Show description

That's really more important than what happens to occur in a given month. Why does Mr. Finch think the %umbers are way out of whack"? What accounting principles are being applied? What other information would help Mr. Finch better understand his accounting reports? Although all accounting principles are important, the most significant in day-to-day law office accounting are: H Matching. Recorded expenses should relate to the revenues they help produce. For example, rent paid in advance for a subsequent month should not be recorded as an expense in the current month.

Credits are deposits, representing theaccumulation of wealth,whereasdebits are checks (money paid out). It seems better to have more credits. Bank statements, however, are presented from the bank’s viewpoint of debits and credits. The account holder’s position is the exact opposite. Debits and credits are simply conventions adopted in bookkeeping for recording the changes in the status of the firm’s accounts. Debits increase (and credits decrease) assets and expenses. Credits increase (and debits decrease) liabilities, equity, and revenue.

Transactions relatingto each client mustbe kept separateso that the firm can readily access information when making decisions regarding individual clients. For example, each client's billing and payment history must be kept in a separate place, with the entries and balances related only to that client. If a separate ledger were not maintained, it would be difficultfor the client's lawyer to determine,whether the client had been billed for services and had paid for them. Figure 1-11 illustrates a comprehensive client ledger.