Legal Accounting vs Standard Accounting - What’s Different?
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Legal accounting is different because you are not just tracking your business money. You are often holding client money, too, and that changes everything.
If you want help tightening up your systems and making the numbers audit-ready, MMBA can support you with the controls, reporting, plus the day-to-day finance lift so you can focus on clients.
Key highlights
- Legal accounting is built around client money safety, not just profit tracking.
- Client funds must stay separate from the firm’s operating money and must be used only for that client’s matter.
- In England & Wales, client account reconciliations are expected as a three-way check and done at least every five weeks, with sign-off.
- UK compliance is not “edge case” – as of December 2025, the SRA shows 172,382 practising solicitors and 8,953 firms in the regulated community.
- A big risk trigger is treating retainers or payments on account as “income” too early. UK guidance is clear: a lot of that money stays client money until billed correctly.
Table of Content:
What’s the difference between legal accounting vs standard accounting?
Standard business accounting is built to answer one question – “How profitable are we?”
Legal accounting has to answer a harder one – “Can we prove, at any moment, that every pound of client money is where it should be?”
That is why legal accounting uses extra ledgers, stricter controls, tighter reconciliation rules, plus more detailed matter-level tracking.
| Area | Legal accounting (law firms) | Standard business accounting |
| Money you hold | Often includes client money held on trust | Usually, only business money |
| Where money sits | Client money must be in a client account separate from the firm | Usually one operating account (plus maybe savings/merchant) |
| Reconciliation | Three-way: bank statement vs cashbook vs total client ledgers, on a set cadence with sign-off | Usually bank vs cashbook (two-way) |
| Record keeping focus | Matter-by-matter transparency and audit trail | Business-level profit tracking |
| Risk | Errors can trigger regulatory breaches and client trust harm | Errors usually stay “commercial” (tax/finance impact) |
What even counts as “client money” in the UK?
This is where firms get annoyed, because it feels obvious until it is not. In the UK, your “client account” is not just any bank account. It has naming and location expectations (including having the word “client” in the account name), and client money must be kept separate from firm money.
And when you receive money “on account of costs”, guidance treats that as client money in many cases, which means it belongs in the client account until billed and transferred correctly.
One more practical detail people miss – client account deposit protection thresholds can matter in real life. The Law Society notes the FSCS protection per client (and flags an increase to £120,000 from 1 December 2025).
Why do law firms need three-way reconciliations?
- what the bank says you have,
- what your cashbook says you have,
- what your client ledgers add up to.
ICAEW spells out the “three parts” and warns that some firms only compare two of them, which is where compliance starts to crack.
What the three-way reconciliation is checking
| Reconciliation leg | What it proves | Typical failure you catch |
| Bank statement balance | The real cash position | Missing postings, timing items, bank errors |
| Cashbook balance | Your internal book is complete | Duplicate entries, wrong date/posting |
| Total client ledger balances | Every client’s funds add up | A matter ledger drift, misposted transfers |
How do billable hours and fee models change the accounting?
This is where legal accounting stops looking like “normal” bookkeeping.
In many firms, time is tracked in small increments (often six-minute blocks), then billed as:
- hourly rates,
- fixed fees,
- contingency-style success arrangements (more common in some areas than others).
That means your accounting system cannot just record “sale made” like a shop would. It needs to link time, fee earner, matter, VAT logic, plus billing rules, then post the right entries without messing up client money handling.
What are client costs and why do they cause so many errors?
Client costs (think court fees, counsel fees, search fees, expert reports) often get paid by the firm first, then recovered from the client, or paid out of client money with the right approvals and records.
If you mix these up with normal business expenses, two things happen:
- You lose matter-level clarity, and
- Your client ledger story gets messy when someone asks for the audit
This is also where ethics and conflicts show up. The SRA guidance frames the wider expectation: governance, systems, controls, plus safeguarding money entrusted to the firm.
Do law firms use cash-basis or accrual accounting?
You do not need more software. You need fewer gaps.
A legal-ready setup should handle – Matter-level ledgers, client money segregation, clear audit trails, time recording, billing rules, plus reporting that makes reconciliations and reviews boring in a good way.
Competitor content around SRA compliance puts a lot of weight on “systems and controls,” which is also the tone of the Accounts Rules intro itself.
Conclusion
Legal accounting is not fancy bookkeeping. It is a trust system. Standard accounting is about performance. Legal accounting is about performance plus proof: proof that client money stayed protected, records stayed clean, and the firm can answer tough questions without panic.
Want to keep your client money safe and your books stress-free?
Contact MMBA Accountants today to help you keep client money separate, stay on top of reconciliations, and make your accounts easy to check.
FAQs
What are the 4 types of accounting?
Most people mean financial accounting, management accounting, tax accounting, plus auditing. In law firms, you also have a “client money” layer that sits across the lot, because you are handling funds that are not yours.
What is legal accounting?
It is the set of accounting controls and records a legal practice uses to track office money and client money, with strict separation, matter-level records, plus reconciliation and governance expectations.
What are the 4 types of accountants?
The four main types of accountants are public accountants, management accountants, internal auditors, and tax advisers. In the legal sector, these roles often expand into specialist compliance-focused positions. This is where accountants for solicitors come in, supporting areas such as COFA oversight, SRA compliance, and reporting accountant workstreams to ensure law firms meet regulatory requirements and handle client money correctly.
Which is more difficult, law or accounting?
Law is judgement and argument. Accounting is proof and discipline. Legal accounting adds the compliance edge you have to be able to show, with records, that client money was protected the whole time.
What is a three-way reconciliation, in one sentence?
It is when you match the client account bank statement balance to your cashbook balance and to the total of all client ledger balances, then investigate any difference until it makes sense.