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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.

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Trust Accounting

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  1. Trust Accounting

  2. 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. • Receipt Journal • Disbursement Journal • Client Trust Ledger You will be required to use one or more of the following records: • Fees Journal • Receipt Journal • Disbursement Journal • Client General Ledger Trust Record General Record

  3. Reference numbers • Use the reference numbers provided in all journals and ledgers so that you can cross reference your answers. • GST rate of 5%

  4. Deposit seed money 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. • Receipt Journal • Disbursement Journal • Client Trust Ledger Which records are used for this transaction? • Fees Journal • Receipt Journal • Disbursement Journal • Client General Ledger Trust Record General Record

  5. SOLUTION

  6. Open trust and general client ledgers • 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. • Receipt Journal • Disbursement Journal • Client Trust Ledger Which records are used for this transaction? • Fees Journal • Receipt Journal • Disbursement Journal • Client General Ledger Trust Record General Record

  7. SOLUTION

  8. Deposit into the trust • 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. • Receipt Journal • Disbursement Journal • Client Trust Ledger Which records are used for this transaction? • Fees Journal • Receipt Journal • Disbursement Journal • Client General Ledger Trust Record General Record

  9. SOLUTION

  10. Billing • 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%. • Receipt Journal • Disbursement Journal • Client Trust Ledger Which records are used for this transaction? • Fees Journal • Receipt Journal • Disbursement Journal • Client General Ledger Trust Record General Record

  11. SOLUTION

  12. Billing • 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%. • Receipt Journal • Disbursement Journal • Client Trust Ledger Which records are used for this transaction? • Fees Journal • Receipt Journal • Disbursement Journal • Client General Ledger Trust Record General Record

  13. SOLUTION

  14. 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. • Receipt Journal • Disbursement Journal • Client Trust Ledger Which records are used for this transaction? • Fees Journal • Receipt Journal • Disbursement Journal • Client General Ledger Trust Record General Record

  15. SOLUTION Solution continued on next slide.

  16. SOLUTION CONTINUED

  17. The following expenses are paid from the practice’s general bank account. • Record the expenses in the appropriate journal. • Receipt Journal • Disbursement Journal • Client Trust Ledger • Fees Journal • Receipt Journal • Disbursement Journal • Client General Ledger Which records are used for this transaction? Trust Record General Record

  18. SOLUTION There is no need to repeat this on your records

  19. 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 # 17 • Beatrice -invoice # 224, reference 7, cheque # 18 • Receipt Journal • Disbursement Journal • Client Trust Ledger • Fees Journal • Receipt Journal • Disbursement Journal • Client General Ledger Which records are used for this transaction? Trust Record General Record

  20. SOLUTION – Step 1

  21. SOLUTION – Step 2

  22. SOLUTION – Step 3

  23. General client ledger (Step 3, cont)

  24. 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. • Receipt Journal • Disbursement Journal • Client Trust Ledger Which records are used for this transaction? • Fees Journal • Receipt Journal • Disbursement Journal • Client General Ledger Trust Record General Record

  25. SOLUTION 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.

  26. 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. • Receipt Journal • Disbursement Journal • Client Trust Ledger Which records are used for this transaction? • Fees Journal • Receipt Journal • Disbursement Journal • Client General Ledger Trust Record General Record

  27. SOLUTION

  28. 11. On June 30, Robert paid one-half of the amount owing. Continue this record using reference # 8 and cheque # 19. • Receipt Journal • Disbursement Journal • Client Trust Ledger Which records are used for this transaction? • Fees Journal • Receipt Journal • Disbursement Journal • Client General Ledger Trust Record General Record

  29. SOLUTION

  30. Client Transactions when Funds in Trust Account (Services rendered and/or disbursements recoverable) 3 – Step Process • Fees Journal – record the billing in the Fees Journal Clients’ General Ledger – record the billing in the client’s own ledger account • Trust Disbursements – record payment out of trust disbursements journal Trust Clients’ Ledger – record payment from client’s own trust ledger account • General Receipts – record receipt into practice's general cash receipts journal Clients’ General Ledger - record payment from client’s own general ledger account

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