A three-way reconciliation is a check that three numbers agree for a trust account on the same date: the adjusted bank statement balance, the trust account's book balance (the firm's trust journal or checkbook), and the total of all individual client ledger balances. When all three match, the firm can show that every client's money is accounted for.
A two-way reconciliation only compares the bank to the book. It can pass while one client's ledger is overdrawn and another's is overstated by the same amount. Adding the client ledgers as the third leg catches that error, which is why many trust account rules ask for all three.
In LawAOS a person enters the bank statement closing balance for the period. The book balance, the sum of client ledgers and the difference are computed from the trust postings, and the result is Balanced or flagged as a discrepancy. Filed reconciliations are append-only.
- Timing items.
- Deposits in transit and outstanding checks make the bank and the book differ legitimately. List them, and check old outstanding items that never clear.
- Posting to the wrong client.
- The bank and book agree, but the client ledgers do not match expectations. This shows up when a client queries a balance or a ledger goes negative.
- Unrecorded bank charges or interest.
- The bank deducted a fee or credited interest that was never posted to the trust book. Post it with the reason, and check whether your rules allow the charge to be taken from trust.
- Transposed or mistyped amounts.
- A difference divisible by nine often points to two transposed digits, such as 1,540 entered as 1,450.
- Returned deposits.
- A client's check bounced after it was posted. The ledger shows money that never arrived, and any payment made against it was funded by other clients.
- Do not force the numbers to agree with an unexplained adjustment.
- Confirm the statement date and closing balance you entered are correct.
- List deposits in transit and outstanding checks, and recompute the adjusted bank balance.
- Compare each bank line to the trust journal to find items in one and not the other.
- Check each client ledger for negative balances or postings to the wrong client.
- Correct errors with new, dated postings that explain the reason, then reconcile again.
- If client money is short, follow your regulator's rules on replacing it and on reporting, which in many jurisdictions require prompt action.
- Keep the working papers with the filed reconciliation for your records.
| Line | Amount | Explanation |
|---|---|---|
| Bank statement closing balance | 48,250.00 | The balance printed on the trust account statement for the last day of the month. |
| Add: deposit in transit | 2,000.00 | A client deposit recorded in the books on the 31st that the bank credited on the 2nd. |
| Less: outstanding check | (1,250.00) | A payment to an expert recorded in the books that the payee has not yet presented. |
| Adjusted bank balance | 49,000.00 | Leg one: what the bank will hold once timing items settle. |
| Trust book balance | 49,000.00 | Leg two: the running balance of the firm's trust journal. |
| Client ledger: Client A | 20,000.00 | Evergreen retainer held for an ongoing dispute. |
| Client ledger: Client B | 17,500.00 | Settlement funds awaiting distribution. |
| Client ledger: Client C | 11,500.00 | Completion deposit for a property matter. |
| Total of client ledgers | 49,000.00 | Leg three: the sum of every client's balance. |
| Difference | 0.00 | All three legs agree, so the reconciliation balances and is signed and filed. |
Illustrative figures, not a real firm. General information, not legal advice: check your regulator's current rules for the required format, frequency and sign-off.
Bring the trust postings up to date.
Post every deposit, drawdown, interest credit, bank fee and adjustment for the period against the right client ledger, and mark cleared deposits as Cleared.
See the moduleCheck the ledger header.
The trust account header compares the account balance with the client-ledgers total and turns red if they disagree, so a book-to-ledger gap shows before you start.
See the moduleEnter the statement closing balance.
Start a reconciliation, enter the bank statement date and closing balance, and add a note explaining any reconciling items such as deposits in transit.
See the moduleRead the computed result.
LawAOS computes the book balance, the sum of client ledgers and the difference, and returns Balanced or a discrepancy verdict.
See the moduleFile and export the record.
File the reconciliation, which then cannot be changed. The Accounting page shows the same check as a report with findings, a signature line and CSV export.
See the module
Stated plainly, so you can decide before you sign up rather than after.
- Trust reconciliation is guided and started by a person each period; LawAOS does not reconcile trust accounts automatically or continuously.
- There is no bank feed or statement import for trust accounts, so the statement closing balance is typed in.
- LawAOS does not encode any jurisdiction's reconciliation frequency, format or sign-off rules; the firm applies its own.
- Deposits in transit and outstanding checks are explained in the reconciliation note; there is no separate outstanding-items register for trust.
Anything the list leaves open, our team answers directly.