Why Legal Practice Bookkeeping Is Different
Law firms operate under a set of financial obligations that do not exist in most other industries. The handling of trust money, the strict separation of client funds from firm funds, and the requirement for external trust account examination are not optional — they are professional obligations under the Legal Profession Uniform Law (Victoria). A bookkeeper working with a law firm must understand these obligations, not just the basics of GST and payroll.
Trust Account vs General Account: Strict Separation Required
A law firm's trust account holds money on behalf of clients — retainers, settlement funds, costs held in trust, conveyancing deposits. These funds are not the firm's money and must never be commingled with the firm's operating funds. The trust account must be reconciled monthly, and a trust account statement must be provided to the client on request at any time.
The bookkeeper's role is not to manage the trust transactions directly — that is the principal's responsibility under the Uniform Law — but to ensure the trust account reconciliation is properly maintained, the general ledger correctly reflects fees drawn from trust, and the records are in order for the annual external examination by a registered company auditor.
WIP Tracking and Billing Reconciliation
Work in progress (WIP) is one of the most important financial metrics for any law firm. WIP represents the value of time and disbursements that have been incurred but not yet billed to the client. If WIP is not tracked and reviewed regularly, a firm can be generating substantial revenue on paper that has not yet been invoiced — creating a cash flow gap that is difficult to explain at year end.
True Tally configures Xero with a WIP account and implements a monthly WIP review process, so unbilled time and disbursements are always visible and the invoicing team knows exactly what is ready to bill.
Time-Based Billing, Disbursements, and Retainer Management
Law firm billing is typically time-based, with disbursements (court fees, search fees, expert reports, barristers' fees) added to invoices. Managing disbursements correctly in Xero — as pass-through costs rather than firm revenue — requires proper setup from the start. Retainers held in trust and drawn down over time need to be correctly tracked so fee statements to clients are always accurate.
What True Tally Does for Law Firms in Geelong
- Monthly general account reconciliation — bank feeds reconciled, transactions coded, accounts up to date
- Trust account reconciliation support — ensuring the trust reconciliation is maintained and the records are audit-ready
- WIP review and reporting — monthly WIP balance reviewed, unbilled time and disbursements flagged
- Accounts receivable management — outstanding invoices tracked, aged debtor reports produced
- Disbursement tracking — court fees, search fees, and third-party costs coded correctly as pass-through items
- Payroll for legal professionals and support staff — STP-compliant, awards-compliant, super and leave managed
- BAS lodgement — prepared and lodged quarterly as a Registered BAS Agent
- Year-end preparation — accounts reconciled and packaged for your accountant's tax return preparation
Practice management software we work with
Leap, Practice Evolve, Smokeball, FileTime, and ActionStep. We set up reconciliation workflows between your practice management system and Xero so billing data flows correctly without double entry.
Who we work with
Sole practitioners, small law firms (2–15 lawyers), and specialist practices across family law, conveyancing, commercial law, wills and estates, and personal injury in Geelong and regional Victoria.
Frequently Asked Questions — Law Firm Bookkeeping
Do law firms need a separate bookkeeper for trust accounts?
Law firms in Victoria must maintain a trust account strictly separate from their general operating account. While dedicated trust accounting software handles day-to-day trust transactions, the bookkeeper ensures the trust account reconciliation ties to the general ledger correctly and records are prepared for external trust account audit as required under the Legal Profession Uniform Law.
How is WIP tracked in Xero for a law firm?
Work in progress represents the value of services rendered but not yet billed. In Xero, WIP is tracked using a dedicated asset account that accumulates unbilled time and disbursements. When invoices are raised, the WIP balance is cleared and revenue is recognised. True Tally configures this account and implements a monthly WIP review process.
What are the trust accounting rules for law firms in Victoria?
Under the Legal Profession Uniform Law (Victoria), law firms must maintain a separate statutory trust account, reconcile it monthly, and submit an external examiner's report annually. Trust money must only be disbursed on the written direction of the client or as authorised by law. True Tally ensures the trust accounting function is properly separated from the general bookkeeping.
Can Xero be used for law firm billing?
Yes. Most firms use dedicated legal practice management software (Leap, Practice Evolve, Smokeball) for time recording and billing. True Tally can set up Xero to receive invoice data from your practice management system, or configure Xero's invoicing with time-based billing templates for smaller practices that manage billing directly in Xero.
Let's Talk About Your Law Firm
Book a free 20-minute call. We'll discuss your current bookkeeping setup, trust account obligations, and what proper legal practice bookkeeping looks like for a firm your size.
Book My Free CallCall · 0421 132 796 · info@truetally.com.au