Gone are the days when a lawyer only needed to know the law, doctrine, and jurisprudence. Today, to practice law, many other skills and knowledge are desirable, such as accounting for lawyers.
The truth is that most lawyers have never had any contact with accounting, whether in college or outside of it, or even with a virtual assistant for lawyers. Therefore, to ensure that you have this necessary first contact, especially if you are managing a law firm, we have prepared a complete guide that provides all the essential information on the subject.
How law and accounting relate
There are many ways in which we can draw a relationship between Law and Accounting. Perhaps the most obvious is its importance for Tax law, because it directly affects the way taxes are levied on individuals and legal entities.
However, the approximations do not end there.
Business Law governs the life of companies, and accounting is one of the most important aspects of managing any business, just as Criminal Law provides for sanctions for illicit acts involving accounting fraud. On the other hand, Family Law requires accounting statements for issues of division of assets.
And the most important relationship is at the base: the management of the law firm itself involves accounting. Therefore, the professional needs to develop and use knowledge and skills in the area to better manage the finances of his/her firm and keep it up to date with its tax obligations.
What is the first step in accounting for lawyers?
The first step in accounting for lawyers is to build the foundations. You didn’t start with banking law on the first day of college, did you? Instead, you started with more essential knowledge, such as what a law is.
Likewise, there is no point in trying to understand advanced accounting without starting from the basics.
There are two main points: one is to learn financial mathematics, which is used to calculate accounting values. And the other is to understand essential concepts, such as liabilities and assets, fixed assets, costs, and expenses.
How to perform financial control
Accounting for lawyers depends entirely on financial control. After all, to put it simply, it is through financial control that the activities and financial situation of a person, whether natural or legal, are recorded. Therefore, without control, there is no accounting.
In the past, this work was done by hand. With technological advances, we now have much more practical and efficient alternatives: spreadsheets, specific software, and applications for mobile devices.
What really matters, however, is not so much the tool you choose to use, but the application of good practices. You must carry out control in a consistent manner; for each entry or exit of resources, record the corresponding information in the most accurate and detailed way possible.
Benefits of formalizing a company in accounting for lawyers
Formalizing your law firm as a company is a decision that brings several benefits from an accounting perspective. The main one is the lower incidence of taxes.
Self-employed lawyers can pay up to 42.5% in taxes and contributions on their monthly earnings if they earn. However, if their income exceeds this range, this percentage approaches 50%. Meanwhile, if you formalize your office by choosing the right framework, the percentage can drop to 16.85% or even less!
Hire an accountant or accounting firm?
If a lawyer is proficient in accounting, does he still need an accountant or hire a virtual legal assistant services? The answer is: it depends mainly on the situation of your office.
Let’s imagine that you have a small office, where financial transactions are still few and far between. In other words, there is not much information to record and control. Furthermore, your resources are still limited, and hiring an accountant would significantly harm your profits.
In this case, it might be a good idea to take care of the accounting yourself until the office grows a little more.
Now let’s imagine that your firm is growing. You have more and more clients and more opportunities to acquire new clients. Financial transactions are also increasing in volume and complexity.
In this case, it is worth investing in hiring an accountant and preserving your time for more strategic activities.
Benefits of accounting for lawyers
When you have to personally take care of your office’s accounting, there is no secret about the importance of this knowledge, even at a basic level. On the other hand, if you are in an office that already has an accountant, is it really necessary to study accounting? There are many arguments to say yes.
First of all, it is necessary to know a little to understand what the accountant is doing and, thus, evaluate the work of this service provider. It is worth remembering that if the accountant makes a mistake or acts in bad faith, the responsibility also falls on their office.
And don’t forget that you are responsible for managing the office and will have to make decisions related to accounting. The accountant may offer advice, but the final decision is yours. To do this with confidence, you need to know the subject.
Secondly, when you study accounting, you open up new paths for your career. As we saw at the beginning of the content, there are several areas of law that use this knowledge. A lawyer who can, at the very least, understand accounting statements, acquires an edge to work in these areas .
Thirdly, the development of multiple skills is a trend in the job market. Employers are looking for professionals who are not limited to their specific field of knowledge. Therefore, having an interest and willingness to study accounting demonstrates a profile with positive characteristics, such as lifelong learning.
Accounting Tips for Lawyers
Now that you know the importance of accounting for lawyers, how about some useful tips to apply in your law firm?
- Always keep your personal and office accounts separate. Small things like buying a personal item with office money or putting money out of your own pocket into your office account to keep it from going into the red may seem harmless. However, they prevent your accounting from being as realistic and accurate as it should be.
- Don’t leave records for later. When you accumulate a lot of financial transactions to record later, you may end up leaving some out, especially those involving smaller amounts. This is a typical error that causes inaccuracy in the office’s accounting books. It is worth noting that even $0.10 spent on photocopies needs to be recorded.
- Keep your records and supporting documents for the appropriate amount of time. You may be called upon to provide clarification regarding your office’s accounting And if you no longer have the corresponding records and supporting documents, you will be subject to sanctions such as fines. The risk of loss is much greater than the work of keeping these documents.
How to Study Accounting for Lawyers
For those who do not intend to pursue a career as an accountant, it does not make sense to spend years on a technical or undergraduate course in accounting. In fact, there are several options aimed at lawyers who just want to learn the basics of the subject.
If you prefer to learn independently, there are excellent books for non-accountants. They present the main concepts, tools and techniques in a more accessible way for those who are not in the field.
If you like to be guided when you are first learning a new subject, there are several short courses available. These do not cover accounting in the same depth as courses designed to train accountants. Instead, they focus on the most important aspects, giving you a broad overview.
If you are interested in a specific aspect of accounting, it is worth looking for lectures and workshops. Since these activities last only a few hours, they focus on a single topic, which can then be explored in more depth.
Finally, if you would like to become a lawyer specializing in the financial and accounting management of law firms, you can take a specialization course. This will qualify you to work within the firm at a management level.