Introduction to Attorney Bookkeeping: Why Modern Accounting Software Matters

Trust Account Bookkeeping
February 28, 2024

The terms “accounting” and “bookkeeping” are sometimes used interchangeably, but they are very different practices. Boss Bean and founder of SmartBean Bookkeeping, Lisa Nguyen, creatively likens bookkeeping to being a sous chef. Although both work with your business’s financial records, bookkeepers take raw financial data (income, bills, etc.), similar to how a sous chef organizes ingredients for a meal.

At month’s end, bookkeepers compare reports (P&L, cash flow statement, etc.) to financial statements to ensure all numbers match, and you can make something from them. From here, an accountant can create a tax strategy or “meal” with the given data.

Here is SmartBean®'s founder and CEO, Lisa Nguyen, further explaining the connection between sous chefs and bookkeepers!

What is Attorney Bookkeeping? Attorney Bookkeeping 101

Although similar to traditional bookkeeping, attorney bookkeeping is specifically for law firms and attorneys and has field-related caveats. This administrative task consists of recording all financial transactions and balancing all firm accounts. This lays the foundational data by tracking where money comes from and where it goes. 

Attorneys face a multitude of challenges that extend past practicing law. Ethically and accurately managing finances is just one of these responsibilities. Whether it's trust account management following the update of Rule 1.15 and CTAPP’s creation under Rule 2.5, including monthly three-way reconciliations and extended record-keeping protocol, calculating IOLTA fees or general administrative bookkeeping for the firm’s administration, law firm accounting must be done promptly and efficiently. However, the most crucial part of attorney bookkeeping is achieving and maintaining compliance with state and bar standards. 

More simply put, this translates to processes such as the 3-way reconciliation being completed accurately. This means that bank statements, the firm-kept Client Ledger, and the Bank Journal of bank transactions are all kept according to CTAPP standards, and upon three-way reconciliation, all counts balance correctly and come to zero. Additionally, all the reporting, including the ledgers, is complete with no missing transaction information, and the running balances are correct and verifiable.

Running balances must also remain presentable to be provided if requested by either the client or the state bar in the event of an audit. It is a compliance requirement that an attorney should always be able to give a running balance for any accounts in the event of a given request.

From here, once bookkeeping data has been organized and categorized, the accounting work can begin. The legal accounting process follows bookkeeping and consists of preparing more detailed financial plans such as financial statements and forecasting for business growth plans. 

Benefits of Accounting Software for Attorneys

orange county attorney using attorney bookkeeping software

Today’s accounting software has revolutionized the way businesses do what they do. For attorneys, this means a more streamlined path toward accomplishing accounting, bookkeeping, and even record-keeping.

Cloud-Based Accounting Software for Attorneys

One of the many major upgrades of modern accounting software is the products moving towards a cloud-based model. The degree does depend on the company, and some software still offers desktop companions. On a large scale, the cloud-based solutions offer increasing benefits including anywhere access as opposed to access being limited to being in an office to utilize the software. Many accounting software benefits include integration opportunities with various banking institutions' third-party applications, allowing team collaboration.

Highly rated cloud-based accounting software features real-time data insights and automates many of the law firm’s regular tasks, from reconciliation to data entry. 

Attorney Bookkeeping Software Features

Brands such as Clio, CosmoLex, and Quickbooks have varying yet competitive features and pricing structures for their software for accounting practices.

Tasks they are seeking to make more straightforward are:

Some accounting software features can even serve as or integrate other software for document management. 

These are available if your firm requires document storage and expense tracking for client costs. However, since not all software offers the same features and every firm is a little different in their needs, it isn’t uncommon for some law offices to utilize multiple software. 

Still, modern accounting software has simplified workflows for generating invoices, providing customizable billing templates, and automated time tracking for attorneys and law firms tackling these tasks themselves. This process allows attorneys who still need an experienced bookkeeper on their team to save time and remain in compliance. 

Why Attorney Bookkeeping Matters 

For law firms, attorney bookkeeping is the foundation for business growth.

Completing the practice is not only required per State Bar mandates but comes with benefits for the practices as well. When attorneys or law firms complete their bookkeeping accurately, it becomes an opportunity to see the business's health in a straightforward and clear manner. With financial data such as expenses and profits laid out, it becomes evident which areas of the practice – (read: business) are most successful and thriving and which need attention.

Having this clear picture highlights what direction the business is headed and can answer big questions:

If so, working with SmartBean® can help you achieve your business goals with TAB!

Trust Account Bookkeeping (TAB) at SmartBean®

At SmartBean®, we offer TAB–Trust Account Bookkeeping–specifically for attorneys and law firms!

We want to help you with your CTAPP reporting the way we have helped many attorneys remain in compliance with Rule 1.1.5 Standards 1(b),1(c), and 1(d). Attorney bookkeeping can seem like a new challenge, but it doesn’t have to be something you do alone. Enlist the assistance of our experienced, dedicated bookkeepers at SmartBean®! 

We are prepared to help you and your firm meet California’s new trust account bookkeeping requirements. Get a free quote today!

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