The short answer
A trust reconciliation compares three numbers every month, and all three must match: (A) the trust bank balance, adjusted for deposits and cheques that have not cleared yet; (B) the balance in the trust book of original entry (the trust journal, also called the control account); and (C) the total of the client trust ledgers. This tool does the arithmetic, shows a cover sheet you can print, flags the common warning signs, and when the numbers do not agree it suggests where to look first.
The Law Society of BC checklist says trust accounts are reconciled within 30 days of month end and that the reconciliation is reviewed, signed and dated by the lawyer. Rule numbers are quoted from the Law Society’s own practice resources and can change, so confirm them against the current Law Society Rules.
Where to find each number
| Number | Where it comes from |
|---|---|
| Balance per bank statement | The ending balance on the month’s trust bank account statement. |
| Deposits in transit | Deposits in your trust journal that are not on the bank statement yet, usually made on the last days of the month. |
| Outstanding cheques and payments | Cheques and transfers in your trust journal that have not cleared the bank. The cheque register or the accounting system’s outstanding items report. |
| Trust journal balance (B) | The ending balance of the trust receipts and disbursements journal, from your accounting software. |
| Client ledger balances (C) | The “client trust listing” or “trust liabilities” report: every client file and its balance at month end. |
| Firm funds in trust (float) | Any of the firm’s own money kept in the trust account, for example to cover bank charges. Often shown as its own ledger. |
If this happens, then that
| If… | …then |
|---|---|
| A, B and C all agree | The reconciliation balances. Review, sign and date it, and keep it with the bank statement and reports. |
| B and C agree, A does not | The books agree with each other but not the bank. Look for missing deposits in transit or outstanding cheques, bank errors, and unrecorded bank charges or interest. |
| A and B agree, C does not | An entry reached the journal but not a client ledger, or went to the wrong ledger, or a ledger total is wrong. |
| A and C agree, B does not | The journal has an adding or carry-forward error, or an entry was recorded twice or missed. |
| A client ledger is negative | Other clients’ money may have been used. Find out why immediately and correct it. |
| Client ledgers total more than the bank holds | That is a trust shortage. Correct it right away and check whether it has to be reported. |
| A cheque has been outstanding for months | Find out why. Contact the payee, and consider replacing it or returning or remitting the funds under the Law Society rules. |
Monthly checklist (based on the Law Society of BC’s practice resources)
- Trust transactions are recorded within 7 days.
- The reconciliation is prepared within 30 days of month end, even when there was no activity.
- It is reviewed, signed and dated by a lawyer.
- Uncleared cheques and deposits are reviewed, and old ones are followed up.
- Bank charges, bank errors and posting errors are corrected.
- Large balances and balances on closed or inactive files are reviewed. Funds that cannot be paid out may need to go to the client or be remitted to the Law Society.
- The float is within the allowed limit.
- Any shortage is corrected right away and reported if the rules require it.
Need help getting your trust records in order, or a CPA review? See the firm’s trust accounting guide, Law Society trust report guide and trust accountant’s report page.
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This free tool is a courtesy of HJ Wu & Company Inc. (CPA), a Vancouver CPA firm offering accounting, tax, financial reporting and review assurance. Feedback on the calculators is welcome.