Glossary of Law Firm Bookkeeping Terms
Understanding legal bookkeeping terminology is critical for attorneys who manage client trust funds or oversee firm finances. This glossary breaks down the essential accounting and compliance terms every law firm should know - especially those handling IOLTA accounts, retainers, and jurisdiction-specific reporting requirements.
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A trust account used to hold client funds that are too small or short-term to earn interest individually. The interest is pooled and paid to the state’s IOLTA program.
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The monthly process of confirming that your trust bank balance, client ledger totals, and trust account book balance are identical. Required in nearly every state for IOLTA compliance.
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An individual record showing all deposits, payments, and balances for a single client or matter. Required for trust account compliance and subject to audit.
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Prepaid client funds held in a lawyer’s trust account until earned. Retainers must be tracked separately, recorded in the client ledger, and withdrawn only after services are billed.
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Cash accounting records income and expenses when cash moves. Accrual accounting recognizes income when earned, regardless of payment. Most small law firms use cash; accrual is often required for advanced financial reporting.
Law Firm Bookkeeping Services -
Any improper handling of client funds in trust - such as commingling, early withdrawals, or failure to reconcile. Trust violations are the leading cause of attorney discipline.
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Specialized bookkeeping services for law firms, including IOLTA reconciliation, client-matter tracking, retainer accounting, and bar-compliant documentation.
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A pricing model where services are billed at a fixed monthly rate, not hourly. Common in outsourced bookkeeping for law firms, but often varies in what’s included (e.g., some exclude trust account work).
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A one-time project that corrects out-of-balance lawyer trust accounts, recreates missing client ledgers, and restores compliance. Often required before monthly reconciliation can begin.
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The audit-ready trail that proves your law firm’s bookkeeping is bar-compliant. Includes three-way reconciliations, client ledgers, deposit records, and disbursement authorizations. Required in the event of a trust audit.
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Hiring an external provider to manage your legal bookkeeping instead of handling it in-house. Ideal for small law firms seeking expert support with fewer overhead costs.