Reconciliation in Accounting: What Lawyers Need to Know

Reconciliation in accounting—the method of evaluating units of information to verify that they’re right and in settlement—is important for guaranteeing the accuracy of monetary information for all types of companies. For the authorized career, nonetheless, common, efficient reconciliation in accounting is vital to sustaining each monetary accuracy and authorized compliance—particularly when managing belief accounts.

However simply what do attorneys must find out about reconciliation in accounting?

Within the following put up, we’ll cowl the essential forms of reconciliation for authorized professionals and delve into the basics of three-way reconciliation accounting. Plus, we’ll provide helpful greatest practices for reconciliation in accounting for attorneys to assist make the method simpler, more practical, and extra environment friendly.

What’s reconciliation accounting?

Reconciliation in accounting is the method of evaluating a number of units of monetary information (such because the balances and transactions recorded in financial institution statements and inside information) to make sure their correctness and settlement. 

This reconciliation course of lets you affirm that the information being in contrast are full, correct, and constant. Conducting frequent account reconciliation, for instance, permits companies or people to identify variations between monetary information and accounts—whether or not because of components just like the timing of deposits in transit or nefarious causes like fraud—which will in any other case go unnoticed. 

By catching these variations via reconciliation in accounting, you’ll be able to resolve discrepancies, assist stop fraud, higher make sure the accuracy of monetary information, and keep away from regulatory compliance points. It not solely lets you defend your shoppers’ funds, however your agency too consequently.

Equally, reconciliation in accounting serves a couple of key functions for attorneys navigating legislation agency financials. Particularly, common account reconciliation helps attorneys to:

Make sure the accuracy and integrity of monetary information
Detect potential fraud or irregularities
Adjust to regulatory necessities
Defend shopper funds

For attorneys, account reconciliation is especially necessary relating to belief accounts. In actual fact, most jurisdictions have necessities for belief account reconciliation. For instance, it’s possible you’ll must reconcile your belief account financial institution assertion with shopper balances at a selected frequency, similar to month-to-month or quarterly. 

Failure to stick to compliance necessities that apply to account reconciliation can probably result in damaging authorized {and professional} penalties, together with regulatory penalties, civil legal responsibility, and even disbarment. Because of this, it’s essential to verify together with your state bar affiliation for the jurisdictions through which you use and are licensed to follow for any account reconciliation necessities that apply to you and your legislation agency.

What are the forms of reconciliation?

There are a lot of forms of reconciliation in accounting, with the perfect technique for a scenario usually relying on the kind of account that you just’re seeking to reconcile. 

The next forms of reconciliation in accounting are key for attorneys to know:

Financial institution reconciliation

Financial institution reconciliation is an accounting course of the place you examine your financial institution assertion with your individual inside information to make sure that all transactions are accounted for, correct, and in settlement. 

The purpose of financial institution reconciliation is to verify that ending balances match on each your financial institution assertion and your information. Ought to there be any discrepancies that come up via the reconciliation course of, you’ll be able to then take motion to resolve them.

Sometimes, this technique of reconciling financial institution statements with inside information follows the next steps:

Accumulate essential knowledge. With the intention to conduct the comparability, you want the financial institution assertion and the inner information for that account, for a similar time interval. Additionally, you will want to take a look at undeposited funds, i.e., funds accounted for in Clio and inside information however that haven’t hit the checking account but, as this generally means month finish totals received’t match.
Examine. Subsequent, you evaluate every transaction on the financial institution assertion, and examine it to the corresponding transaction in your information. In the event that they match, verify them off.
Examine any discrepancies. For those who determine any discrepancies, discover the explanation for them (whether or not they’re because of errors, deposit timing variations, undeposited funds, or different causes).
Alter inside information. If there are transactions that weren’t precisely recorded or haven’t but hit the checking account, make any required changes.
Reconcile. Reconcile the ending balances for the financial institution assertion and inside information.
Document. Doc the reconciliation course of, together with any changes that had been made.
Double-check for accuracy. Verify that the ending balances for the financial institution assertion and inside information.
Resolve any excellent discrepancies. If there have been any discrepancies that couldn’t be resolved, take motion to analyze additional.

Simply as it’s with any enterprise or skilled, financial institution reconciliation is a crucial course of for attorneys. Particularly, conducting common financial institution reconciliation permits attorneys to:

Guarantee correct monetary information
Assist keep away from fraud
Keep compliant with rules and moral duties
Defend shopper belief
Resolve any monetary errors or discrepancies promptly
Make knowledgeable monetary choices

Account reconciliation

Past financial institution reconciliation, attorneys ought to conduct account reconciliation with different accounts to assist be certain that they keep correct monetary information, uphold moral requirements, keep compliant, and keep shopper belief. 

This proactive method includes repeatedly evaluating account statements with inside information for different key legislation agency accounts, together with:

Accounts receivable (AR), to check and reconcile inside legislation agency information (like excellent shopper invoices) with shopper funds, billing statements, and monetary information. The sort of account reconciliation may help attorneys precisely perceive their money movement and the way a lot shoppers owe.
Accounts payable (AP), to check the legislation agency’s inside information for excellent payments and payable to statements and documentation (like invoices) from distributors and collectors to the agency. The kind of account reconciliation is important to assist attorneys keep correct monetary information in relation to its liabilities and monetary obligations.
Belief accounts, to reconcile the financial institution statements of belief accounts with a legislation agency’s in-house ledgers or record-keeping methods. Account reconciliation is essential for belief accounts, which attorneys have authorized and moral obligations to deal with correctly.

Enterprise reconciliation

Companies and firms must conduct reconciliation to make sure the consistency and accuracy of monetary accounts and information inside the enterprise. 

For legislation corporations, for instance, one key sort of enterprise reconciliation is three-way reconciliation for belief accounts.

What’s a three-way reconciliation?

A 3-way reconciliation is a selected accounting course of utilized by legislation corporations to verify that the agency’s inside belief ledgers line up with particular person shopper belief ledgers and belief financial institution statements. For attorneys, this course of helps to make sure accuracy, consistency, transparency, and compliance.

Three-way reconciliation accounting compares three units of information to confirm they’re all correct and constant. Particularly, three-way reconciliation accounting reconciles:

Inside information, particularly the belief account ledgers maintained by the legislation agency. These information ought to comprise all the transactions out and in of the belief account.

Consumer information, that are represented by shopper ledgers. Maintained by the legislation agency, shopper ledgers for belief accounts assign every transaction within the belief accounts to a selected shopper. The balances for the inner belief account ledgers and shopper ledgers ought to match.
Financial institution statements for the belief account. The belief account financial institution assertion is generated by the financial institution. It gives third-party verification of the belief account’s transactions.

Reconciling legislation agency belief financial institution accounts repeatedly through three-way reconciliation lets you uphold your obligation to maintain correct, correct accounting information for shopper funds held in belief, whereas additionally guaranteeing you keep compliant.

How usually must you conduct the three-way reconciliation accounting course of? As famous earlier, your state might have particular necessities for the way usually you should conduct three-way reconciliation—similar to month-to-month or quarterly. You’ll want to verify the precise guidelines in your jurisdiction.

How you can carry out a three-way belief reconciliation

To carry out a three-way reconciliation, you should examine three units of monetary information—inside belief account ledgers, shopper information or shopper ledgers, and belief account financial institution statements—to make sure that they’re correct, constant, and correctly recorded.

Whereas your state bar might have particular necessities you should comply with, the final steps for find out how to carry out a three-way belief reconciliation, are as follows:

Step 1: Accumulate the required paperwork

Earlier than you’ll be able to conduct three-way reconciliation, you should have your three units of information available for the required time interval, whether or not these are paper information or information accessed electronically or in your follow administration software program. 

These information embrace:

The agency’s inside belief account ledger
The shopper information/shopper ledgers
The financial institution assertion for the belief account

Take observe that you could be must preserve an eye fixed out for transactions that won’t match instantly between the units of information for which you will must make changes because of timing variations. For instance, a transaction that won’t but have cleared the belief checking account may very well be recorded within the shopper ledger, however might not but be seen on the belief account financial institution assertion. Once more, that is what’s known as an undeposited fund.

Step 2: Reconcile inside belief accounts and shopper ledgers

After you have entry to all the required information, it is advisable to reconcile, or examine, the inner belief account’s ledger to particular person shopper ledgers. 

All belief transactions within the inside ledger must be precisely recorded and will align with transactions within the particular person shopper ledgers.

Step 3: Reconcile belief checking account

As soon as the person shopper ledgers and the agency’s belief account ledger are aligned, you’ll be able to then reconcile the shopper ledgers and belief account ledgers together with your belief checking account assertion. 

When reconciling, search for:

The financial institution assertion’s beginning stability ought to match the inner belief account ledger’s beginning stability
Every transaction on the financial institution assertion ought to match the corresponding entry for the inner ledger.
The shopper information ought to match each the inner ledger and the belief account financial institution assertion.
If there are any lacking or duplicate transaction information, make any essential changes to the inner ledger. 

For those who discover any discrepancies between the shopper’s information and the inner ledger or belief account financial institution assertion, examine and resolve them.

Step 4: Guarantee correct documentation

It’s additionally necessary to make sure you keep detailed information of the three-way reconciliation accounting course of.

To study extra about how Clio may help legislation corporations to simply handle belief accounting and three-way reconciliation, whereas staying compliant, learn our information right here.

Reconciliation Greatest Practices for Attorneys

With the intention to conduct efficient and correct reconciliation in accounting, we advocate following these greatest practices:

Set up clear processes and procedures

To implement efficient reconciliation processes, it is advisable to create and doc the precise procedures that employees and attorneys ought to comply with. 

Doc the step-by-step instructions in your agency ought to deal with reconciliation for monetary information, belief accounts, and different accounts.
Outline who’s accountable for every step within the reconciliation course of.
Set up insurance policies for report creation and retention. Constant, correct documentation and record-keeping is important within the reconciliation course of.

A observe on who’s accountable for reconciliation: Finally, the duty to take care of belief compliance, and the results of failing to take action, fall onto you as a  lawyer, even when employees full reconciliations in your behalf. It’s subsequently essential that everybody dealing with elements of this course of does so with care.

Guarantee common and well timed reconciliation

To ensure that reconciliation in account to be only in stopping errors and fraud, it’s necessary to conduct the method often. And, for some forms of accounts, like belief accounts, there could also be particular frequency necessities that you should comply with to remain compliant together with your state bar.

Whereas the precise frequency varies relying in your agency’s insurance policies, the kind of account, and your jurisdiction’s necessities for sure accounts (like belief accounts), the next can present a place to begin for figuring out how usually to reconcile accounts:

Belief accounts: Normally, you must reconcile belief accounts at minimal on a month-to-month foundation (or as outlined by your state bar’s rules).
Normal working accounts: Sometimes, these are reconciled on a weekly and even each day foundation.
Income accounts: Accounts monitoring legislation agency earnings are sometimes reconciled on at the least a month-to-month foundation.

Make the most of know-how and automation

Whereas reconciliation in accounting—and three-way reconciliation accounting particularly—might really feel like a variety of work for attorneys, know-how can streamline the method, assist stop unintentional errors, and make it simpler to remain compliant.

Authorized software program for belief accounting may help you monitor transactions and reconcile information and financial institution statements. Clio’s Belief Account Administration options, for instance, can help you handle your agency’s belief accounting, reconcile straight in Clio, and run built-in authorized belief account experiences.

And, as a result of Clio integrates with best-in-class accounting instruments like QuickBooks and Xero, you should utilize them collectively to additional simplify reconciliations. When utilizing Clio along with these built-in accounting options, belief account updates made in Clio are then routinely up to date in QuickBooks or Xero. 

By benefiting from know-how and automation on this means, it can save you time and keep away from duplicate knowledge entry errors. 

Closing ideas on reconciliation accounting

For attorneys, reconciliation in accounting is important for guaranteeing that monetary information are correct, constant, and clear. Whereas correct reconciliation is the usual for the way legislation corporations ought to deal with all monetary accounts, it’s notably necessary—and sometimes required—for the administration of belief accounts.

By prioritizing reconciliation in accounting, attorneys and legislation corporations can keep monetary accuracy and compliance, however that doesn’t imply that attorneys must spend hours every day taking a look at accounts on paper or in Excel. By leveraging know-how for extra environment friendly reconciliation processes, attorneys can save time and vastly scale back the prospect of error. 

And, by adopting greatest practices relating to course of, timeliness, and documentation of reconciliation in accounting, legislation corporations may help themselves meet their authorized and moral obligations, keep compliant, and make sure the integrity of their monetary transactions.

Simple three-way belief reconciliation with Clio

Need to study extra about find out how to simply handle belief reconciliation with Clio? Take a look at our information to managing belief accounting with Clio, or e book a demo to see the way it works firsthand.

Word: The knowledge on this article applies solely to U.S. practices. This put up is supplied for informational functions solely. It doesn’t represent authorized, enterprise, or tax recommendation.

We printed this weblog put up in December 2023. Final up to date: December 13, 2023.

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