There are four basic accounting records in a lawyer’s accounting system, but many more are mandated by the Law Society. The basics are:
1. Books of Original Entry (a.k.a. Daily Journals), such as the general journal and trust journal, are where transactions are first recorded. The information that goes into these books comes from all the source documents that your firm handles (e.g., bank deposit receipts, cancelled cheques, credit/debit card slips, invoices, lawyers’ bills, electronic fund transfer confirmations).
The purpose of the Books of Original Entry is to summarize information so that it may be posted to the subsidiary ledgers. These books show all the funds received and disbursed and, in the case of trust books, a running balance of the total amount in trust.
2. Accounts Receivable Ledger (a.k.a. AR Ledger) is the subsidiary ledger (i.e., a separate record/ledger for each client) where you record:
3. Trust Ledger is the subsidiary ledger (i.e., a separate record/ledger for each client) where you record receipts and withdrawals of trust funds made on behalf of that client and the balance remaining in trust.
4. General Ledger (not to be confused with your general account) is the hub of your accounting records. After all your Books of Original Entry have been balanced, the total amounts from the Books of Original Entry and the two subsidiary ledgers (AR and Trust Ledgers) are posted to the General Ledger.
The General Ledger is then used to create a trial balance. The trial balance lists balances in each account, whether they are a debit or a credit, in the general ledger. For the books to be “in balance,” the total of debits must match the grand total of credits.
For a list of all required records see Appendix B: Required Records.
Pay your smaller disbursements, such as office disbursements (photocopy fees, long distance charges, etc.) and ISC search fees, on your general account, not your trust account. Once you have made and recorded these disbursements on behalf of a client, add the disbursements to their invoice and then enter the entire invoice on your AR ledger.
It’s okay to make larger disbursements such as probate fees, tax payments, etc. out of trust. In those cases, the disbursements are made on your trust ledger.
The funds and accounting records for trust accounts must not be commingled with your general funds. This is why it is necessary for you to keep separate records for trust transactions, and in particular a separate:
All non-trust transactions are recorded first in the general journal (a Book of Original Entry) and the totals posted to the applicable accounts’ receivable ledger cards (cumulatively the AR Ledger).