Trust Account Reconciliations: What Law Firms Must Do Every Month to Stay Compliant
Trust Account Reconciliations: What Law Firms Must Do Every Month to Stay Compliant
In our last post, we covered the five most common trust accounting mistakes law firms make. This week, we’re going one step deeper and focusing on trust account reconciliations why they matter, what needs to be done each month, and how to ensure your firm stays compliant if you’re managing this internally.
Before we dive in, an important reminder:
The guidance below covers general best practices that apply in most states. Always review the trust accounting rules set by your specific bar association, as some states have additional or more detailed requirements.
Why Trust Account Reconciliations Matter
Trust accounts aren’t just another bank account. They hold client funds, which means they come with strict ethical and compliance obligations. Monthly reconciliations are how you prove:
Client funds are being tracked accurately
No commingling has occurred
Your records match the bank
You’re audit-ready at all times
Failing to reconcile properly or at all is one of the fastest ways to fall out of compliance.
Start With a Clear Reconciliation Process
The first step is having a defined process across all systems.
Many law firms use:
A matter management / trust tracking system (such as Clio Manage)
Separate accounting software (such as QuickBooks)
If you use more than one system, you must reconcile each one and make sure they all tie together.
Step 1: Reconcile Trust Accounts Inside Your Matter Management System
Within your trust and matter management software, you should be reconciling client-level trust balances every month.
For example, in Clio Manage:
Navigate to the Accounts section
Select your IOLTA / trust account
Use the built-in reconciliation feature
Compare every recorded transaction to the bank statement
As you review transactions, check for:
Items that haven’t cleared
Duplicate entries
Disbursements recorded but never sent
Errors in amounts or dates
Once complete, generate and save the reconciliation report. This report shows:
Which transactions cleared
Which are still outstanding
Individual client balances
Keeping these reports on file provides critical documentation and protection if your firm is ever audited.
Step 2: Reconcile Trust Accounts Inside Your Accounting Software
Your accounting software must also be reconciled monthly and this is where many firms unknowingly make mistakes.
Inside your accounting system, you should see two trust-related accounts:
Trust Bank Account (Asset)
Trust Liability Account (Liability)
For example:
Trust bank account: $200,000 (asset)
Trust liability: $200,000 (liability)
These balances must match each other and must also match the bank statement balance.
It’s normal for minor timing differences to exist due to:
Outstanding checks
Deposits in transit
That’s why you should review both:
The bank reconciliation
The trial balance or balance sheet
The total trust asset and total trust liability should always be equal.
Documentation Is Non-Negotiable
Reconciliation alone isn’t enough documentation matters.
Do not rely solely on your bank to store records. If you’re audited, requesting documents from the bank can take weeks time you may not have.
You should retain copies of:
Deposit slips and receipts
Check images
Invoices trust funds were applied to
Disbursement details (check number, payee, issue date, and cleared date)
If checks remain outstanding for extended periods, follow up promptly. Trust funds should not sit unused in the trust account longer than necessary, as this can also raise compliance concerns.
Staying Compliant Means Staying Prepared
When your trust systems, accounting software, and bank statements all reconcile together and your documentation is complete your firm is:
Compliant
Protected
Prepared for an audit
If you’re unsure whether your current process meets requirements, or if your systems don’t reconcile cleanly, professional guidance can make all the difference.
Need Help With Trust Account Reconciliations?
We specialize in helping law firms:
Set up and migrate to trust-compliant systems
Streamline trust accounting processes
Create clear, repeatable monthly reconciliation workflows
Maintain proper documentation and audit readiness
If you have questions or need support with your trust accounting process, reach out this is work we truly love doing for our clients.
