Accounting for Law Firms and Getting Trust Accounts in Order

When it comes to accounting for law firms, one of the hardest accounting tasks to perform is correctly processing client trust accounts. Since a client trust account is a special bank account wherein law firms hold monies for clients to cover expense costs, it has to be separated from all other accounts of the law firm. As well, the funds have to be identified clearly. Every state has their own guidelines to govern the reporting and handling of a law firm’s trust funds. However, in any state attorney’s may not borrow or use trust fund monies to operate their law firm.

One of the obvious methods to account for and reconcile monies held within a trust account is to buy accounting software. QuickBooks is one of the most popular because it is not overly expensive. As well it can be used to manage the other accounting that law firms have to do such as daily transactions necessary to run the firm, including billing. However, an attorney using accounting software as a way to do their accounting for their trust account rather than hiring an experienced accounting firm must be diligent when it comes to using the software. They have to ensure that all financial transactions are properly recorded because there are serious consequences for mishandling trust fund monies.  As well, they need to be careful with regard to who they hire to do their law firm’s bookkeeping.

One common issue related to accounting for law firms is the misuse of trust funds to pay for personal or business expenses, including payroll and taxes.  Rather, fees that are earned should be taken from the trust fund monies and transferred to a separate law firm account, and then the money can be used to pay the attorney’s operating expenses, or be taken personally. Additionally, attorneys should never pay a client with respect to a settlement payment prior to the check clearing. If they do, the advance could end up coming out of funds held in trust for a different client.

Commingling Funds

The most important principle of accounting for law firms is the prohibition against commingling funds. This happens when an attorney combines their own monies with their client’s trust monies.  Attorneys can never deposit their own money into their trust account, except when they have to pay their bank fees. As well, the prohibition against commingling requires that timely disbursements be made from an attorney’s trust account.  This means that attorneys must withdraw their fees as quickly as possible after they are earned.  They should never leave the funds sitting in the trust account.  Law firm accounting also requires that settlement proceeds be paid to the client out of the trust account as soon as the check clears.

Highly experienced CA firm in Dubai deal with trust accounting for law firms are always your best bet. If you are an attorney and think there may be any type of problem with your trust account, make sure that you consult a professional. The last thing you want is to be is wrongly accused of commingling funds.