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Level 1

Deposit Funds to Client Trust Account

Following the Help instructions I set up my Client Trust account and sub accounts as "Other Current Liability" .  How do I deposit funds into that account?
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Best answer 12-10-2018

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Level 2

Deposit Funds to Client Trust Account

For trust accounting, you need to be able to answer the following 'tests' -

1) Does the trust bank account balance match the trust liability account balance (as of any given date)?

2) Do you have a report listing each client's trust balance, the total of which equals the trust bank account balance (as of any given date)?

3) Do you have a detailed ledger, for each client, which shows the specifics of the ins and outs of the trust monies (as of any given date)? 

All of the above can be accomplished using QuickBooks (PC or Mac), but specific procedures (see below) need to be followed and reports need to be created to meet the required standards.  I do not recommend using QuickBooks Online for trust accounting, due to the reporting limitations of that program.

Trust accounting in QuickBooks is a little tricky and needs to be tracked using specific procedures in order to get good reporting for the Funds Held in Trust (escrow) detail by client.

Here is my general procedure for tracking trust accounts in QuickBooks -

Deposit the retainer/settlement check into the Trust/Escrow bank account, using a Funds Held in Trust (Escrow) liability account with the client name in the name field. I do this directly in the Make Deposit form, but you can enter a sales receipt, using an item which points to the liability account.

Then, write checks for any disbursements of those funds, using the Funds Held in Trust (Escrow) account on the expense tab of that check - with the client name in the name field on that line. Or, if you want the detail of how those disbursements are made, create separate items, all pointing to that account, to indicate what that 'paid out' is for - Insurance, taxes, fees, etc.

Then, if applicable, invoice the client. . .for the professional fees (time or flat fee billings) and any advanced costs (previously paid out of the operating account) as separate items. . .

Then, cut a check from the Trust/Escrow bank account to the law firm, using the Funds Held in Trust (Escrow) account on the expense tab of that check - with the client name in the name field on that line.

Then, 'Receive payment', using the client name, and attach that payment to the open invoice.

Then, deposit the funds into the operating checking account, either directly from the payment, or via Undeposited Funds.

I have created a group of memorized reports to show the client trust activity and balances to use when reconciling/reporting client balances and/or the bank statement.  These provide the necessary 3-way reconciliation (as of any given date):

Trust Bank = Funds Held in Trust (liability) = Total of individual Client Fund Balances, with ledger detail

_I do not (usually) use items, invoices, or sales receipts for any activity directly involving the trust funds (although sometimes it is needed/useful, but does need to be set up and tracked specifically).

These are two completely separate areas of your business and the transactions need to be recorded as such. . .so much so that some law firms track their trust accounting in a separate QuickBooks file (although I don't see the need for that myself).

Note: There is no way to automatically show the trust balance on an invoice.  You can, however, create a custom field, or enter a line in the description field, to notate the remaining trust fund balance. The amount will have to be manually entered on each invoice.  If you put the amount remaining in the memo field, it won't print on the invoice, but will show up on statements and in the customer center.

____________________________

Review the above procedure(s) step by step and confirm that this meets your state's regulations and reporting requirements.

If you still need help, I suggest that you contact someone directly for assistance. 
You can search www.findaproadvisor.com if you want someone local.
Also - many of us work remotely and can be contacted via the info on our websites or profiles.

I hope this helps,

Laura D

View solution in original post

12 Comments
Level 2

Deposit Funds to Client Trust Account

For trust accounting, you need to be able to answer the following 'tests' -

1) Does the trust bank account balance match the trust liability account balance (as of any given date)?

2) Do you have a report listing each client's trust balance, the total of which equals the trust bank account balance (as of any given date)?

3) Do you have a detailed ledger, for each client, which shows the specifics of the ins and outs of the trust monies (as of any given date)? 

All of the above can be accomplished using QuickBooks (PC or Mac), but specific procedures (see below) need to be followed and reports need to be created to meet the required standards.  I do not recommend using QuickBooks Online for trust accounting, due to the reporting limitations of that program.

Trust accounting in QuickBooks is a little tricky and needs to be tracked using specific procedures in order to get good reporting for the Funds Held in Trust (escrow) detail by client.

Here is my general procedure for tracking trust accounts in QuickBooks -

Deposit the retainer/settlement check into the Trust/Escrow bank account, using a Funds Held in Trust (Escrow) liability account with the client name in the name field. I do this directly in the Make Deposit form, but you can enter a sales receipt, using an item which points to the liability account.

Then, write checks for any disbursements of those funds, using the Funds Held in Trust (Escrow) account on the expense tab of that check - with the client name in the name field on that line. Or, if you want the detail of how those disbursements are made, create separate items, all pointing to that account, to indicate what that 'paid out' is for - Insurance, taxes, fees, etc.

Then, if applicable, invoice the client. . .for the professional fees (time or flat fee billings) and any advanced costs (previously paid out of the operating account) as separate items. . .

Then, cut a check from the Trust/Escrow bank account to the law firm, using the Funds Held in Trust (Escrow) account on the expense tab of that check - with the client name in the name field on that line.

Then, 'Receive payment', using the client name, and attach that payment to the open invoice.

Then, deposit the funds into the operating checking account, either directly from the payment, or via Undeposited Funds.

I have created a group of memorized reports to show the client trust activity and balances to use when reconciling/reporting client balances and/or the bank statement.  These provide the necessary 3-way reconciliation (as of any given date):

Trust Bank = Funds Held in Trust (liability) = Total of individual Client Fund Balances, with ledger detail

_I do not (usually) use items, invoices, or sales receipts for any activity directly involving the trust funds (although sometimes it is needed/useful, but does need to be set up and tracked specifically).

These are two completely separate areas of your business and the transactions need to be recorded as such. . .so much so that some law firms track their trust accounting in a separate QuickBooks file (although I don't see the need for that myself).

Note: There is no way to automatically show the trust balance on an invoice.  You can, however, create a custom field, or enter a line in the description field, to notate the remaining trust fund balance. The amount will have to be manually entered on each invoice.  If you put the amount remaining in the memo field, it won't print on the invoice, but will show up on statements and in the customer center.

____________________________

Review the above procedure(s) step by step and confirm that this meets your state's regulations and reporting requirements.

If you still need help, I suggest that you contact someone directly for assistance. 
You can search www.findaproadvisor.com if you want someone local.
Also - many of us work remotely and can be contacted via the info on our websites or profiles.

I hope this helps,

Laura D

View solution in original post

Highlighted
Level 2

Deposit Funds to Client Trust Account

I am not sure which Help files you were following, but the sub-accounts are not necessary in your version of QuickBooks.

See my procedures below.

Laura D
Highlighted
Level 1

Deposit Funds to Client Trust Account

Deposit to the Trust BANK type account and the post against the Other Current Liability.
Highlighted
Level 1

Deposit Funds to Client Trust Account

Please, don't have a good trust system and Joan chapmen or anyone who is trying to get access is off limits period.I have a bank account being set up so I will get that to you

Highlighted
QuickBooks Team

Deposit Funds to Client Trust Account

Hello there, LeviMossholdupbitch.

 

We'd like to know more about this so we can provide the correct answer. Are you trying to set up a trust account or a bank account?

 

Any information is appreciated. We're just right here. Thanks in advance. 

Highlighted
Level 1

Deposit Funds to Client Trust Account

How do you correct a bank deposit made in an operating account when it should have been deposited in an IOLTA. Online with bank, is it a simple transfer? On Quickbooks how should this be done? Thank you.

Highlighted
Level 1

Deposit Funds to Client Trust Account

How do you correct a bank deposit made in an operating account when it should have been deposited in an IOLTA. Online with bank, is it a simple transfer? On Quickbooks how should this be done? Thank you.

Highlighted
QuickBooks Team

Deposit Funds to Client Trust Account

Thanks for joining in this thread, @agarza27.

 

I'd be glad to help transfer the deposit from the operating account to your IOLTA.


If these accounts have already been added to your Chart of Accounts, you can use the Transfer feature. This allows you to transfer funds between two accounts.

 

Let me guide you through on how to accomplish this:

  1. Click the + (plus) icon at the right top
  2. Under Other, select Transfer.
  3. Select the account where the deposit is taken from.
  4. Select the account where the deposit is deposited to.
  5. Enter the amount in the Transfer Amount box.
  6. Add memo when necessary.
  7. Click Save and close.

You can also refer to this article for your guidance with the solution above: Transfer funds between accounts.

 

Let me know if there's anything else you need and I'd be glad to help.

Highlighted
Level 1

Deposit Funds to Client Trust Account

Hi, but once the transfer is registered, the second step should be to attribute the money transferred in trust account to a proper liability account related to client. How can I accomplish this? Because transfer function doesn't allow to do that...

 

Thanks in advance,

Ivan

Highlighted
QuickBooks Team

Deposit Funds to Client Trust Account

Welcome and thanks for joining this thread, @icaireac. Let me help you set up a clearing account and use it to move money from one account to another account. Here's how:

 

  1. Select Chart of Accounts from the List menu.
  2. Right-click anywhere in the Chart of Accounts, then click New.
  3. Select the Bank radio button in the Add New Account window. I'd suggest you choose a bank account because of the following reasons:
  • You can pay into a bank account via Receive Payments or Make Deposits.
  • You can pay out of a bank account via Write Checks or Pay Bills.
  • A bank account appears on the balance sheet and on the statement of cash flows to balances and changes in balances.
  • To allocate expenses to overhead or class using a zero check, you must use a bank account as your Clearing account.

       4. Click Continue.
       5. Enter a name such as Clearing Account, Barter Account or Wash Account in the

           Account Name field. 
       6. Don't enter an opening balance.
       7. Click Save & Close.

 

Here's how to use a clearing account:

 

  1. Make a journal entry.
  2. Enter the AR or AP from which you are moving money.
  3. Add the Clearing Account.
  4. Save the Journal Entry.
  5. Create a second Journal Entry
  6. Enter the Clearing Account.
  7. Add the AR or AP account to which you moving money.
  8. In the Pay Bills or Receive Payments, link the two Journal Entries.

 

To make sure you’re able to record the transaction correctly in QuickBooks, I’d recommend contacting your accountant.

 

As an additional reference, you can check out this help article: Set up a clearing account. It'll help you learn about the common uses for a clearing account.

 

Let me know how it goes, @icaireac. I'm always happy to help if you need further assistance. 


 

Highlighted
Level 1

Deposit Funds to Client Trust Account

Thank you for the prompt reply. However, my problem is different. I have 2 bank accounts: 1) operating and 2) trust. Usually, when clients past my bills, i deposit money in my operating account and apply it to the build due. On the other hand, when clients pay retainers, I deposit them into my trust account and, by way of creating a deposit in QuickBooks, I indicate who paid and I link it to the client's liability account. Then, when the work is done and invoice is issued, I create a check in the QuickBooks to transfer money to my operating account to apply it to the payment of the invoice in question. NOW, my problem is that I accidentally deposited a retainer into my operating account. When I figured it out, I immediately transferred it to my trust account. So, I cannot simply create a deposit in QuickBooks to go with my usual procedure of linking money to my client liability account. First, I need to create a transfer operation in QuickBooks from my operating to trust account. When I do it, I cannot add any additional info, it's just a simple transfer. Once it's done, of I create a deposit, the transaction (deposit in my trust account) will be doubled in QuickBooks... So, my question is, how can I do both a) transfer and b) something similar to deposit (as if I deposited money directly in my trust account) allowing me to link this money to clients liability account???

 

I hope I was clear enough,

 

Thanks in advance

 

Highlighted
Moderator

Deposit Funds to Client Trust Account

Thank you for posting here in the Community, icaireac.

 

When recording transactions in QuickBooks, it's recommended to mirror them how they are happening in the actual event. You can make a deposit (the retainer) posting to the wrong account (operating account) and ensure you choose the client liability account.

 

Once done, it's correct to use the Transfer Funds feature to move the amount into the trust account.

 

Here are the steps:

 

  1. Click the Banking tab at the top menu bar.
  2. Select Transfer Funds.
  3. Enter necessary information.
  4. Add a memo to easily determine the purpose of the transfer.
  5. Hit Save & Close.

Check out this screenshot for a visual guide on the feature:​

 

 

Also, if you use Journal Entry suggested by my colleague above, I recommend reaching out to an accountant for expert advice. One of them will be able to share which accounts you can use to correct the problem and ensure your books will stay accurate.

 

To learn more about using Journal Entry, I recommend the following article:

 

Create a journal entry.

 

Whenever you need help with the incorrect deposit, don't think twice to post. The Community will keep an eye on your response.

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