Legal Chart of Accounts (Law Firm Chart of Accounts Sample Included)

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When it comes to law firm finances, knowledge is more than just power—it’s key for succeeding long term and staying compliant with ethics rules. One crucial source of financial knowledge for any firm is its law firm chart of accounts.

A law firm chart of accounts serves as a comprehensive list of all of a legal practice’s financial accounts. It also provides a framework for recording every financial transaction at the firm. 

Having a law firm chart of accounts is more than just an accounting best practice— it’s a  tool to keep your firm’s financial data organized. Also, many firms don’t realize how many accounts they must track to accurately reflect the firm’s value. When set up correctly, a law firm chart of accounts provides an accurate picture of your law firm’s financial situation now, and as you move forward.  

So what exactly goes into this list? While you will need to customize your firm’s chart of accounts to the specifics of your situation, there are several common factors for all legal practices to consider. Typically, a law firm chart of accounts includes five core categories (assets, liabilities, owner’s equity, revenue, and expenses). You should also include interest on Lawyer Trust Account (IOLTA) or trust accounts and trust liability accounts.

In the following post, we’ll show you how to set up your law firm’s chart of accounts. Included is a law firm chart of accounts sample and basic template, and tips to help you create an accurate  and effective chart of accounts for your firm.

A legal professional feeling confident about setting up their law firm’s chart of accounts

Law firm chart of accounts sample

A law firm chart of accounts is a list of all your firm’s accounts—but what exactly do you need you include? 

As outlined in our guide to easier legal accounting, consider the following basic guidelines for what to include in a law firm chart of accounts:

  • All of your firm’s financial accounts. When building the chart of accounts, the goal is to create a comprehensive picture of the firm’s accounts—you can’t add too many valid accounts. Take an expansive view to ensure you capture everything you need to track your firm’s finances.
  • Record the details. Each account listed should include a detailed record for each type of: 
    • Asset.
    • Liability.
    • Equity.
    • Revenue.
    • Expense.
  • Both sides. The chart of accounts should consist of both balance sheet accounts (such as assets, liabilities, and stockholders’ equity) and income statement accounts (like revenues, expenses, gains, and losses). 

To show what this could look like, here are two law firm chart of account samples:

A legal professional using templates to setup their chart of accounts

Law firm chart of accounts template 

While your firm’s chart of accounts will need to be customized to its specific details—factors like the firm’s size, jurisdiction, and practice area will impact the exact layout you need to use.he key is to create a framework that captures an accurate assessment of your firm’s financials. This means setting up your chart to include as much relevant information as possible.

To make this easier, use the tables in the following template (which you can also find in our legal accounting guide):

Assets 

Type Account Description
Current assets  Operating bank account
Petty cash
Accounts receivable
Advanced client costs
Work in progress fees
Prepaid expenses
Fixed and other assets Real property
Furniture
Depreciation

 

Liabilities

Type Account Description
Current liabilities Bank loan / line of credit
Accounts payable
Business credit card
Payroll tax liabilities
Long term liabilities Capital loan
Equipment loan 

 

Segregated liabilities 

Type Account Description
Trust bank accounts IOLTA or pooled trust accounts
Separate interest bearing trust accounts

 

Equity 

Type Account Description
Firm investments  Capital
Retained earnings
Equity account: owner #1 (et al.) 
Profit/income distributions for year
Drawings for the year: owner #1 (et al.)

 

Revenue

Type Account Description
Cash flow  Fees earned
Disbursements recovered
Interest income
Other income

 

Compensation 

Type Account Description
Payroll Secretarial 
Word processing
Paralegals / clerks 
Lawyers
Employee retirement benefits 
Employee training and education 
Other employee costs 
Other non-owner employees

 

Expenses

Type Account Description
Office Office rent 
Parking 
Real estate taxes and insurance 
Utilities
Office operations Telephones 
Photocopies 
Computer equipment 
Practice management platform 
Software subscriptions
Supplies
Professional costs Travel & related expenses 
Professional dues
Continuing education 
Conference fees 
Professional liability insurance
Promotion Entertainment 
Promotion & advertising
Other expenses Bad debt, fees 
Bad debt, disbursements 
Recruitment cost
Other taxes and similar costs
Miscellaneous expenses
Office Office rent 
Parking 
Real estate taxes and insurance 
Utilities

 

Notes on using this template 

When setting up your firm’s chart of accounts, the details matter, so be sure to review each item to make sure that it is always properly attributed in your accounting system. Below, we’ll discuss using accounting software to make this easier.

Although some items could be properly attributed at one point in time, that could change. 

Take the example of a line of credit. If you have a line of credit that hasn’t been drawn upon, it should be counted as an asset (you could consider it cash on hand). Once withdrawn, the line of credit would no longer be counted as an asset—it would become a liability (as it is then money owed).

Legal-specific accounting solutions can help with setting up chart of accounts

Use a legal-specific accounting solution like Clio Manage

Creating and managing a law firm chart of accounts doesn’t need to be a completely manual endeavor. Technology can make accounting processes—including setting up your law firm chart of accounts—easier, more efficient, and more accurate for law firms. To further streamline your accounting processes, use a legal-specific accounting solution. 

While general accounting solutions can help any business streamline its processes, they aren’t built to accommodate the unique accounting needs of law firms (such as trust accounting). This makes it challenging to use a general accounting solution for a law firm.

Use an accounting solution designed for the legal industry—like Clio Manage’s legal and trust accounting features paired with QuickBooks Online’s accounting software. By using these two softwares together, you can create a comprehensive accounting system for your firm.

Learn how to sync your Clio and QuickBooks online accounts.

Benefits of using Clio Manage with QuickBooks Online

Together, Clio Manage and QuickBooks Online can help your law firm:

  • Eliminate repeat data entry by syncing contacts, invoices, financial information, and transactions.
  • Use accounts correctly and more easily (including helping to manage amounts in both operating and trust accounts).
  • Stay compliant with state bar rules for accounting and trust accounting.
  • Ensure that amounts in trust are reconciled (between Clio, QuickBooks, and your associated bank accounts).
  • Create accurate data reports.

Using a legal-specific accounting solution like Clio and QuickBooks make it easier to set up and maintain a law firm chart of accounts in two  key ways:

  • Create your chart in QuickBooks. Within your QuickBooks account, you can set up a chart of accounts that’s customized to include your law firm’s accounts. 
  • Sync between Clio and QuickBooks. Once set up, you can sync your Clio and QuickBooks accounts—including trust accounts, trust liability accounts, and advanced client cost accounts.

Learn more about legal trust accounting in QuickBooks and Clio.

Trust liability accounts

When setting up your chart of accounts, be sure to pay special attention to your handling of trust liability accounts to ensure you are keeping accurate records and following the rules. You can track trust bank accounts—like your IOLTA or pooled trust accounts and separate interest bearing trust accounts—on your law firm chart of accounts.

As we discuss in more detail in our guide to trust accounting for law firms, it’s essential that lawyers and law firms correctly manage client funds in trust. By doing so, lawyers can stay compliant with the exact trust accounting rules for their applicable jurisdiction. With this in mind, lawyers need to have the right bank accounts set up. For most law firms, this means having at least three bank business bank accounts—including a chequing account, a savings account, and a separate IOLTA or trust account. 

Note that funds in the trust or IOLTA account do not belong to the lawyer—they are client funds only. You must treat these funds  according to the specific recordkeeping and trust account rules. We recommend reviewing the American Bar Association (ABA)’s Model Rules, but remember to also check your state bar for your jurisdiction’s rules.

Trust interest payable

What about the interest made on funds held in IOLTA trust accounts? This interest does not belong to the firm or attorney. As explained by the ABA, IOLTA trust accounts collect interest. The bank then forwards the interest earned on IOLTA accounts to the state bar. These funds are then used for charitable causes, such as access to justice services.

Here again, proper record keeping is important. Credit and debits must be recorded as an interest payable account. By doing this, your client’s records will clearly show what those funds are for in the IOLTA account.

Track general retainers

It’s also important to keep accurate records and track funds in general retainers. Unearned fees (like general retainers) should be kept in a separate account so that they are not used in error.

By including general retainers in a law firm’s chart of accounts, you can more easily monitor these accounts. 

Learn more about the benefits of adopting evergreen retainers at your law firm.

Two legal professionals working on law firm chart of accounts sample regarding client expense accounts

Client expense accounts

Your law firm chart of accounts should also track amounts that your firm uses for client expenses, where you expect reimbursement at some point in the future. These amounts include reimbursable client costs, non-reimbursable client costs, and advanced client costs. 

As detailed in our guide to QuickBooks trust accounting, you can set up an advanced client cost account in QuickBooks Online. When set up, hard costs incurred by your law firm (such as filing fees) will automatically push back into Clio.

Separate general ledger income accounts

Simply tracking income in one general ledger income account is not enough.To make the financial information in your law firm chart of accounts useful for record-keeping and for assessing your firm’s financials, create separate general ledger income accounts to differentiate the different types of income—including referral income. These should also be split by practice area or by partners. 

Conclusion

Creating an accurate, detailed legal chart of accounts is an important tool to give you an accurate picture of where your firm’s financials stand. Once set up, this information can give the visibility you need to ensure your firm stays compliant with accounting and trust accounting rules. Moreover, you can use the information from your law firm’s chart of accounts to help determine key financial details about your firm—which is necessary for making data-driven decisions.

As we showed with the law firm chart of accounts samples in this post, the exact details of the  chart will vary depending on your firm’s situation and jurisdiction. While it’s important to do your own research (and you may want to consult with your accountant), you can use the samples and the template in this post to guide you. Using technology—such as QuickBooks Online and Clio Manage together—also make this process easier and more efficient. 

Just remember: To make your law firm chart of accounts as useful and accurate as possible, be sure to include as much relevant information as possible. This should include details for trust accounts, which need to meet specific rules in order to stay compliant. 

Note: The information in this article applies only to US practices. This post is provided for informational purposes only. It does not constitute legal, business, or tax advice.

Categorized in: Accounting

How to avoid malpractice with accurate trust account management

Learn how to use technology to organize your trust accounts in our guide: How to Manage Your Trust Accounting With Clio

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