Law Firm Bookkeeping: A Monthly Close Checklist

Overview

Law firm bookkeeping comes together in the monthly close: a fixed sequence that cuts off time and expenses, bills and collects, reconciles the trust and operating accounts, reviews receivables, and ends with a partner sign-off. Run the same steps in the same order each month, with a named owner and saved evidence for each one, and the books stay ready for a partner meeting, a bar audit or a tax filing.

Accounting for lawyers differs from general small business bookkeeping in two places. Revenue starts as recorded time that has to become an invoice, and client money sits in trust under professional conduct rules. The checklist below is an operating model for firm administrators and finance leads. It is not accounting, tax or legal advice; confirm requirements with your accountant and your state bar.

Download the Law Firm Month-End Close Cheatsheet (PDF, 1 page): a printable summary of the ten close areas for your finance team.

Law firm bookkeeping runs on a close calendar

A close calendar turns a pile of month-end tasks into a dependable sequence. Many firms set a target number of business days for the close and review it each quarter. Speed matters less than order: you cannot reconcile cash before receipts are posted, and you cannot review aging before the month's invoices go out.

Put the calendar in writing and share it with the timekeepers whose entries it depends on. The first two steps are where most closes slip, and both depend on lawyers rather than accounting.

Cut off time and expenses, then review WIP

The close starts by fixing what belongs to the month. Announce the cut-off a few days ahead, then lock or flag the period so late entries are visible rather than silently changing last month's numbers.

At cut-off, the billing lead should confirm:

• All timekeepers have entered time through the last business day.

• Expense reports and card charges for the month are submitted with matter numbers.

• Entries posted to closed or wrong matters are corrected or listed.

• Late entries are counted so the partner pack can show them.

WIP review comes next. Billing partners look at unbilled time and costs by matter, decide what goes out this month, and record any write-downs before invoicing rather than after. Unbilled WIP that ages past one or two cycles is worth a line in the partner pack, because it is revenue the firm has earned on paper but has not asked anyone to pay.

Invoice, then post and allocate cash receipts

Once invoices go out, keep the invoice register for the month as evidence. Then post every receipt and allocate it to the specific invoice and matter it pays. Unapplied cash makes the aging report wrong in both directions: the client looks overdue and the firm's cash looks unexplained.

Separate the two kinds of receipts at this step. Payments of billed, earned fees go to operating. Advance payments for future fees and expenses go to trust under rules modeled on ABA Model Rule 1.15, which also requires complete records of trust funds to be kept and preserved. Transfers from trust to operating for earned fees should match invoices that went to the client.

Reconcile trust three ways

The ABA Model Rules on Client Trust Account Records commentary describes comparing the sum of client ledger balances to a control balance and then to the bank statement. It treats quarterly reconciliation as a minimum and monthly as the preferred practice. Many states set their own frequency and format, so check yours.

A three-way reconciliation compares three numbers that must agree. The worked example uses round figures.

If the three agree but one client ledger is negative, the reconciliation is still a failure: another client's money paid that client's disbursement. Investigate and correct it the same day, and follow your state's reporting rules if it applies. The trust accountant signs and dates the reconciliation, and a partner reviews it.

Reconcile operating accounts and disbursements

The operating bank reconciliation is the familiar one: ledger balance against bank statement, with outstanding items listed and explained. Do it for every operating account and every firm credit card, not only the main checking account.

Disbursements need a second look. Costs paid on behalf of clients, such as filing fees, couriers and expert invoices, should be recorded against a matter so they can be billed back. Run an unbilled cost report each month and ask why anything older than 60 days has not been billed. Uncollected cost recovery is one of the quieter leaks in law firm bookkeeping.

Review A/R aging and book accruals

Review the aging report with billing partners after invoices and receipts are posted. Focus on balances over 90 days, clients with balances in several buckets, and any client under an agreed payment arrangement. Record the agreed next step against each balance so next month's review starts from it.

Then book the accruals your basis of accounting calls for, such as expenses incurred but not yet billed by vendors, payroll that spans month end, or rent paid in advance. Cash basis firms make fewer of these entries; accrual basis firms make more. Your outside accountant should agree the list once a year so the same entries recur. The IRS recordkeeping guidance explains what records support the figures on a tax return and how long to keep them.

Report to partners and sign off

The partner pack should be short enough to read in one sitting and the same shape every month. A typical pack includes:

• Revenue billed and collected for the month and year to date.

• WIP and unbilled costs by partner or practice group.

• A/R aging with notes on the largest overdue balances.

• Trust reconciliation status, signed and dated.

• Cash position and known commitments for the coming month.

Sign-off means a named partner or the CFO confirms the checklist is complete and the period is closed. After that, changes to the closed month should go through a documented adjustment rather than an edit to a posted entry.

Where MATTEROOM fits

MATTEROOM's accounting page describes a native general ledger module that is multi-ledger, multi-currency and multi-dimensional, a customizable chart of accounts with multiple postings, and trust accounting integration. It states that every transaction is logged and every change tracked, and it describes reporting with revenue allocation and auditing tools. The billing management page adds prebill tracking with indicators such as available budget, billable to non-billable ratio and aging receivables.

In a demonstration, walk through your own close checklist. Ask how a period is locked, whether the system produces a three-way trust reconciliation report or the inputs for one, how unbilled costs are reported, and how accruals and adjustments are recorded after sign-off. If you are moving from another system, the legal accounting data migration and reconciliation checklist and the guide to migrating WIP, A/R and trust balances cover the opening balances you will close against. For background, see law firm accounting software explained and the legal trust accounting software guide.