At its most basic level, trust accounting requires tracking of all deposits and all disbursements made through the account for each client. This is done by using several ledgers and journals, which we’ve outlined below. A general point to keep in mind is that separate clients should be considered, and treated as, separate accounts, even if all of the funds are pooled into one account.

This separation of recordkeeping is the only way to know exactly how much money has been received or paid out on behalf of each client at any given point in time. This idea here is that all funds for every client are traceable from the point of receipt to the point of disbursement.

Essential Records For Trust Accounts

Every attorney should maintain the following records for his or her trust accounts:

• Bank Check Ledger. This detailed check ledger is used to record every transaction on the account. All incoming and outgoing payments for every client whose funds are in that particular account are recorded here and reconciled against the bank statements.
• Receipts Journal. This journal records all of the funds placed into the trust account. Every client should have his/her own journal. The journal doesn’t have to be complex. It can be as simple as a checkbook. At a minimum you need to record the date the funds were deposited, the amount received, and to whom the funds were deposited.
• Disbursements Journal. This journal is used to record all funds paid out of the account. Again, every client should have his/her own journal. The same information must be maintained as in the Receipts Journal: date, funds paid out, and for which client they were paid. It is also good practice to make note of to whom the funds were paid. Check stubs can suffice as a record.
• Client Ledger Balances. This page maintains a running total of the trust account balances for each client. This sheet is what the lawyer would consult if asked for the current account balance of any individual client.
• Individual Client Trust Ledger. This is an individual accounting of the trust account balances for each client. It should show in chronological order: all receipts, all disbursements, and the account balance for that individual client. This is the sheet the attorney would consult if asked for a current record of an individual client’s funds and/or activity.
• Bank Reconciliations. Reconciliation should be performed monthly for every client trust account and any pooled accounts. To reconcile, the bank check ledger/checkbook register must equal the monthly bank statement.
• 3-Way Reconciliation. This reconciliation process involves the bank ledger, all of client ledgers, and the reconciled monthly bank statement. All of these individual records must equal one another.

For added protection, attorneys should also keep copies of all deposit slips, bank statements, checkbook stubs, cancelled checks, and client checks. This creates an audit trail relating to all transactions.

Simplify The Process With CosmoLex’s Attorney Trust Accounting Software

If this all sounds like too much paperwork, know that you don’t need to maintain paper ledgers. Computerized records are just as acceptable. CosmoLex’s law office management software has IOLTA trust accounting features built-in, which makes the process easier than ever. Integrated safeguards that protect against common trust violations and automated reconciliation are just two features of our software that make trust accounting recordkeeping simpler.

Learn more about CosmoLex legal trust accounting software.