You hold other people's money. A single trust balance is not a list of who it belongs to.
Open the trust account in the software and you see one liability, or worse, you see the trust bank treated like a normal checking account. The bank statement also shows one number. Neither of those is the question a client, a partner, or a bar auditor is asking. They are asking whose money is in there. Until you can answer that client by client, and have those answers add to the bank, the trust account is not reconciled. It is only deposited.
There are three totals, and they have to match after you account for timing. The first is the bank balance, adjusted for deposits and checks the bank has not cleared yet. The second is the trust balance on your books, the amount the firm says it is holding. The third is the sum of every client ledger, matter by matter. If any one of those is a different number, you do not have a tie. You have a remainder, and the remainder belongs to somebody.
A pooled trust account is still one bank account. Pooling is normal when many clients' funds sit together. Pooling does not create a client ledger. The bank will never send you a statement that splits the balance by matter. That split lives in your records. If the software has only the bank account and no balance per client, you cannot do the third leg of the reconciliation at all. You can match the bank to a lump sum and still be unable to say what you owe each client.
The common hiding place is a transfer that was recorded on one side. An earned fee moved from trust to the operating account has to leave the client ledger and reduce trust at the same time it arrives in operating. If someone coded the deposit in operating and did not reduce that client's balance, operating looks fine and the client list is heavy. If they reduced the client and forgot the deposit, the client list looks clean and operating is short. The three-way is how you see which of those happened.
The other hiding place is using the trust bank account as if it were operating. Filing fees, vendor bills, and partner draws do not get paid from client funds. When they do, the bank drops and no client ledger explains the drop, or a client's balance goes negative to cover a firm expense. A negative client balance means you used that client's money, or you used the pool, for something that was not that client's matter. That is the line you want to see before anyone else does.
Start with a list, not with journal entries. For each matter that still has money, write the client name and the balance you believe you hold. Then list every deposit and every disbursement in the trust bank for the months that are open. You are looking for items that never landed on a matter: a deposit with no client, a check with no matter, a transfer to operating with no fee entry. Those orphans are the reconciliation. The rest is arithmetic.
Do not earn a fee in the books by editing history into a smooth story. If you are not sure a fee was earned, leave it in the client balance and say so. Moving it to income because the operating account is tight makes the three-way lie in the other direction. The operating account's problems get solved in the operating account. Trust does not lend to the firm.
Send the trust bank statements, the operating statements for the same months, a current client ledger if one exists anywhere (a spreadsheet counts), and the last months of deposit slips or electronic deposit detail. Access to the software helps. A cleaned-up version is not required, and it is often harmful, because the cleanup has already mixed the legs.
The first product is a three-way for the latest month that either ties or names the difference by client and by orphan item. Later months get the same habit: reconcile the bank, total the client ledgers, and do not close the month while those disagree. What you can tell a client, on the phone, is their balance. What you can tell a partner is that draws came from operating. Those are the two sentences the file has to support.
The bank account can be one account. The records cannot be one number. You still need a balance for each client whose money is in the pool. Without that list, you can reconcile the bank and still not know whose funds you hold.
They stay identified as that client's balance until you move the earned amount to operating and reduce the client ledger by the same amount, at the same time. Leaving them in trust is a ledger problem. Taking them out with no ledger entry is a worse one.
No. A draw is the firm's money, and it comes from the operating account after a fee has actually been earned and moved. Trust is not a source of partner pay, rent, or the firm's vendors.
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