Accounting refers to identifying, recording, classifying, and summarizing monetary transactions to prepare financial reports and analyze the firm's performance in the past year. It is an integral component of almost every industry because money is the primary driver. No business can do well without having an appropriate accounting and finance system in place. Similarly, accounting for lawyers plays a significant role in tracking the value generated by their services in money terms. Law is a noble profession that requires years of dedication, commitment, and perseverance. However, it also needs accounting as a backdrop to support its survival. As lawyers generate revenue by charging fees for their services, they need to account for the expenses and pay taxes to the appropriate authorities. The significance of accounting for lawyers is explained below in a summarized manner:
Unlike the capital investments made in trading or manufacturing concerns, the lawyers have professional qualifications representing their investment. However, it does not qualify for accounting for lawyers for mention as an initial investment. It is because knowledge is beyond quantification, and accountants cannot measure it. Instead, law firms must open a separate bank account for their business transactions. It must be distinct from their current or savings statement and only charge for business income and expenses. You can deem the time to open a bank account as an initial investment. Also, it improves marketing accounting services by presenting a clear financial picture of the law firm.
No business can operate successfully without knowing about the value addition through its operations in society. Accounting for lawyers also requires tracking income and receivables and recording expenses applicable for his matters. However, it does not provide information about the money you should charge your clients because that solely depends upon your qualifications and expertise. Accounting allows them to see the value he added due to his efforts on legal matters.
Accounting for lawyers becomes a complex task when you keep a separate client account for their income and expenses. Accountants need to record them against each other and not classify them as income. Sometimes, the law firms recover their costs from clients by charging additional fees only against such expenses.