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Bookkeeping Guide for Law Firms and Law Offices

Probosuko Adji Irfansah

Why Is Law Firm Bookkeeping Different?

Law firms have unique business models compared to ordinary trading businesses. There is no merchandise inventory, no COGS in the traditional sense. What exists is working hours converted into professional fees.

This is what makes law firm bookkeeping require a special approach. You canโ€™t just record income and expenses. You need to track how many hours have been worked, how much has been billed, and how much is still โ€œhangingโ€ as work-in-progress.

Main Components of Law Firm Bookkeeping

1. Time Billing System

The foundation of law firm bookkeeping is time recording. Every lawyer and paralegal must record working hours per case or per client.

What needs to be recorded:

  • Work date
  • Client name and case number
  • Type of work (drafting, meeting, court appearance, etc.)
  • Duration in hours or minutes
  • Hourly rate (billable rate)

Without disciplined time tracking, you wonโ€™t know how much can actually be billed to clients.

2. Work-in-Progress (WIP) Services

WIP is work that has been done but not yet billed. In law firms, this often happens because:

  • Case is still ongoing and not finished
  • Waiting for certain milestones for billing
  • Accumulation of working hours not yet sufficient to be billed

According to Financial Accounting Standards (SAK - Standar Akuntansi Keuangan), service WIP must be recorded as an asset. Common methods used are percentage of completion or valuation based on time already spent.

Example: A lawyer has worked 20 hours for a case with a total estimate of 50 hours. If the total fee is Rp 100 million, then the WIP recorded is Rp 40 million (20/50 x Rp 100 million).

3. Fee Receivable Management

Fee receivable is bills that have been sent to clients but not yet paid. Unlike WIP, this has become trade receivables.

Best practices for fee receivable management:

  • Create aging schedule (0-30 days, 31-60 days, 61-90 days, >90 days)
  • Establish follow-up policies for each age category
  • Weekly review for bills that have fallen due
  • Consider uncollectible receivables allowance for bills >90 days

Law Firm Financial Report Structure

Law firm financial reports have several peculiarities:

Balance Sheet:

  • Current assets: Cash, Fee Receivable, Service WIP
  • No merchandise inventory

Profit and Loss Report:

  • Revenue: Professional Fees (not sales)
  • Direct costs: Lawyer salaries, case costs that cannot be reimbursed
  • Operational costs: Office rent, utilities, administration

Tax Aspects to Note

Based on Indonesian tax regulations, law firms need to pay attention to:

PPh Article 23: When firms receive fee payments from corporate clients, the client will withhold PPh 23 of 2% from the gross value. Firms must ensure withholding proof is received to be credited in the Annual Tax Return.

PPh Article 21: For payments to lawyers who are not permanent employees (freelance), firms are obligated to withhold PPh 21 in accordance with regulations.

Corporate Income Tax: Based on PPh Article 17, the Corporate Income Tax rate is 22% of taxable income. Ensure all deductible costs are recorded with valid proof.

Practical Tips for Law Firms

1. Use the Right Software

Choose accounting software that supports project-based accounting and time tracking. Some options:

  • Clio (specifically for law firms)
  • Toggl + Jurnal/Accurate (combination)
  • Odoo with timesheet module

2. Establish Clear Billable Rates

Every level (partner, senior associate, junior associate, paralegal) must have clear hourly rates. This facilitates conversion from timesheet to invoice.

3. Review Utilization Rate

Monitor what percentage of working hours can be billed (billable) vs total working hours. A healthy utilization rate target for lawyers is 60-70%.

4. Separate Client Accounts

Client trust funds (client trust account) must be separated from firm operational accounts. This is not only best practice but also an ethical obligation of the profession.

Conclusion

Law firm bookkeeping requires a different approach from trading businesses. The main focus is on time tracking, WIP service management, and fee receivable management. With the right system, you can monitor profitability per case and ensure cash flow remains healthy.

How Can Arunika Consulting Help?

Bookkeeping & Tax Services

We provide bookkeeping services specifically for law firms and professional offices, including:

  • Setup chart of accounts specifically for professional services
  • Time billing and WIP recording
  • Monthly and annual tax reporting (PPh 21, 23, Corporate)
  • Financial reports in accordance with SAK

๐Ÿ‘‰ Learn about Professional Services

System Implementation & Custom App

Need a more sophisticated system? We also help:

  • Setup integrated time tracking software (Toggl, Clockify, or custom)
  • Cloud accounting implementation (Jurnal, Accurate, Xero)
  • Custom dashboard for monitoring utilization rate and project profitability
  • Billing system integration with accounting

๐Ÿ‘‰ See Systems & Technology Services

Ready to improve your law firmโ€™s financial efficiency? Contact us for a free 15-minute consultation.

This article was last updated in January 2025. Information in this article is educational and not official tax or legal advice. For specific situations, consult with a certified tax consultant.