As an attorney, you are already well-versed in the law. However, if you own a law firm, you also need to consider accounting and bookkeeping responsibilities. Proper bookkeeping allows you to monitor the success of your law firm and make the best-informed decisions for the future. You are already juggling plenty of responsibility for your law firm, but you still need to keep up on those books. When you fall behind, it can be a mess to untangle. Let’s look at the best law firm accounting and bookkeeping practices in New Jersey.
The Difference Between Law Firm Accounting and Bookkeeping
You might think that accounting and bookkeeping are the same, but they occur at different stages. Bookkeeping is the first step to help you track your cash. You can record every financial transaction, run payroll for your employees, and create invoices with bookkeeping. It is important to be diligent and accurate when recording this information.
On the other hand, accounting is a bit more subjective. You can use accounting practices to uncover business trends, plan for your taxes, and forecast your financial future. Accounting can also help capture those expenditures that were not recorded initially. Plus, accounting is a way to prepare financial statements and other reports.
Without the proper bookkeeping, you cannot get an accurate accounting outlook. You might want to hire someone to handle this task. Many small business accounting services are ready to help with those bookkeeping and accounting duties.
Now that you know the difference between accounting and bookkeeping, here are some tips for implementing these practices at your New Jersey law firm.
Keep a Chart of Accounts
There is one way to keep accurate records, and that is by maintaining a chart of accounts. This process provides you with the framework to organize your data into categories, such as expenses, revenues, client expenses, and trust accounts. Think of these charts as an index of your firm’s financial accounts.
Typically, the chart of accounts includes five categories: revenue, owner’s equity, assets, liabilities, and expenses. The chart of accounts helps ensure that your financial information is recorded correctly.
Make Sure To Separate Personal and Business Expenses
Always keep those business and personal expenses separate to avoid any financial headaches. Intermingling your finances is not only frowned upon by the IRS, but it can make it impossible for you to claim expenses at tax time. Along with that, you will have a hard time tracking the financial health of your business when you don’t separate those expenses. Always keep separate accounts for business and personal finances. If you spot a mistake, like depositing a personal check in your law firm’s account, make sure to correct it in your books.
Don’t Lose Track of Business Expenses
Unfortunately, many attorneys often lose track of their expenses. It is always a good idea to record those expenses daily. There is less chance to misplace or lose an invoice or receipt with that schedule. Don’t forget to go into detail about the expenses. For example, if you had a meal with a client, write down all of the pertinent information, such as the client’s name and reason for the meeting. If you happen to be audited, you can easily prove that the expenses were related to your business.
Ask for Professional Help
Many people believe that they can handle the tasks of bookkeeping and accounting. However, it can be so easy to fall behind on tracking expenses and other financial information. Running a law firm is challenging, especially if you have a small firm. You can take some of the responsibilities off your shoulders by hiring a professional bookkeeper or accountant for these duties. With a little experienced help, you can ensure that nothing falls through the cracks.
If you wait until tax time to track your finances, you will run into many problems. Track these finances on a weekly schedule. Put it on your calendar and stick to the schedule. It is vital to keep on top of those expenses and other financial matters. When you let these bookkeeping duties slip, you will have to spend hours at tax time trying to reconcile your books. When that happens, there is an increased chance of making a mistake.
Double Check Your Entries
It can be easy to make a simple mistake in your books. However, one small mistake can cause pandemonium for your records. Take your time when making entries. You always want to double-check your information to ensure that everything is accurate.
Always Track Transactions
Get an accurate picture of your law firm’s current financial standing with proper bookkeeping. Any missing transactions can create inaccuracies that lead to financial problems. Losing track of those critical transactions often cause issues with your taxes. You can avoid these problems by hiring an accountant or bookkeeper. If you want to track transactions by yourself, use accounting software to help automate the process.
Don’t Mix Up Owner’s Draws and Pay
When you take money out of your business account for personal use, that is known as a draw. An owner’s pay is paying a salary for yourself from the business. These transactions are often confused with one another, leading to inaccuracies in the books. Whether you are paying or drawing, make a record in your accounts to ensure there are no tax mistakes.
As you can tell, there are plenty of things to consider if you want accurate financial records for your law firm. In most situations, you want to find an experienced accountant who can handle these records for precise bookkeeping.
Find the Right Accountant for My Small Business
Accounting and bookkeeping can be challenging to maintain, especially when operating a busy law firm. If you want professional assistance, make sure to speak to TMD Accounting. With over 40 years of experience, our Thomas M. Ditullio Accounting team provides financial management, tax assistance, and payroll services to businesses and individuals throughout the Gloucester County area. You can schedule a consultation by calling 1-856-228-2205.