Legal Accounting: Office Funds and Matter Records

Separate Office Funds, Trust Money and Matter Disbursements

Classify money by who is entitled to it and why the practice holds or pays it. Office money funds the practice’s business. Trust money is held for another person under the applicable legal profession rules. A matter disbursement is a cost incurred for a particular matter, whose treatment depends on the contractual arrangement.

Use a stable matter identifier, such as M-204, across the bill, supplier invoice and ledger entry. Record the client, transaction date, amount, account classification and document reference. For a receipt, retain the payer’s details and the evidence identifying the debt it settles. A bank description alone rarely supplies that whole record.

Incorrect: record an advance for future legal costs as office fee income just because the bank receives it. Correct: identify the purpose of the advance and account for client money under the applicable trust requirements. The office books record fees and receipts through their own approved accounting treatment.

A bill entered in the office ledger does not itself authorise taking money from trust. In NSW, section 144 of the Legal Profession Uniform Law and rule 42 govern withdrawals for legal costs. The Law Society’s withdrawal guidance explains the available methods. Each has its own conditions concerning bills, instructions or notices. Retain the evidence for the method used before a transfer reaches the office bank.

Other jurisdictions have their own applicable requirements. Keep the practice’s jurisdiction-specific transfer procedure alongside its office posting policy. The separate trust accounts guide covers client-money duties and records.

Post and Check the Practice Transactions

Legal bookkeeping posts supported transactions to the correct account and matter, then checks that each event appears once. Begin with the approved bill from the legal billing process. Keep preparation and approval of that bill upstream of office posting.

1. Match an approved client bill to its matter and post the fee or recovery using the practice’s accounting policy.
2. Match each supplier invoice to the engagement, delivered work and matter. Check the supplier and invoice number for duplicates before recording the payable.
3. Record supplier payments against the payable and client receipts against the approved bill. Preserve part payments and unpaid balances.
4. Post an authorised credit or correction with its original transaction reference. Keep the original record accessible.

External-Analysis Invoice and Client Recharge

Consider a fictional practice buying external statement analysis for matter M-204. The practice contracts as principal and owes the supplier. Its client agreement permits recovery at cost. The supplier invoice and approved client recharge are both $1,100, including $100 goods and services tax (GST).

These figures assume taxable supplies, a GST-registered practice, entitlement to the purchase credit and a valid tax invoice. Use the entries only after the practice’s accountant confirms those facts and approves the expense/recovery accounts. The ATO’s agency ruling distinguishes a principal’s recovery from money paid as the client’s agent. The Law Society’s legal accounting handbook illustrates the principal treatment.

Event	Office entry under the stated assumptions	Matter evidence
Supplier invoice	Debit analysis expense $1,000 and GST credit $100. Credit supplier payable $1,100.	Invoice and approved engagement, M-204
Supplier payment	Debit supplier payable $1,100. Credit office bank $1,100.	Payment reference matched to invoice
Approved client recharge	Debit client receivable $1,100. Credit cost recovery $1,000 and GST payable $100.	Approved client bill, M-204
Client pays office account	Debit office bank $1,100. Credit client receivable $1,100.	Receipt matched to client bill

The example leaves both the supplier payable and client receivable at zero after payment. The expense and recovery remain separately visible. The purchase credit and output GST remain separately recorded. Any trust-funded settlement needs its own withdrawal authority before the final receipt entry.

Where the practice acts as the client’s paying agent, the underlying supplier transaction belongs to the client. Do not copy the principal entries into that arrangement. Keep the engagement evidence with the accountant’s treatment decision.

An unmatched receipt needs payer evidence. A repeated supplier charge needs an invoice and payment comparison. An unsupported journal needs an explanation and approval. Keep each item open for investigation instead of inventing an entry to balance the books.

Reconcile Office Banking and Matter Balances

Reconcile office banking from the statement to the cashbook, then connect the cashbook to the ledger. Complete the work for the same closing period throughout.

1. Match each statement transaction to a cashbook receipt or payment. Investigate bank charges, reversals and items missing from either record.
2. List genuine timing differences separately. Trace an outstanding payment to its later bank clearance and retain that evidence.
3. Compare the reconciled cashbook balance with the general-ledger bank account. Investigate any difference before signing off.
4. Reconcile matter schedules to their relevant control accounts, including receivables and recoverable costs. Explain unallocated items separately.

For example, an office statement closes at $28,400. A supported $1,100 payment entered in the cashbook has not yet cleared. With no other differences, the adjusted statement balance and cashbook both equal $27,300. When the payment clears, remove that timing item from the next reconciliation. A payment that remains outstanding needs follow-up, not automatic carry-forward.

If M-204 shows the client bill as paid but the receivables control still includes $1,100, inspect the receipt allocation and ledger posting. A receipt allocated to the wrong matter can leave the bank correct while both matter balances are wrong.

A matter summary helps identify those differences. Retain the bank evidence, general ledger and statutory client-money records separately. Each answers a different question about the transaction.

Review Corrections and Period-End Records

Assign approval of journals, write-offs, credits and other adjustments to a named responsible person. The preparer records the reason and attaches the supporting record. The reviewer checks the account, matter allocation and effect before approval. Where practical, use a reviewer other than the preparer.

For a duplicate supplier invoice, confirm which posting is duplicated and whether either has been paid. Reverse the duplicate through a linked correction with its approval history. If both were paid, record the supplier recovery separately from the correction. Preserve the difference between an accounting error and money still owed back to the practice.

Use this close checklist before releasing the period’s records:

• Reconcile every office bank account and identify each remaining timing item.
• Review outstanding supplier invoices and costs incurred but not yet recorded.
• Match the receivables schedule to its control account, with disputed and overdue bills identified.
• Check matter allocations and investigate costs awaiting recharge or an approved write-off.
• Review clearing accounts and unresolved receipts, with an owner and next action for each item.
• Retain the reviewer’s sign-off, reconciliation versions and correction history.

The expected result is a bank reconciliation with no unexplained difference and schedules that agree to the ledger. Any unresolved item remains visible with its amount, evidence needed and responsible person. Sign-off must distinguish that open work from completed checks.

Preserve a Reviewable Financial Handover

Give the accountant or incoming practice manager the records needed to follow an amount from its source to its closing balance. Include the chart of accounts, trial balance and detailed general ledger. Supply office bank statements and reconciliations, matter schedules, approved bills, vouchers and supplier invoices. Add the correction history, approval records and unresolved-item register.

For M-204, the recipient must be able to follow the supplier invoice through payment and the client recharge through receipt. The same matter identifier connects those records. A summary showing zero outstanding is useful only when the recipient can also find the transactions that cleared it.

If a mismatch concerns client money, notify the responsible practitioner immediately and preserve the evidence. Apply the jurisdiction’s trust irregularity process as well as investigating the bookkeeping cause. In WA, the Legal Practice Board’s trust account management guidance explains the written-notice duty under section 154 of the Legal Profession Uniform Law (WA). An internal investigation must not delay a required report.

For an office-only mismatch, trace the bank movement, source document and posting before approving a correction. Never net it against a client-money difference. Once the records explain the balances, use the documented controls to assess legal accounting software. The handover is complete when the recipient can reproduce the reconciliations and identify every unresolved item without relying on the departing manager’s memory.