Year-End Bookkeeping Checklist for Law Firms
The last few weeks of the year are the best time to get your firm’s books in order. A clean year-end close makes tax season faster, gives your CPA what they need the first time, and gives you an accurate picture of how the year went. Use this checklist to work through it.
Why Year-End Matters for Law Firms
Law firms have more to close out than most small businesses. Trust accounts, advanced client costs, and unbilled time all need attention, on top of the usual bank reconciliations and payroll. Problems found in December are much easier to fix than problems found in April.
Trust Accounts
Complete the three-way reconciliation for every trust and IOLTA account through December 31.
Resolve any negative client balances or unexplained differences.
Move earned fees out of trust and into operating, so they don’t sit in trust over year-end.
Review client balances that haven’t moved in a long time, and follow your state bar’s rules for unclaimed funds.
See: Trust Account & IOLTA Reconciliation
Operating Accounts and Books
Reconcile all bank, credit card, and loan accounts through December 31.
Review uncategorized and miscategorized transactions.
Confirm retainers weren’t recorded as income.
Separate any personal expenses that ran through the firm.
Receivables and Unbilled Time
Send final invoices for work completed in the year.
Review your accounts receivable aging and follow up on overdue balances.
Decide which old balances are truly uncollectible, and discuss write-offs with your CPA.
See: How to Collect Unpaid Legal Fees
Advanced Client Costs
Reconcile advanced client costs by case.
Bill recoverable costs to clients where your fee agreement allows.
Identify costs on closed or lost matters that won’t be recovered, and review them with your CPA.
See: Contingency Fee Accounting
Payroll, Contractors, and Owners
Confirm year-end payroll totals and that the payroll reports match your books.
Collect W-9s from contractors and other vendors you’ll need to issue 1099s to.
Review owner draws and distributions for the year.
Get Organized for Your CPA
Run a year-end balance sheet and profit and loss statement.
Gather loan statements, fixed asset purchases, and any large or unusual transactions.
Talk with your CPA before year-end about tax planning, such as the timing of expenses or equipment purchases.
See: Law Firm Balance Sheet and Law Firm Profit and Loss
How Azar Insights Helps
Year-end close and reconciliations for operating and trust accounts
Cleanup for firms that fell behind during the year
Clean, CPA-ready financial statements
Frequently Asked Questions
When should a law firm start its year-end close?
Ideally in November or early December. Starting early leaves time to bill outstanding work, follow up on receivables, and fix problems before December 31.
What does my CPA need from my law firm at year-end?
Usually reconciled bank and credit card accounts, a year-end balance sheet and profit and loss statement, payroll reports, loan statements, and records of large purchases. Ask your CPA for their specific list early.
Do trust accounts need to be reconciled at year-end?
Trust accounts should be reconciled every month. A clean December reconciliation is especially important, because it confirms your client balances going into the new year.
What if our books are months behind at year-end?
It’s common, and it’s fixable. A catch-up project can reconcile the missing months before your CPA needs the numbers. See Law Firm Bookkeeping Cleanup.
Should we write off old unpaid invoices before year-end?
Possibly. It depends on your accounting method and the facts of each balance. Review aged receivables and discuss write-offs with your CPA before December 31.
Azar Insights provides bookkeeping and accounting services. Consult your CPA for tax advice.
Related Reading
Law Firm Balance Sheet · Law Firm Profit and Loss · Bookkeeping Cleanup & Catch-Up
About Azar Insights
Azar Insights provides outsourced bookkeeping, accounting, and fractional controller and CFO services for law firms nationwide. With 15 years of accounting experience, we work remotely with solo attorneys and multi-partner firms using secure, cloud-based tools.