Trust Accounting

Trust Accounting

Trust Accounting Exercise

Carol started a new paralegal practice.

This exercise will go through the different scenario’s Carol will encounter as a paralegal. You will need to record the necessary entries in your worksheets as we progress through each scenario.

You will be required to use one or more of the following records:

TrustRecord

•Receipt Journal•Disbursement Journal•Client Trust Ledger


GeneralRecord

•Fees Journal •Receipt Journal•Disbursement Journal•Client General Ledger


• Use the reference numbers provided in all journals and ledgers so that you can cross reference your answers.

• GST rate of 5%

Reference numbers

1.On June 1, 2008, Carol started a paralegal practice and opened a practice bank account and a trust bank account at her local bank. She deposited her own money in the practice bank account using cheque # 175 for the amount of $25,000. Use reference # 1.

Enter this transaction in the appropriate record.

1.On June 1, 2008, Carol started a paralegal practice and opened a practice bank account and a trust bank account at her local bank. She deposited her own money in the practice bank account using cheque # 175 for the amount of $25,000. Use reference # 1.

Enter this transaction in the appropriate record.

TrustRecord



GeneralRecord



Deposit seed money

Which records are used for this transaction?

GENERAL RECEIPTS JOURNAL – PRACTICE ACCOUNT

Ref # DateReceived from

(source of funds) AmountMethod of payment &

details1 June 1 Carol 25,000.00 Deposit Cheque # 175

SOLUTIONSOLUTION

2. Carol's friend referred two new clients: Gloria and Beatrice. They will both pay a retainer. Create an account for Gloria and Beatrice in the appropriate records.

TrustRecord



GeneralRecord



Open trust and general client ledgers


CLIENT GENERAL LEDGERAccount: Gloria

Date Particulars Invoice #

Fees & disbursements

billed

Payments from client

(including tax)Balance owed by

client

Account: Beatrice

SOLUTIONSOLUTION

Client Trust Ledger Account: Gloria

Ref # Date Particulars Receipts Disbursements Balance in

account

Account: Beatrice


account

3. On June 5, Gloria gave Carol a retainer of $2,000 (cheque # 230. Use reference # 2). Beatrice gave Carol a retainer of $4,000 (cheque # 352. Use reference # 3) . Carol deposited the two cheques in the trust bank account.

TrustRecord



GeneralRecord



Deposit into the trust


CLIENT TRUST LEDGER

Account: Gloria

Ref # Date Particulars Receipts Disbursements

Balance in

account

2 June 5Legal fee retainer Cheque # 230 2,000.00 2,000.00

Account: Beatrice

Ref # Date Particulars Receipts Disbursements

Balance in

account

3 June 5Legal fee retainerCheque # 352 4,000.00 4,000.00

TRUST RECEIPTS JOURNAL

Ref # Date

Funds received from Client Amount Method of payment

2 June 5 Gloria Gloria 2,000.00 Deposit cheque 2303 June 5 Beatrice Beatrice 4,000.00 Deposit cheque 352

SOLUTIONSOLUTION

4. On June 15, Gloria telephoned Carol and spent one and one-half hours discussing her traffic violation. Carol bills Gloria $375 for her time on invoice #221. Use reference # 4. include GST of 5%.

TrustRecord



GeneralRecord



Billing


FEES JOURNAL

Ref # DateInvoice

# ClientFees billed

Disbursements billed

GST billed

Total amount billed

4 June 15 221 Gloria 375.00 18.75 393.75

CLIENT GENERAL LEDGERAccount: Gloria

Ref #Date Particulars

Invoice #


billed

Payments from client

(including tax)

Balance owed by

client4 June 15 Billed fees 221 393.75 393.75

SOLUTIONSOLUTION

5. On June 16, Beatrice attended a meeting at Carol's office and discussed some issues she was having with her import-export business. The meeting lasted four hours. That evening Carol spent an additional hour researching Beatrice's issue. Carol bills Beatrice $1,000 for her time on invoice #222. Use reference # 5. Include GST of 5%.

TrustRecord



GeneralRecord



Billing


FEES JOURNAL

Ref # Date Invoice # ClientFees billed


GST billed

Total amount billed

5 June 16 222 Beatrice 1,000.00 50.00 1,050.00

CLIENT GENERAL LEDGER – PRACTICE ACCOUNTAccount: Beatrice

Ref # Date Particulars Invoice #


billed

Payments from client (including

tax)

Balance owed by

client5 June 16 Billed fees 222 1,050.00 1,050.00

SOLUTIONSOLUTION

6. Since you have recorded the bills to Gloria and Beatrice, transfer the funds from the trust account to the general account. Gloria’s funds are transferred using cheque # 15, reference # 4. Beatrice’s funds are transferred using cheque #16, reference # 5. Then record the deposit in the practice’s general bank account. Record the appropriate entries in the trust account and general account dated June 17.

TrustRecord



GeneralRecord




Trust Disbursements JournalRef # Date Paid To Client Amount Method of payment /

Reference #

4 June 17 Carol Gloria 393.75 Paid Inv # 221, Cheque # 15

5 June 17 Carol Beatrice 1,050.00

Paid Inv # 222, Cheque #16

CLIENT TRUST LEDGER Account: Gloria


account June 5 Retainer for legal fees 2,000.00 2,000.00

4 June 17Paid invoice # 221 for services rendered. Cheque # 15 393.75 1,606.25

Account: Beatrice


account

June 5 Retainer for legal fees 4,000.00 4,000.00

5 June 17Paid invoice # 222 for services rendered. Cheque # 16 1,050.00 2,950.00

Solution continued on next slide.

SOLUTIONSOLUTION

CLIENT GENERAL LEDGER – PRACTICE ACCOUNTAccount: Gloria

Ref # Date ParticularsInvoice

#


billed


tax)

Balance owed by

client4 June 15 Billed fees 221 393.75 393.754 June 17 Transferred from trust 221 393.75 0

Ref # Account: Beatrice5 June 16 Billed fees 222 1,050.00 1,050.005 June 17 Transferred from trust 222 1,050.00 0



(source of funds) Amount Method of payment & details

4 June 17 Gloria 393.75 Transfer from Gloria’s trust for fees. Cheque # 15 - Invoice 221

5 June 17 Beatrice 1,050.00 Transfer from Beatrice’s trust for fees. Cheque # 16 - Invoice 222

SOLUTION CONTINUEDSOLUTION CONTINUED

7. The following expenses are paid from the practice’s general bank account. Record the expenses in the appropriate journal.

TrustRecord



GeneralRecord




Date 2008 Cheque # Description Amount Notes

June 1 901 Rent 1,200.00 Fairview Properties

June 10 902 Telephone 400.00 Paid to Bell$100 of long distance recoverable from Gloria.

June 16 903 Photocopies 500.00 Paid to Xerox.$20 recoverable from Gloria

June 20 904 Insurance 1,200.00 Royal Insurance company

June 30 905 Salaries 6,000.00 Paid to employees

June 30 906 Courier 200.00 $20 recoverable from Beatrice.

Total 9,500.00

CarolGENERAL DISBURSEMENTS JOURNAL – PRACTICE ACCOUNT

Date Paid to Use of funds Amount Method of payment & details June 1 Fairvew Properties Rent 1,200.00 Cheque #901

June 10 Bell Telephone 400.00

Cheque # 902Disbursements recoverable ($100.00)

June 16 Xerox Photocopies 500.00 Cheque # 903Disbursements recov’ble ($20.00)

June 20 Royal Insurance Insurance 1,200.00 Cheque # 904June 30 Employees Salary 6,000.00 Cheque # 905

June 30 Courier Courier charges 200.00Cheque # 906Disbursements recov’ble ($20.00)

SOLUTIONSOLUTION

There is no need to repeat this on your records

8. Record the billing of expenses to clients, and transfer funds from the trust bank account as of June 30, 2008. Gloria - invoice # 223, reference # 6, cheque # 17Beatrice -invoice # 224, reference 7, cheque # 18

Date 2008 Cheque # Description Amount Notes

June 1 901 Rent 1,200.00 Fairview Properties

June 10 902 Telephone 400.00 Paid to Bell$100.00 of long distance recoverable from Gloria.

June 16 903 Photocopies 500.00 Paid to Xerox.$20.00 recoverable from Gloria

June 20 904 Insurance 1,200.00 Royal Insurance company

June 30 905 Salaries 6,000.00 Paid to employees

June 30 906 Courier 200.00 $20.00 recoverable from Beatrice.

Total 9,500.00

TrustRecord



GeneralRecord




FEES JOURNAL

Ref # Date Invoice # Client Fees billedDisbursements

billed GST billed

Total amount billed

4 June 15 221 Gloria 375.00 18.75 393.755 June 16 222 Beatrice 1,000.00 50.00 1,050.00 6 June 30 223 Gloria 120.00 6.00 126.007 June 30 224 Beatrice 20.00 1.00 21.00

SOLUTION – Step 1SOLUTION – Step 1

CLIENT GENERAL LEDGER – PRACTICE ACCOUNTAccount: Gloria


#


billed


tax)

Balance owed by

client4 June 15 Billed fees 221 393.75 393.754 June 17 Transferred from trust 221 393.75 06 June 30 Billed Fees 223 126.00 126.00

Ref # Account: Beatrice5 June 16 Billed fees 222 1,050.00 1,050.005 June 17 Transferred from trust 222 1,050.00 0 7 June 30 Billed Fees 224 21.00 21.00

Trust Disbursements JournalRef # Date Paid To Client Amount Method of payment /

Reference #4 June 17 Carol Gloria 393.75 Transfer - Invoice 221

5 June 17 Carol Beatrice 1,050.00 Transfer - Invoice 222

6 June 30 Carol Gloria 126.00 Transfer - Invoice 223

7 June 30 Carol Beatrice 21.00 Transfer - Invoice 224

CLIENT TRUST LEDGER Account: Gloria


account 2 June 5 Retainer for legal fees 2,000.00 2,000.004 June 17 Transfer invoice 221 393.75 1,606.256 June 30 Transfer invoice 223 126.00 1,480.25

Account: Beatrice


account 3 June 5 Retainer for legal fees 4,000.00 4,000.005 June 17 Transfer invoice 222 1,050.00 2,950.007 June 30 Transfer invoice 224 21.00 2,929.00




(source of funds) Amount Method of payment & details

4 June 17 Gloria 393.75 Transfer from Gloria’s account for fees. Cheque # 15 - Invoice 221

5 June 17 Beatrice 1,050.00 Transfer from Beatrice’s account for fees. Cheque # 16 - Invoice 222

6 June 30 Gloria 126.00 Transfer from Gloria’s account for fees. Cheque # 17- Invoice # 223

7 June 30 Beatrice 21.00 Transfer from Beatrice’s account for fees. Cheque # 18 – Invoice # 224


General client ledger (Step 3, cont)CLIENT GENERAL LEDGER – PRACTICE ACCOUNT

Account: Gloria


#


billed


tax)

Balance owed by

client4 June 15 Billed fees 221 393.75 393.754 June 17 Transferred from trust 221 393.75 06 June 30 Billed Fees 223 126.00 126.006 June 30 Transferred from trust 223 126.00 0

Ref # Account: Beatrice5 June 16 Billed fees 222 1,050.00 1,050.005 June 17 Transferred from trust 222 1,050.00 0 7 June 30 Billed Fees 224 21.00 21.007 June 30 Transferred from trust 224 21.00 0

9. On June 30, the bank deducted $50 from the practice’s general account for bank fees related to the trust account. Record payment in the appropriate journal.

TrustRecord



GeneralRecord




CarolGENERAL DISBURSEMENTS JOURNAL – PRACTICE ACCOUNT

Date Paid to Use of funds AmountMethod of payment &

details June 1 Fairview Properties Rent 1,200.00 Cheque #121 June 10 Bell Telephone 400.00 Cheque # 122 June 16 Xerox Photocopies 500.00 Cheque # 123June 20 Royal Insurance Insurance 1,200.00 Cheque # 124June 30 Employees Salary 6,000.00 Cheque # 125

June 30 BankBank Charges 50.00 Deducted directly

SOLUTIONSOLUTION

This cost is not recoverable by the trust. It is part of the cost of doing business and therefore must be an expense that the practice pays.

10. On June 30, an old friend contacted Carol and discussed a legal problem. Carol spent 3 hours related to the problem, and billed Robert Vaughan $750. Because Robert was an old friend, Carol did not require a retainer. Use invoice #225, reference # 8 to bill Robert Vaughan.

TrustRecord



GeneralRecord




CLIENT GENERAL LEDGER – PRACTICE ACCOUNTAccount: Robert


#


billed


tax)

Balance owed by


CarolFEES JOURNAL

Ref # Date

Invoice # Client

Fees billed


GST billed

Total amount billed

8 June 30 225 Robert Vaughan 750.00 37.50 787.50

SOLUTIONSOLUTION

11. On June 30, Robert paid one-half of the amount owing. Continue this record using reference # 8 and cheque # 19.

TrustRecord



GeneralRecord




CLIENT GENERAL LEDGER – PRACTICE ACCOUNTAccount: Robert


#


billed


tax)

Balance owed by


8 June 30

Partial Payment Cheque # 19 225 393.75 393.75



(source of funds) AmountMethod of payment &

details8 June 30 Robert Vaughan 393.75 Cheque # 19

SOLUTIONSOLUTION

Client Transactions when Funds in Trust Account

(Services rendered and/or disbursements recoverable)

3 – Step Process1. Fees Journal – record the billing in the Fees Journal

Clients’ General Ledger – record the billing in the client’s own ledger account2. Trust Disbursements – record payment out of trust disbursements journal

Trust Clients’ Ledger – record payment from client’s own trust ledger account3. General Receipts – record receipt into practice's general cash receipts journal

Clients’ General Ledger - record payment from client’s own general ledger account

Documents

Trust Accounting