Common law firm bookkeeping mistakes and how firms spot them
Many law firm bookkeeping problems are not exotic. They come from treating firm books like any other small business. These are the patterns that come up most often, written so a firm owner can check for them without an accounting background.
Mixing client money with firm money
Depositing an earned fee into trust and leaving it there, or paying a firm expense from trust, blurs the line between client and firm funds. Bar rules in most states treat this seriously. A simple check: every trust withdrawal should tie to a specific client and a specific earned or disbursed amount.
Reconciling to the bank only
A trust account can match the bank statement and still be wrong if one client's ledger is negative and another's is overstated. Three-way reconciliation, comparing the bank, the trust ledger and each client ledger, is what catches this.
Recording retainers as income too early
Advance fees usually stay client money until earned. Booking them as revenue on deposit inflates income and can lead to spending money that is not yet the firm's. Firms often review how retainers move from trust to operating as they are earned.
No fixed close date
When books are updated only when someone has time, profitability and trust balances are unknown most of the month. A fixed monthly close date, even a modest one, changes this.
What to check
- Whether any client ledger shows a negative balance
- How earned fees move from trust to operating
- Whether reconciliations are three-way or bank-only
- When the books are closed each month
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Frequently asked questions
What is commingling?
Commingling means mixing client funds with the firm's own money in the same account or using one for the other. Rules vary by state, so firms confirm the specifics with their state bar.
Is this law firm bookkeeping guide advice?
No. Sam's List writes these guides for education. They describe common questions and processes, not advice for your specific situation.
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