This article is part of a six part section on finance. The pages in this section will take you through the basics of trust and general accounting, including a sample Chart of Accounts for a solo or small law firm, some comments about buying accounting software and some accounting tips.
It is a legal requirement of the Income Tax Act, part of the professional obligation of a lawyer and a sound business practice to keep proper financial books and records.
Levels of information
Law office financial information can be divided into three levels:
Bookkeeping Information. Bookkeeping information is the original information contained in records like receipt books, deposit books, cheque stubs, paid invoices and receipts, time sheets and disbursements logs (e.g. logs of photocopies or long distance charges). It includes records that result from the first level of sorting of such information-journals, ledgers and the trust listing.
Accounting Information. Accounting information is bookkeeping information organized into accounting reports. The two most common accounting reports are the Balance Sheet and the Profit and Loss ("P&L") Statement (a.k.a the Operating Statement).
Management Information. Management information is financial information organized into reports that are designed to assist management in decision-making, including
- aged Work-in-Progress
- aged Accounts Receivable
- summaries of billings, time and disbursements by lawyer, time period and area of practice
- budgets and budget variances
Computerized accounting packages have made it easy for small firms to get detailed management information reports.