Reconciling the trust account every month, in an hour

Three balances, one date

Pick the statement date. On that date you need the bank’s closing balance, your own book balance (every deposit and payment you recorded up to that date), and the total of every client’s individual ledger. The book balance and the client total should agree to the cent before you look at the bank; if they do not, a payment was recorded against the wrong client or against no client, and that is the first thing to fix.

Account for the timing differences

The bank and the books rarely agree on the day, and that is normal: a cheque written on the 29th clears on the 3rd, a deposit made at the branch on the 31st posts on the 1st. List each item that is in your books but not yet at the bank, and each item at the bank you have not recorded. Adjust the bank balance for the first set. If it now equals the book balance, the account reconciles; the second set is work for the books, not a reconciliation difference.

A difference is a finding, not a plug

Never book an adjustment to make the numbers meet. A difference has a cause: a bank fee charged to trust, a transposed figure, a deposit split between two clients and recorded once. Find it, correct the entry that was wrong, and write down what happened. If the cause is a fee the bank took from trust, the firm reimburses the account that day; client money cannot carry the bank’s charges.

A client whose ledger would go below zero is the one difference that cannot wait a month. A payment that would overdraw a client is paid from another client’s money, whatever the account total says.

Keep the report, and lock the month

The record most rules expect is the reconciliation itself: the three balances, the list of outstanding items, who prepared it and when, and the statement it was done against. Keep it with the statement. Once a month is reconciled, its entries should not change; a correction belongs in the current month with a note pointing back.