Law Business Essentials

Even though you may delegate most accounting functions to others, you must have a basic understanding of your accounting system. You are ultimately responsible to ensure all duties under Part 5 of the Rules of the Law Society of Alberta are met. You cannot rely on your bank or your staff to take responsibility for you (Rule 119.10).

Be cautious about taking advice from your approved depository and always verify that the advice conforms to the Rules. Some approved depository information is unintentionally misleading.

There are three basic steps in the accounting process:

1. Record transactions in the accounting records.
2. Prove the accuracy of the recording (balance/reconciliation).
3. Produce financial information and filings such as financial statements, government filings for GST, income tax, etc.

There are four basic accounting records in an accounting system, but many more are mandated by the Law Society. The most common records are: 

• Records of original entry (i.e. books of original entry) are where transactions are first recorded. The information that goes into these records comes from all the source documents that your firm handles (e.g., bank deposit receipts, cancelled cheques, credit card slips, invoices, lawyers' bills). The purpose of the records of original entry is to summarize information so that it may be posted to the accounts receivable ledger and trust ledger. 
• Accounts receivable ledger means a ledger which shows amounts owed by the client to the law firm for legal services provided and billed (Rule 119 (d)). 
• Trust ledger means a separate recording within the lawyer’s accounting system, for each client matter, listing all transactions for that matter, including all receipts, deposits, payments, withdrawals or transfers of trust money (Rule 119(aa)).  
• 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 both the accounts receivable 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 total of credits.

The funds and accounting records for trust accounts must not be commingled with your general funds. 

All non-trust transactions are recorded first in the records of original entry and the totals posted to the applicable accounts receivable ledger.