LAW FIRM ACCOUNTING 101
WITH IRVINE BOOKKEEPING

LAW FIRM ACCOUNTING 101
WITH IRVINE BOOKKEEPING

Updated: May 6

What is trust account?

Whenever a practice is started, the client will provide their attorney with an advance amount of money, which then will be deposited into the bank as a trust account. It is where client funds are kept safe until it is time to withdraw, basically, it is an account holding money on behalf of a client for their case. Every attorney or law firm has a fiduciary obligation to keep its client funds separate from the law firm’s funds.

Another way to properly describe the client’s trust account: “It is not an asset of the law firm - it is considered another current liability.” If all of the clients request a refund of their trust account balances, you will need to pay them off immediately. As a result, this trust account is another short-term liability for the company, that is why we need Trust Accounting to manage funds in this account.

The Essential Role of Trust Accounting

For a basic definition, Trust Accounting is simply bookkeeping of bank trust account under state requirements which involves separating the expenses of a trust account into different categories. Some of the expenses for the practice include legal documents, notaries, accountancy, court fee and it is important to run the money from the Trust account relating to these expenses. At the end of the practice, based on your work, the final invoice will be sent to the client for payment.

What Are the Responsibilities of a Trustee?

What Is Required For Trust Accounting?

  • Follow regulations, each state bar has a different set of rules governing trust funds, we need to make sure that we keep up with any changes to maintain compliance.

  • Keep all trust funds separate from business funds

  • Tracking of all transactions (deposits and disbursements). Every financial transaction made with a trust fund needs to be recorded with a detailed ledger for transparency.

  • Monthly reconciliation of the account.

Base on the above requirements, we can assume some responsibilities of a trustee (can be a trusted accountant or an attorney) as follow:

  • Administration of the trust prudently and in good faith when it comes to the needs of the clients.

  • Proper handling of all tax matters related to the trust account.

  • Keeping accurate and true accounts of all transactions with receipts and proof of payment as support.

  • Ensuring that the trust account is always available to be inspected by the clients.

If you, as a business owner, see that you cannot handle accounting on your own, consider hiring an accountancy service for contractors to help you with it. 

Call Irvine Bookkeeping now for a Free Quote!

#lawbookkeeping #ioltaaccounting #reconciliation #trustaccount #smallbusinessmanagement #budget #administrative #bookkeeping #accounting #digitalmarketing  #irvinebookkeeping #managebookkeeping #accounting #la #ca #california

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What You Need To Know About Trust Accounting For Attorney

Updated: Feb 25

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?

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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.

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.

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If you, as a business owner, see that you cannot handle accounting on your own, consider hiring an accountancy service for contractors to help you with it. 

Call Irvine Bookkeeping now for a Free Quote!

#lawbookkeeping #ioltaaccounting #reconciliation #trustaccount #smallbusinessmanagement #budget #administrative #bookkeeping #accounting #digitalmarketing  #irvinebookkeeping #managebookkeeping #accounting #la #ca #california

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Three-Way Reconciliation Of Your Trust Account

Updated: Sep 14

All of these account types (IOLTA, IOLA, and Attorney Trust) have the same purpose. They are all used to separate the client’s money from the regular business or operating account. The difference is simply the interest - how much it accrues and who gets it.

Whatever it is called, we need to make sure with the bank that the fee cannot be charged to that account. A separate operating account or credit card has to pay all fees so that the customer’s money is never touched.

IOLTA (Interest on Lawyer Trust Account) and IOLA (Interest on Lawyer Account) are the same, with different names. Most states use the IOLTA name, except for New York, which has its own naming schemes, uses the IOLA.

An IOLTA account is a type of trust account that can collect the interest, then transfers the interest collected to the state bar, usually for charitable purposes, primarily the provision of civil legal services for poor people (such as landlord/tenant issues, custody disputes, and advocacy for people with disabilities). For a clearer definition, it is a method of raising money to fund civil legal services to low-income people through the use of the interest earned on the attorney trust account.

In the United States, lawyers are allowed to place client funds in interest-bearing lawyer trust accounts. In the 1980s, the Interest on Lawyer Trust Accounts (IOLTA) program was first established in the U.S. Nowadays, all 50 states and the District of Columbia have IOLTA programs. However, only 44 states require lawyers to participate. In states with mandatory IOLTA participants, the lawyer must place client funds into a trust account and cannot withdraw the money until they have earned the fee.

What Is An Attorney Trust Account?

An attorney trust account is the second type of trust account, which may or may not be interest-bearing. For most attorneys, it is a non-IOLTA trust account used for an individual client with a large balance held, such as payments for personal injury. If the account accumulates interest, the interest will be transferred to the customer.

Here's a visual guide to understanding the difference between IOLTA and IOLA

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The difference between IOLTA/IOLA and Attorney Trust.

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If you, as a business owner, see that you cannot handle accounting on your own, consider hiring an accountancy service for contractors to help you with it. 

Call Irvine Bookkeeping now for a Free Quote!

#lawbookkeeping #ioltaaccounting #reconciliation #trustaccount #smallbusinessmanagement #budget #administrative #bookkeeping #accounting #digitalmarketing  #irvinebookkeeping #managebookkeeping #accounting #la #ca #california

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What Is An IOLTA Account? The difference between IOLTA and Attorney Trust.