Law Office Accounting
Selecting the right accounting software can be a challenge for law firms. Law office accounting can be a bit different from accounting software for other business types, and therefore choosing the right software is difficult, but nevertheless important. A basic decision to make before purchasing software is which accounting “basis” to use: cash or accrual. Not all software supports both, so review this with your accountant or financial advisor and choose carefully. It is not easy to change your “basis.”
Cash accounting is a system where receipts are recorded during the period they are received, and expenses are recorded in the period in which they are actually paid. Many small law firms operate on a cash basis.
Accrual accounting records revenue and expenses when they are incurred. Unlike cash accounting, work in progress, billing and accounts receivable are reflected in the accounting system. Some larger firms will operate on an accrual basis, as will firms looking to obtain better and more accurate financial performance reporting.
Other considerations when selecting an accounting software product include:
• a firm’s need to maintain retainers and trust accounts
• financial reporting requirements
• Cash flow and collections considerations
• The firm’s accounting workflow
• The need to integrate with other systems (e.g., billing, practice management).