Client trust accounting must show whose funds are held and explain the account balance. IOLTA rules and professional duties are jurisdiction-specific. This records guide uses California examples, not a nationwide compliance checklist. The responsible attorney should confirm the applicable requirements with ethics counsel or the relevant bar program.
What is the account holding?
IOLTA and other client trust accounts are not interchangeable with operating accounts. Determine which account is appropriate for the funds, their expected duration and applicable rules. California's trust-account guidance distinguishes funds appropriate for pooled IOLTA treatment from those that should earn interest for the client.
Are firm funds ever permitted?
California Rule 1.15 allows limited exceptions, including funds reasonably sufficient for bank charges. It also addresses funds belonging partly to the firm and partly to others. Therefore, never any firm funds is not an accurate statement of that rule. The attorney must decide how an exception applies; bookkeeping records should identify permitted amounts separately.
What does three-way reconciliation compare?
Use the same cutoff for the trust journal, the total individual ledgers and the adjusted bank balance. Account for any separately tracked permitted bank-charge funds. The California handbook's method adjusts the statement balance for documented outstanding deposits and disbursements; it does not require the raw statement number to equal the ledger before timing items are considered.
Illustration only: a statement shows $12,000 and a recorded $2,000 check has not cleared. With no other reconciling items, the adjusted bank balance is $10,000. That is the amount to compare with the journal and ledger total. Investigate the outstanding check and any unexplained difference rather than entering an arbitrary adjustment.
What still needs client-level review?
A matching total does not show whether an entry belongs to the correct client or matter. Trace receipts and disbursements to supporting records and review unusual or negative balances. Keep an explanation and approval trail for corrections. A reconciliation is a control, not proof that every transaction was authorized or that the firm satisfies every professional rule.
When should earned fees move?
Follow the applicable rule and the attorney's documented determination. California requires withdrawal of the firm's portion at the earliest reasonable time after its interest becomes fixed, but a disputed portion must remain until the dispute is resolved. Do not transfer money simply because an invoice exists or label every delay a violation.
Who reviews and keeps the records?
California's recordkeeping standards call for monthly reconciliations. Other jurisdictions must be checked separately, including retention and reporting duties. The California handbook explains supervisory review when someone else maintains the records. Hiring a bookkeeper does not transfer the attorney's professional responsibility.
Keep statements, journal and ledger reports, reconciling items, supporting documents and review evidence together. Escalate unresolved differences promptly under the firm's approved process. Do not wait for a filing period or assume cleanup alone resolves a legal issue.
Daxable retains this existing guide as bookkeeping education. It is not legal advice, an audit opinion or a promise of compliance. Any records-support engagement requires a defined scope and appropriate attorney supervision.
| Record or decision | Bookkeeping check |
|---|---|
| Client and matter funds | Identify ownership and supporting receipts or disbursements |
| Permitted firm amounts | Track approved exceptions separately where applicable |
| Bank reconciliation | Explain timing items before comparing the adjusted balance |
| Fee transfers | Retain the attorney's determination and check for disputes |
| Review and retention | Follow the applicable jurisdiction and documented supervision |
This is a records checklist using California examples. It does not determine legal compliance or replace applicable state rules.
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Frequently Asked Questions
Must the raw bank statement equal the client ledgers?
Not before documented timing items are considered. Compare the adjusted bank balance with the trust journal and individual ledger totals at the same cutoff.
Is it always prohibited to keep firm funds in trust?
Rules and exceptions vary. California permits limited amounts for bank charges, among other provisions. Obtain the responsible attorney's instructions rather than applying a blanket rule.
Can earned fees always be transferred immediately?
No. The applicable rule, entitlement and any dispute matter. The attorney must determine whether a transfer is permitted.
Does outsourcing remove the attorney's responsibility?
No. Records support is not a transfer of professional responsibility. Confirm supervision and review under the applicable rules.