Law Firm Year-End Bookkeeping Checklist: 6 Steps to Start in October

Ask most attorneys when year-end bookkeeping starts and they’ll say January, when the CPA sends a request list. By then the year is over. The trust discrepancy from April has had nine months to compound, and the expert witness you paid in May has stopped answering email.

The fourth quarter is the last stretch when the books are still something you can change, not just report. This is the year-end bookkeeping checklist we work through with law firm clients, in roughly the order we do it.

Step 1: Complete a Three-Way IOLTA Trust Account Reconciliation

Start with trust. It carries the most risk, and a problem there makes every other number harder to trust.

A three-way reconciliation compares the adjusted bank balance, the trust balance in your books, and the sum of every individual client ledger. All three have to agree to the penny. If you’ve been doing this monthly, October is a quick confirmation. If you haven’t, this is where you find out how far back the problem goes.

While you’re in the ledgers, look for three things in particular:

• Negative client balances. More money has gone out for that client than came in. The only place it can have come from is another client’s funds. Fix this first.
• Stale balances. A $1,400 balance on a matter closed in 2023 is not firm money. Either it’s owed back to the client or, if they can’t be found, it may eventually have to go to your state’s unclaimed property program. Your state bar’s rules govern which, and when.
• Earned fees still sitting in trust. If the work is done and billed, the fee should move to operating, with the transfer documented against the client ledger. Leaving earned money in trust is commingling, even when it feels like the cautious choice. It also isn’t a legitimate way to push income into next year.

Our free IOLTA three-way reconciliation calculator will tell you in a few minutes whether your three figures agree.

Step 2: Track and Recover Advanced Client Costs

This is where the money is, and it’s where most firms quietly leave it.

When you advance a filing fee, a court reporter’s invoice or an expert’s retainer for a client, that’s a receivable, not an expense. It belongs in an Advanced Client Costs account, tied to a specific matter, as we covered in our post on a law-firm chart of accounts.

If those costs have been coded to a general “Legal Expenses” account, your P&L understates your profit, and some of those costs will never be billed back, because nothing connects them to a case.

Take a three-attorney personal injury firm that advances $6,000 a month in case costs. If a quarter of those go untracked, that’s $18,000 a year the firm never asks for when its cases settle. Go through the expense accounts line by line now, while those matters are still open.

Step 3: Record Unearned Flat Fees Correctly Before Year-End

Flat fees collected up front for estate plans, criminal defense, immigration matters and real estate closings aren’t yours until you’ve done the work. Until then they belong in an unearned fees liability account.

Booked as revenue when they arrive, they make a busy fourth quarter look far more profitable than it really is, and they leave next year carrying work you’ve already spent the money for. Review every flat-fee matter open at the end of the year and agree with your CPA on how much of each one has been earned.

Step 4: Review Law Firm Accounts Receivable and Unbilled Time

Clean receivables come before tax planning, because every tax decision depends on what you’ll actually collect.

Run an AR aging report and go through it with each responsible attorney. Invoices over 120 days old need one of three decisions: a real collection plan, a payment arrangement, or a write-off. Our post on why law firm AR is 90 days out explains why slow collections are usually a billing-cadence problem, and fixing your cadence in November means a stronger December.

Do the same with unbilled time. Work in progress that has sat for six months isn’t an asset. It’s a decision you’ve been putting off.

Step 5: Prepare 1099s for Law Firm Vendors, Experts and Contract Attorneys

Law firms pay a lot of people who need 1099s: expert witnesses, investigators, process servers, contract attorneys, court reporters and co-counsel. Payments to attorneys get special treatment, and generally have to be reported even when the attorney’s firm is a corporation.

The reporting threshold also changed for 2026 payments, so the rules you remember from last year may not apply. This is your CPA’s call, not ours. What we can do is make sure that by mid-November you have a W-9 on file for every vendor you paid this year, and that each payment is coded so the totals can be pulled in minutes.

The forms are generally due to recipients by January 31. Collecting tax IDs now is a fifteen-minute email. In late January it’s a week of follow-ups.

Step 6: Close Your Books in QuickBooks Online and Prepare Your CPA Year-End Package

The aim is simple: when December 31 arrives, you should be closing one month, not eleven.

That means October and November are closed on schedule, with operating, credit card and trust accounts reconciled. Our month-end close checklist covers the steps. Once the year is closed, lock the period in QuickBooks Online so a stray edit in February can’t change the numbers your CPA filed from.

Then give your CPA a year-end package: reconciled statements, trust reconciliations, an advanced cost schedule, an unearned fee schedule and your 1099 list. A CPA who gets that spends their time planning for you. One who gets a QuickBooks login and an apology spends it cleaning up, and bills you for it.

Need a Law Firm Bookkeeping Cleanup Before Year-End?

Plenty of firms start this list and find their trust ledgers haven’t balanced since spring, or that case costs were never tracked by matter. That’s common, and it isn’t a disaster. It does mean the fix is bigger than a few adjusting entries.

A Diagnostic Review will tell you exactly what shape your books are in and what it will take to fix them, in a written report that’s yours to keep whether or not you hire us. If the books are months behind, a historical cleanup can bring them current before year-end. Not sure you need either? Start with our seven signs your firm’s books need a cleanup.

Either way, you’ll find out in October, while you can still act on it.