Your Trust Account Is Reconciled. But Is It Balanced?

The attorney has been receiving monthly reconciliation reports and assumes everything is in order. That is understandable. But a reconciled bank account does not necessarily mean the trust account is balanced.

Here is what attorneys should know and what to look for in their monthly reports.

Bank reconciliation is only part of three-way reconciliation

A bank reconciliation compares your accounting records with your bank statement, taking into account outstanding checks and deposits that have not yet cleared.

That is an important step, but it does not tell you whether the money recorded in your trust account matches what your records show belongs to individual clients.

That is why trust accounts require three-way reconciliation. It compares three balances:

1. The bank statement balance, adjusted for outstanding checks and deposits.
2. The trust account register balance.
3. The total of all individual client trust balances.

All three must agree as of the same date.

So when your bookkeeper tells you the bank account has been reconciled, there is one more question to ask: Do our client trust balances match the reconciled trust account balance?

Here is where you should look

Let us say your firm uses QuickBooks and Clio. Your bookkeeper has finished September’s reconciliation and sent you the month-end reports.

To check whether the trust account balances, start with two reports: the QuickBooks reconciliation report and Clio’s Trust Listing report.

Both reports need to cover the same trust bank account, and you need the balances as of September 30.

When running the Clio report, include the full transaction history through September 30. You want the total balances held for clients, not just transactions that occurred during September.

What if the numbers do not match?

Suppose QuickBooks shows a register balance of $50,000, but Clio’s Trust Listing shows $48,500.

That is a $1,500 difference.

The bank account may have been reconciled successfully, but the trust account is still out of balance. Your bookkeeper needs to investigate the difference and correct the underlying issue.

Make the comparison each month

When you receive your monthly reports, take a moment to compare these two balances. Make sure they are for the same bank account and the same date.

If they do not match, ask your bookkeeper why.

Even when the totals agree, individual client balances still need to be accurate. Matching totals are a good sign, but they are not a substitute for a complete three-way reconciliation.