The Three-Way Reconciliation: A Key to Better Trust Accounting

When a client gives an attorney a deposit, that money isn’t necessarily income for the law firm.

If those funds are required to be held in trust, they typically go into a separate client trust account, often called an IOLTA (Interest on Lawyers’ Trust Account). Until the funds are earned or properly disbursed, the firm is responsible for keeping track of exactly how much belongs to each client.

That’s where three-way reconciliation comes in.

Three Numbers That Need to Match

Trust accounting involves comparing three sets of records:

1. The Bank – What does the IOLTA bank account show?

2. The Books – What does the accounting system, such as QuickBooks, show?

3. The Client Ledgers – How much money should the firm be holding for each individual client?

All three should reconcile.

For example, the bank and QuickBooks might both show $50,000, but if the individual client balances total only $48,500, there’s a discrepancy that needs to be investigated.

That’s why simply reconciling QuickBooks to the bank isn’t enough.

Why It Matters

Trust accounts can involve frequent deposits, earned-fee transfers, payments, and distributions. A transaction recorded incorrectly—or assigned to the wrong client—can create problems that become harder to untangle over time.

Regular three-way reconciliation helps law firms catch those discrepancies early and maintain clear, accurate records of the client funds they’re responsible for.

Keep Your Trust Accounting on Track

Trust accounting requires more than bookkeeping—it requires a process designed around the unique responsibilities of a law firm.

At JADDE Financial Solutions, we help law firms maintain accurate financial records and reliable reconciliation processes so they can spend less time worrying about their books and more time serving their clients.

Need help keeping your law firm’s books in balance? Let’s talk.

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