manage their cash flow better is to perform a cash-flow analysis. In a cash-flow analysis, your firm determines how much cash it had on hand during a specific time period and then … Read More

Can general accounting tools be used for law firms?

CosmoLex Team

It is possible for a law firm to use general accounting tools to keep its business and trust accounts, but can take a considerable amount of customization to make a non-legal specific tool work properly.[1] The following changes must occur in order for a law firm to use a general accounting program: Customization of the chart of accounts[2] Set up … Read More

Why are accounts receivables considered an asset?

CosmoLex Team

When a law firm provides services and issues an invoice for those services, the law firm is essentially extending credit to the client. Your firm’s accounts receivable (A/R) tracks the amount each client owes for services rendered in the past, e.g. the amount of credit your firm has extended to each client.[1] (Attorneys can avoid having to extend credit to … Read More

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

CosmoLex Team

Law firms, like all businesses, need to produce 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, … Read More

Why should I use a specialized legal accounting program?

CosmoLex Team

A law firm is like any other business in that it must have a system for recording its financial transactions in order to generate the reports that the owners and officers can use to evaluate the company’s financial health. General accounting programs meet most companies’ needs because they allow the business to record financial transactions and generate the , profit … Read More