The statement of cash flows, sometimes alternatively referred to as the cash flow statement, shows law firms where the cash is coming in and where it’s going. On the report, the cash flow statement will list inflows and outflows into helpful line items. It includes cash from investing returns, operating activities and financing/borrowing. This statement […]

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 […]

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 […]

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 […]

Not all invoice payments can be directly recorded as revenue, and doing so can have negative repercussions for the firm including an unnecessary tax liability. Law firms need to apply payments in the appropriate order once payments are received. Payments should be applied in the following order once taken in: Taxes Cost recovery, including reimbursable […]

Correctly allocating advanced client costs to ensure the appropriate tax impact is applied is critical in order to avoid the Internal Revenue Service (IRS) audits and violations. These costs need to be allocated directly as hard (direct expenses) or soft costs (support expenses), with the tax treatment being applied differently to each. Hard costs as […]

Administering payroll is a must if you want to keep your employees happy and avoid penalties come tax time. You need to make sure you’re doing it correctly and consistently, and following a process can help. Here’s a sample process that can be used to make sure every step has been completed: Update for any […]

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 […]

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 […]

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 […]