Should a law firm use cash or accrual accounting?

Small firms usually do fine with cash. Mid-size firms often file taxes on cash and use accrual reports to manage the firm.

Is there an IRS revenue limit for cash basis law firms?

The $32 million gross receipts test (2026) applies mainly to C corporations and partnerships with a C corporation partner. Qualified personal service corporations and most partnerships owned by individual lawyers can generally use cash at any size.

Are client retainers income under cash basis?

No. Under both methods, money in trust is a liability until the fee is earned and transferred to operating.

Which method shows a firm's real profit?

Accrual, because it matches income and expenses to the period when the work was done.

Can I switch accounting methods mid-year?

Changing your tax method generally requires IRS Form 3115 and is usually done at the start of a tax year. You can add accrual management reports at any time.

Cash vs Accrual Accounting for Law Firms: Which Should You Use?

Cash vs accrual accounting for law firms, explained with an example. Learn the IRS rules, how trust funds and WIP are treated, and which method fits your firm.