Those working in the legal or real estate industry would be familiar with trust accounts.
I started working with trust accounts in my teens when I was employed by law firms. Now as the owner of Festival Bookkeeping I’m once again working with trust accounts on behalf of clients.
It’s important that the money held on behalf of clients can be fully accounted for every step of the way. In fact in many circumstances firms must have their trust accounts professionally audited once a year to ensure trust account legislation is being complied with. So by working with trust accounts you are taking on another level of responsibility, in addition to the usual tax responsibilities that come with small business bookkeeping.
With that in mind, here are some of my top tips for working with trust accounts:
- Do not overdraw (cause a deficiency of) a client’s trust ledger
- Perform regular backups of trust accounting software & store a copy off-site as well
- Ensure you have the details of every client whose money you hold
- Avoid single trust transfers between unrelated parties if possible (eg vendor to purchaser)
- Keep all cheque butts and ensure all cheque numbers are accounted for in sequential order
- Do not pay general office expenses, debts or bank fees from trust monies
- Check with the governing body of your industry as to what accounting software is suitable for your trust accounting. In some circumstances the software you use to track your business income and expenses is not suitable to use for your trust accounting.
- Keep the details of any errors or discrepancies that have occurred and/or been fixed
- Don’t draw “cash” cheques
- Finally – reconcile regularly
Be sure to do your research and check which legislation applies to your industry and state.
As with any small business bookkeeping, errors can occur but if they do make sure you have a “paper trail” or explanation of what occurred and how it was fixed. Fix mistakes promptly and don’t hang onto client’s money any longer than necessary. Regular reconciling will help pick up any differences between your bank account activity and your accounting records. A good bookkeeper can help you with this task.