Best Practice: How to structure a general ledger of accounts

Asked and Answered

By John W. Olmstead, MBA, Ph.D, CMC

Q. I am the newly elected managing partner of 12 attorney business transactional firm in St. Louis. The firm is trying to implement a more disciplined approach to financial management. I have been charged with developing our first budget and I am having difficulties due to the overall structure of our general ledger. Our system was setup by our outside accountant and the expense accounts lump too many expenses into too few categories. Do you have any suggestions?

A. This is a typical problem that I see in many firms. Accountants often setup law firm accounting systems to facilitate preparation of income tax returns as opposed to systems designed to facilitate internal management accounting, budgeting, etc. Often too many expenses are lumped into single categories or are not assigned to categories based up cost behavior. The attached sample general ledger chart of accounts has been a standard recommended for use in law firms for many years by law firm management consultants, the Association of Legal Administrators, and others. Click here for a sample general ledger chart of accounts

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John W. Olmstead, MBA, Ph.D, CMC,(www.olmsteadassoc.com) is a past chair and member of the ISBA Standing Committee on Law Office Management and Economics. For more information on law office management please direct questions to the ISBA listserver, which John and other committee members review, or view archived copies of The Bottom Line Newsletters. Contact John at jolmstead@olmsteadassoc.com.