Why is my Trust Account not Balanced?

As you dig deeper into trust accounting, this is the age-old question. Why is my trust accounting not balanced?

We see this all the time with clients. They’ll tell us that their trust account is balanced and they reconcile the bank. But just by reconciling the bank, doesn’t mean the client ledgers are balanced.  There are multiple reasons for imbalances in trust accounting or your IOLTA account.

Top 5 Reasons your Trust Accounts are not balanced:

You collected a retainer but it was deposited into the operating account.

In your legal software, you have recorded the invoice and applied the trust retainer but never move the funds to operating. Yes, this is a thing!

Your accounting platform is not connected to your legal time and billing software and there’s no way to validate the numbers and the figures that should be cross-referenced with the source, the bank.

You have a bookkeeper that doesn’t understand trust accounting and is entering transfers in and transfers out for trust account matters. These are just bank to bank transfers and there’s no recognition of revenue at any time. Even if you’re not using software there are some steps that need to happen to show the transfer and show the recognition of revenue on the attorney side.

You’re using bank feeds to track your income, cash basis accounting, in the transactions, are not being tracked in a proper accounting format.

Here’s the thing, you must have a three-way reconciliation. It’s required by the local bar association where you practice law. It just takes one cranky client who questions you were accounting and you may be subject to a bar audit. Bar audit could end up costing you money to defend yourself because as you know improper accounting of the client ledgers can result in a loss of your license to practice law. Serious stuff.

In the video below I’m going to demonstrate what some of these five tips look like. So you can recognize them in your accounting and perhaps create the fix.


Are you an attorney with messy trust accounting?  That is our specialty!

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Lynda Artesani

Lynda Artesani is the president of Artesani Accounting. Her firm specializes in working exclusively with the legal industry. She is passionate about helping her attorney clients migrate to modern cloud-based systems and become future-ready.​ ​ She is a Top 100 ProAdvisor, an alumni member of the Intuit Advisory Board and a member of the Intuit Trainer Writer Network. She also runs a Facebook group and a private group called The Accountant's Law Lab. It is a place where members can learn how to work with attorneys and law firms. Lynda lives in Southwest Florida. She is a registered yoga teacher and in her free time, you will find practicing yoga or walking on the beach.​

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