A chart of accounts that fits a law practice
Which accounts a law practice should add, rename or switch off in the standard chart before its first postings, and why client money stays out of income.
By Achekam · · 5 min read · For Legal businesses in South Africa, Nigeria, Kenya
A chart of accounts is the list of boxes every transaction is sorted into. Get it right before the first posting and the management accounts read like a description of the practice: fees earned, disbursements recovered, what counsel cost, what staff cost. Get it wrong and every month ends with the bookkeeper reclassifying entries by hand, and the partners looking at a single line called "Sundry expenses" that hides half the overheads.
A standard chart is a sensible starting point, but it was not designed for a law practice. This article explains what to add, what to rename and what to switch off in Achekam before the practice starts posting, and how to keep money that belongs to clients out of the practice's income, for practices in South Africa, Nigeria and Kenya.
What the standard chart gives a practice when its books open
Each business has its own double-entry ledger, with a standard chart of accounts created when the books first open. Accounts can be added, renamed or switched off. That is all a practice needs to shape the chart around its own work.
Before changing anything, go through the standard chart with your accountant, account by account. Mark each account as keep, rename, add or switch off. Agree this in one sitting, because the chart is easier to design on paper than to repair after a year of postings.
Fee income, disbursements recovered and other income
Income is where a law practice differs most from a generic business.
All invoice revenue currently posts to one account, Professional Services Revenue (4100), and an invoice line cannot name another sales account. For most practices that account becomes the fee income account. Keep it, and if your partners prefer the word "Fees", consider renaming it rather than creating a second fee account that nothing posts to.
Then add accounts for the income that is not fees:
| Account to add | What it holds |
|---|---|
| Disbursements recovered | Outlays recharged to clients, moved out of fee income by a monthly journal |
| Interest received | Interest earned on the practice's own bank accounts |
| Other income | Occasional items such as sub-letting a spare office |
Because recoveries reach 4100 along with fees when they are invoiced, separating them needs a monthly reclassification journal, agreed with your accountant. A business can post manual journals; an unbalanced one, or one dated in a closed month, is refused, and a posted journal is corrected only by a reversal. How disbursements are billed and coded for VAT is explained in disbursements on a fee note.
Expense accounts a practice actually uses
A generic chart may have dozens of expense accounts a practice never uses, and lack the ones it uses every month. Common additions:
- Counsel's fees that are the practice's own cost, not recovered from a client;
- Correspondent attorneys' fees absorbed by the practice;
- Professional indemnity cover and other insurance;
- Practising certificates, fidelity fund and professional body fees;
- Legal research and subscriptions, such as law reports and online libraries;
- Continuing professional development;
- Outlays paid for clients, if your accountant prefers them in a separate expense account before recovery.
Group them so the income statement reads sensibly: people costs, professional costs, premises, technology, and finance costs.
Keeping money held for clients out of the practice's income
Money a practice holds for clients, such as a deposit for a property transfer or the proceeds of a settlement, is not the practice's income. In South Africa, section 86 of the Legal Practice Act sets out the statutory duty of law firms to keep client money in a trust bank account, when it may be invested in interest-bearing accounts and where the interest goes. Nigerian and Kenyan practices have their own rules for client money.
In the practice's ledger, the principle is simple: no client money ever passes through an income account. Many practices keep their trust records in a separate trust accounting system and keep the business ledger for the practice's own money. If your accountant wants the trust bank balance reflected in the business ledger too, it should sit against a matching liability to clients, never against fee income. Agree the approach with your auditor before the first trust receipt.
Bringing in accounts and opening balances from another system
A practice moving from another system or from spreadsheets need not rebuild by hand. A business can bring in its accounts, customers, suppliers and an opening-balance journal from CSV or Excel, and the move reconciles to the cent before a second person approves the cut-over.
Do the chart design first, then map the old accounts onto the new chart in the import file. After the cut-over, run the trial balance at the opening date; it shows each account for all time, for a period or at a date, and says whether debits equal credits. Compare it with the closing trial balance from the old system, account by account. The general approach to leaving spreadsheets behind is covered in moving the books off spreadsheets.
Nigerian and Kenyan practices should know that the ledger screens currently show every amount in rand and the chart is stored in ZAR, so label imported files and reports in your own currency.
Renaming and switching off accounts rather than deleting them
Accounts are renamed or switched off, not deleted. That protects history: a past posting always has an account to belong to.
Some rules for the life of the chart:
- Switch off accounts the practice will never use, so nobody posts to them by mistake.
- Rename only to clarify an account's meaning, never to reuse it for something different.
- Add new accounts when a cost becomes regular, not for one-off items.
- Review the chart once a year with your accountant, after the year-end.
Management accounts show an income statement for a chosen period beside the period before and a balance sheet at period end, so after the first month, read the income statement as a partner would. If it does not describe the practice in a way the partners recognise, adjust the chart now, while there is little history to move.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
