In this blog post, we’ll explore the best way to set up an accounting system for your law practice. We’ll also discuss some of the specific differences that lawyers need to be aware of when setting up their accounting systems.
One of the most important things to consider when setting up your accounting system is how you will record income.
Lawyers typically have two main types of income: retainer/hourly rates and contingent fees.
Retainer/hourly rates should be recorded as “unearned income” and set in a trust account. Once you bill your clients and account for your time at the end of the month, you will produce an invoice showing the rate and the amount of funds taken out of the trust account for payment. Only then will funds be transferred from the trust account to the cost account for payment to you.
For contingent fees, you will also need to set up a trust account and a cost account. However, you will not receive payment monthly. You will only receive payment once a settlement has been reached, received, and a breakdown of all expenses has been itemized and agreed upon with the client. Then, a percentage (usually 33.33/40%) is taken out of the settlement amount and paid to you.