If you’re new to Smokeball, here are my 10 tips for reconciling your trust account.
If you’re moving towards a paperless practice, work from an electronic copy of your trust account bank statement instead of printing off a hard copy. If you open your Statement with Adobe Acrobat Reader you can use the Highlight Text tool to highlight discrepancies or use the Sticky Note tool to add notes. For your first few reconciliations you may feel more comfortable working from a hard copy that’s been printed out, and then progress to using electronic copies later.
Once you select RECONCILE you can’t undo that action. So be sure to fix any discrepancies within that date period first if you can.
Anything that is on your bank statement but missing from Smokeball will have to be recorded in the ADJUSTMENTS tab until it has been fixed and can therefore be ticked at a later date.
Make use of the SAVE DRAFT feature – this will enable you to come back and finish reconciling when you’re ready. You’ll be able to pick-up your reconciliation where you left it.
If you have to reverse a transaction to fix a mistake, it will default to the current day’s date and this date can’t be changed or backdated. You won’t be able to reconcile these entries until you complete the reconciliation for that period.
Don’t select RECONCILE until you have a “0” variance in the brackets below the Reconciliation Balance figure on the right-hand side.
Always record the details/reasons for any Reversals or Adjustments. If someone else logged into your software, would they be able to see a complete story of what has occurred and why? You’re aiming for an easy to follow audit-trail of all your clients’ trust monies and any problems that you’ve fixed.
You can go back and print off your Bank Reconciliation reports at any time, regardless of whether you’ve closed off (clicked RECONCILE) or not.
Save electronic copies of all your bank statements and reconciliation reports in one place and in date order so that they’re easy to find.
Reconcile regularly. The more transactions you have, the more often you should be reconciling to keep on top of it. You don’t want to let your reconciling grow into a bookkeeping monster that you’re afraid to face!
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.