A law firm’s chart of accounts contains one section that can end careers if it’s wrong: client trust accounting. Everything else is a service business; the trust section is a regulatory instrument. Template below — with the trust accounts clearly fenced.
The numbering backbone
1000s Assets · 2000s Liabilities · 3000s Equity · 4000s Revenue · 5000s Direct costs / COGS · 6000s Operating expenses
Leave gaps between codes (1000, 1010, 1020…) so new accounts slot in without renumbering — the classic rookie regret is a packed sequence in year one.
Sample chart of accounts — law firm
| Code | Account | Type / note |
| 1000 | Operating bank account | Asset — the firm’s money |
| 1100 | Accounts receivable — billed fees | Asset |
| 1150 | Unbilled work in progress | Asset — recorded time not yet invoiced |
| 1200 | Client trust bank account (IOLTA) | Asset — NOT the firm’s money; see below |
| 2000 | Accounts payable | Liability |
| 2100 | Client trust liability | Liability — mirrors 1200 to the cent |
| 2200 | Unearned retainers | Liability until earned |
| 3000 | Partner capital / retained earnings | Equity |
| 4000 | Fee revenue — by practice area | Revenue |
| 4100 | Reimbursed client costs | Revenue/recovery — pairs with 5100 |
| 5100 | Advanced client costs (filing fees, experts, court costs) | Direct cost — recoverable |
| 6000 | Salaries, rent, insurance, research subscriptions… | Operating expenses |
The trust section, in plain language
Trust account (1200) and trust liability (2100) must mirror each other to the cent, per client. The money is clients’; the firm merely holds it — commingling it with operating funds or dipping into it ahead of earned fees is a disciplinary offense in essentially every jurisdiction, and “the bookkeeping was sloppy” is not a defense bars accept. Three-way reconciliation (bank balance = trust ledger total = sum of client sub-ledgers) monthly is the professional floor. Retainers follow the same logic: liabilities until work earns them, moved to revenue only as billed.
Beyond trust, the firm’s health lives in unbilled WIP (time recorded but not invoiced — the silent cash-flow killer) and collection speed, which is exactly what the debtor days calculator measures. High WIP plus high debtor days is the two-part signature of a profitable-on-paper, cash-poor practice.
Trust accounting rules vary by jurisdiction — this template is educational; your bar’s rules and your accountant govern.
FAQ
What is an IOLTA account? An interest-bearing client trust account (Interest On Lawyers’ Trust Accounts) — client funds held by the firm, with interest typically going to legal-aid programs per jurisdiction rules.
Why must trust asset and trust liability match? Because the money belongs to clients — the asset and the obligation are the same funds seen from both sides, reconciled per client, to the cent.
How are retainers recorded? As unearned (liability) on receipt, recognized as revenue only when work is performed and billed.
What is unbilled WIP in a law firm? Time and costs recorded but not yet invoiced — an asset that quietly strangles cash flow when it grows faster than billing.