Trust account bookkeeping is certainly a lot more complex than regular business bookkeeping. The rules are strict, and it can be easy for issues to arise if they are not adhered to.
Here’s what legal service firms can do to help make their annual trust audits stress free!
What law firms need to know about trust bookkeeping
Trust account bookkeeping involves a lot of detailed work. This is because every transaction must be accounted for in several different ways, and these must all cross-match.
- All trust account transactions must be entered into the accounting system by at least the next business day.
- Individual ledgers must be maintained for every client. The sum total of all these sub-ledgers must match with the bank account.
- Receipts and payments must be recorded in trust account receipts and payment journals. These must include very specific details regarding each transaction, including which client ledger it is to be allocated to.
- Back-up documents, whether paper or electronic, must be kept in a secure system for seven years.
Reconciliations are also more involved than normal, involving a three-way process:
- The bank account must be reconciled at least weekly, as well as at the end of the month.
- All receipts and payments should be reconciled and must match the bank statement.
- Individual client subsidiary ledger accounts must be reconciled and also match the bank statement.
How errors can happen
Managing a trust account is a complex and detailed process and it’s easy when running a business to miss a step along the way.
While the above processes (and more) exist to protect people’s money held in trust accounts, they also reduce the risk of errors occurring. Typical errors may include allocating funds to the wrong client ledger, inadvertently recording funds to the wrong bank account, or recording inadequate detail on transactions.
In any case, if errors do occur in your trust bookkeeping, you must be able to show that you took steps to rectify them immediately.
Taking the stress out of your trust audit
When your trust is audited you need to be able to answer questions from the auditors and explain any discrepancies.
For this your staff need to be well-trained not only in standard business accounts but also trust bookkeeping. There can also be no breaks in your accounting – which means you will need back-up staff if your trust bookkeeper goes on leave.
One way around this is to hire the services of a reputable and professional bookkeeping firm. By doing so, you will have more time to focus on your core business. You can also relax in the knowledge your complex trust account transactions are being taken care of by the professionals.
At Bookit, we are certified in trust accounting by the Law Institute of Victoria. We are a full-service firm, offering a dedicated account manager for our clients and cover 52 weeks of the year. Get in touch to find out more about how we can help your law firm stay on top of your trust account and general office bookkeeping.