The Difference Between a Disbursement and a Check in IOLTA Accounting

In IOLTA accounting, a disbursement refers to the purpose of a payment, funds paid on behalf of a client, while a check is simply the instrument used to make that payment.

Understanding this distinction helps law firms maintain compliant, transparent, and audit-ready trust account records.

Why the Distinction Matters

At first glance, a check may seem like a simple payment method and a disbursement just an expense. In IOLTA accounting, however, these terms have specific meanings that determine how funds are tracked and audited. Misclassifying one for the other can create discrepancies in trust ledgers and draw scrutiny from the State Bar or other oversight bodies.

Failing to separate checks from disbursements can lead to delayed client reimbursements, inaccurate billing, and even ethical violations. Keeping the two distinct protects your firm’s compliance, financial accuracy, and professional reputation.

This clarity also streamlines audits and strengthens client relationships. A well-organized ledger showing exactly how and why funds were used builds transparency and trust. Firms that master these distinctions maintain compliance more easily and inspire greater client confidence, both key to long-term growth.

What Is a Disbursement in IOLTA Accounting?

A disbursement in IOLTA accounting is any authorized payment made from a client’s trust account on their behalf. It represents the actual outflow of funds used to pay third parties, cover case expenses, or reimburse clients for costs advanced by the firm.

For example, when a law firm pays a court filing fee, expert witness, or process server directly from the trust account, that payment is recorded as a disbursement. Each disbursement must be tied to a specific client or matter and supported by documentation such as invoices, receipts, or client authorizations. These records create a clear audit trail that proves funds were used properly and according to client instructions.

Disbursements should also be recorded promptly to ensure the trust account balance accurately reflects the client’s available funds. Timely, well-documented disbursements not only meet regulatory standards but also build client confidence by showing that their money is managed responsibly.

The types of disbursements vary depending on the case. In personal injury matters, they might include medical records or expert fees. In corporate cases, they could cover regulatory filings or M&A-related costs. Regardless of the matter type, accurate tracking of disbursements is key to maintaining compliance and financial integrity in any law practice.

What Is a Check in IOLTA Accounting?

A check in IOLTA accounting is a payment instrument, physical or electronic, that transfers funds from the trust account to a payee. It’s the method used to execute a disbursement but doesn’t describe the purpose of the payment itself.

Checks can be issued to clients, vendors, or third parties, but not every check counts as a disbursement. For example, a check transferring funds between internal accounts or returning unused client money records a movement of funds, not an expense.

Understanding this distinction, a check is the vehicle, a disbursement is the reason, is crucial for accurate record-keeping. Each check should be supported by invoices, receipts, or authorizations that explain the underlying transaction. This ensures compliance with State Bar regulations and maintains client trust.

Regular check reconciliation is also essential. Comparing the check register with monthly bank statements helps detect errors or unauthorized transactions early. A disciplined review process safeguards client funds and reinforces the integrity of your IOLTA accounting practices.

Key Differences Between Disbursement and Check

Aspect	Disbursement	Check
Definition	A transaction that reduces client funds for a specific purpose.	A payment instrument (physical or electronic) used to transfer funds from the trust account.
Function	Represents the reason or purpose for spending (e.g., paying a vendor, reimbursing a client).	Represents the method or form of payment.
Payment Methods	Can be made via check, EFT, wire transfer, or credit card.	Only one payment method among several options.
Record-Keeping Focus	Recorded by client and matter, with documentation explaining why funds were spent.	Recorded by check number, date, payee, and amount, showing how funds moved.
Compliance Importance	Ensures transparency and proper allocation of client funds.	Ensures accuracy and traceability of payment instruments.

Common Mistakes Law Firms Make

Not recording disbursements by client or matter Leads to blurred accountability and makes it difficult to reconcile trust accounts or respond accurately to client inquiries.

Missing supporting documentation Skipping invoices, receipts, or client approvals can cause compliance violations and audit failures.

Treating all checks as disbursements Internal transfers or client refunds are sometimes misclassified as expenses, distorting financial reports and ledgers.

Relying too heavily on manual processes Manual data entry increases the risk of errors or lost records, creating mismatches between check registers and disbursement logs.

Inconsistent reconciliation practices Irregular or delayed reconciliations make it harder to detect discrepancies early and can trigger audit red flags.

Best Practices for Accurate Tracking

Always record disbursements by client/matter, regardless of payment type

Every disbursement should be linked to the specific client and matter it pertains to. This practice ensures transparency and allows for precise tracking of funds. Whether the payment is made by check, wire, or electronic transfer, the disbursement must be recorded with complete details.

Maintain supporting documentation (invoices, authorizations, receipts)

Documentation is the backbone of trust account compliance. Keep copies of all invoices, client authorizations, and receipts related to disbursements. This not only supports your records during audits but also provides clarity if questions arise about the use of funds.

Perform monthly reconciliations to ensure checks and disbursements align

Monthly reconciliation between the trust account bank statement, check register, and disbursement ledger is critical. This process helps catch discrepancies early, preventing costly mistakes and regulatory issues.

Use digital systems (e.g., Bill.com or trust accounting software) to reduce errors

Leveraging technology can dramatically improve accuracy and efficiency. Digital platforms automate tracking, link disbursements to client matters, and provide audit trails. Tools like Bill.com or specialized trust accounting software reduce manual entry errors and streamline reporting.

Engage professional bookkeeping oversight for audit-readiness

Having a dedicated bookkeeping professional or trusted accounting partner review trust account transactions ensures compliance and readiness for audits. Their expertise helps identify potential issues before they escalate and ensures that all disbursements and checks are properly documented and recorded.

How Irvine Bookkeeping Ensures Compliance and Accuracy

Irvine Bookkeeping specializes in trust accounting for law firms, providing precise, compliant management of IOLTA accounts. Their team understands the difference between disbursements and checks and uses advanced accounting software with expert oversight to maintain accurate, client-level tracking and documentation.

Through consistent reconciliations and audit-ready reporting, Irvine Bookkeeping reduces risk and gives law firms peace of mind, so attorneys can focus on practicing law while their trust accounts stay fully compliant.

Conclusion

Confusing disbursements with checks in IOLTA accounting is more than a semantic issue-it can jeopardize a firm’s compliance and client trust. Disbursements represent the purpose behind payments, while checks are just one way to execute those payments.

Clear, detailed tracking of disbursements by client and matter, supported by proper documentation and regular reconciliations, is essential. Embracing digital tools and professional bookkeeping oversight further safeguards accuracy and audit readiness.