Question 1

What bookkeeping do law firms in Canada need?

Accepted Answer

Canadian law firms require trust account bookkeeping (completely separate from operating accounts), three-way trust reconciliation (firm records vs. client ledgers vs. bank statement), Law Society compliance reporting, HST on legal fees (most legal services are taxable), disbursement tracking and recovery, WIP (work-in-progress) billing reconciliation, partner draw accounting, and separate bookkeeping for Law Professional Corporations if applicable.

Question 2

What is a three-way trust reconciliation for law firms?

Accepted Answer

A three-way trust reconciliation compares (1) the firm's trust general ledger, (2) individual client trust ledgers, and (3) the trust bank statement — ensuring all three agree to the penny. This is a Law Society requirement in all Canadian provinces. The trust general ledger must equal the sum of all client ledger balances, which must equal the trust bank balance. Any discrepancy, no matter how small, must be investigated and explained immediately.

Question 3

Do law firms charge HST on legal fees in Canada?

Accepted Answer

Yes — legal services are generally taxable supplies subject to HST in Ontario (13%) or applicable provincial GST/HST. There are limited exceptions for certain legal aid services and residential real estate transactions involving individual purchasers. Law firms must register for HST once annual revenues exceed $30,000, collect HST on legal fees billed, and remit net HST quarterly. Disbursements may or may not attract HST depending on whether they are recoverable taxable costs.

Question 4

Can you handle bookkeeping for a Law Professional Corporation (LPC) in Ontario?

Accepted Answer

Yes. Many Ontario lawyers operate through a Law Professional Corporation (LPC) for income splitting and tax deferral. We handle LPC bookkeeping including management fees between the LPC and the operating firm, shareholder loan balances, dividend distributions, and year-end corporate financial statements. We work closely with your CPA to ensure the LPC structure is maintained correctly for both Law Society and CRA purposes.

Question 5

How do you handle disbursements in law firm bookkeeping?

Accepted Answer

Disbursements are costs advanced on behalf of clients (court filing fees, process server fees, courier, title searches, expert reports). They are typically recovered from clients and billed on the final invoice. We track disbursements by client matter, reconcile advances against recoveries, and ensure disbursements are properly separated from firm revenue in your P&L. Unrecovered disbursements are a common source of revenue leakage in law firms that don't track them carefully.

Law firm bookkeeping.
Trust account experts.

Trust accounts require
zero-error bookkeeping.

Three-Way Trust Reconciliation

Trust-to-Operating Transfers

HST on Legal Fees & Disbursements

WIP Billing Reconciliation

Partner Draw & Profit Allocation

Every legal practice structure, covered.

Law firm bookkeeping questions answered.

Your law firm bookkeeper. Ready.

Law firm bookkeeping.Trust account experts.

Trust accounts requirezero-error bookkeeping.