At the end of every month, it is time for you to reconcile your trust bank account. This lets you confirm that your transaction records are accurate, complete as well as far from intentional or unintentional misappropriation.
What is the three-way reconciliation?
As the name suggests, 3-way reconciliation balances three things: your internal books, your trust account bank statement, and the client ledger balances.
What should you do every month's end?
First: Reconcile your trust account bank statement
A trust account reconciliation is an act of making our bank statement compatible with our trust accounting software or manual records. This is an extremely important aspect of ongoing compliance and administration. Reconciliation also gives you an overview of any clarity across your trust accounting records, helps you match them with transactions on your bank statement.
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In spite of the fact that the bank statement is worthy to trust, there may be some figures that need to verify on the bank statement.
1. If there are any deposits made after the statement cutoff date, add them to the balance shown on the bank statement
2. If there are any check or withdrawal made after the statement cutoff date, subtract them from the balance shown on the bank statement
Second: Compare the balance between your journal entries and your reconciled trust account bank statement.
You can print out all your journal of deposits or disbursements for your trust bank since this is the equivalent to the checkbook register for your trust account.
Third: Compare your trust account bank statement to client ledger cards.
The goal is to track and match all activities coming into and out of the trust bank account.
What makes this process more complicated is the fact that the balance on the trust account bank statement needs to be adjusted before the reconciliation begins. Sometimes, transactions occur at the end of the month and need some days to process. For instance, our client gave a check prior to the month’s end but not yet deposited. The check would be recorded in the client’s ledger but it would not yet have shown up in the trust account bank statement.
When you have done 3-way reconciliation, all three numbers should be equal. Let keep a record of this reconciliation.
If you need advice or services on any aspect of bookkeeping, accounting, and tax, our specialists are ready to help. Get in touch with us for a free quote.
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