Three-way trust reconciliation: how to do it, with an example

A three-way trust reconciliation confirms that three records agree to the cent every month: the adjusted trust bank balance, the trust journal or general ledger balance, and the sum of all individual client ledgers. The rule is simple: trust bank balance equals trust journal balance equals the sum of client ledgers. The worked example below shows exactly how it comes together, and what to do when it does not.

The three records that must agree

Adjusted bank balance. The ending trust bank statement balance, plus deposits in transit, minus outstanding checks.
Trust journal, or book balance. Your accounting system's balance for the trust account, tracking every receipt and disbursement.
Client ledger summary. The total of every individual client or matter balance held inside the trust account.

A worked example

A firm holds trust money for two clients at the end of May. Here is the reconciliation, step by step.

Step 1: Adjust the bank balance

Ending bank statement balance (31 May)	$25,000
Plus deposits in transit	+ $1,000
Minus outstanding checks	- $500
Adjusted bank balance	$25,500

Step 2: Confirm the trust journal balance

The trust journal in the accounting system shows a balance of $25,500, with every receipt and disbursement recorded and posted to the correct matter.

Step 3: Sum the individual client ledgers

Client ledger	Balance
Client A	$15,000
Client B	$10,500
Total client ledgers	$25,500

Step 4: Compare all three

Adjusted bank balance	$25,500
Trust journal balance	$25,500
Sum of client ledgers	$25,500
Difference	$0

All three match to the cent, so the reconciliation is successful.

What to do when it does not balance

If the three numbers do not agree, do not force an adjustment and do not deposit money to make it tie out. Trace the difference back to the transaction that caused it. Say Client B's ledger read $10,000 instead of $10,500, leaving the client ledgers at $25,000 while the bank and journal show $25,500. That $500 gap is a signal, not a rounding error. You look for the missing entry, find that a $500 deposit to Client B was recorded in the journal but never posted to the client ledger, post it, and the three numbers agree again.

Common causes of a mismatch

Bank fees taken from trust. A service charge pulled directly from the trust account throws off the balance and is a compliance problem unless promptly reimbursed from operating.
Earned fees left in trust. Money you have earned but forgot to move to operating leaves the ledgers and journal out of step.
Timing mismatches. A transaction dated one day on the client ledger and another in the journal creates a temporary difference.
Negative client ledgers. Overdrawing one client's funds means you are holding another client's money against that matter, which is a serious flag.
Posting errors. A duplicate entry, a missing entry, or a deposit posted to the wrong client will all break the match.

How Numetix runs it for you

Numetix performs the three-way reconciliation every month and keeps the report on file. Deposits in transit and outstanding checks tracked, every entry posted to the right matter, and any difference traced to its cause rather than papered over.

Numetix is a legal-specific service for small law firms of 3 to 20 attorneys. The reconciliation package is the exact document a bar auditor asks for, produced as part of the monthly close, with the books closed by the 15th.

Frequently asked questions

What are the three parts of a three-way reconciliation?

The bank statement balance adjusted for deposits in transit and outstanding checks, the trust journal or book balance from your accounting system, and the sum of every individual client ledger held in the trust account.

What causes it to be out of balance?

Bank fees taken from trust, earned fees left in trust, timing mismatches, a negative client ledger, or a posting error such as a duplicate or missing entry.

What should you do if the numbers do not match?

Do not force an adjustment. Trace the difference to the underlying transaction, fix the real cause, and document it. It is usually a posting error, a missing or duplicate entry, an incorrect client allocation, or an uncleared item.

Want the three-way reconciliation done for you every month?Reconciled to the cent, differences traced not forced, audit-ready package on file, closed by the 15th.

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