Three-way reconciliation for a lawyer trust account, step by step

What a three-way reconciliation compares

Every lawyer trust account, IOLTA or otherwise, has three records that describe the same money:

1. The bank statement. What the bank says is in the account on the statement date.
2. The trust account journal. Your own running record of every deposit and disbursement for the whole account, sometimes called the register or the checkbook.
3. The client ledgers. One ledger per client or matter, showing what came in for that client, what went out, and what is left. Added together, they are often called the trial balance.

A three-way reconciliation adjusts the bank balance for items that have not cleared, then checks that all three totals match. Two-way checks are not enough. A register that matches the bank tells you the account total is right. It does not tell you that each client’s share is right, and a trust account is a collection of client shares.

Why the third leg matters

Suppose one client’s ledger shows $4,000 and you write a $5,000 check for that client. The register and the bank will still agree with each other, because the pooled account has other clients’ money in it. The check clears. Nothing at the bank looks wrong. But $1,000 of another client’s money has just been spent, and only the client ledgers show it, as a negative balance.

The ABA’s comment on its model recordkeeping rules describes the same method in accounting terms: the trial balance (the sum of client ledgers) is compared each month with a control balance built from the prior balance plus receipts minus disbursements, and once those match, the bank balance is reconciled by adding outstanding checks and subtracting deposits the bank has not yet credited.

A worked example

The numbers below are invented, round figures for illustration only. They do not describe any real firm or client.

A solo firm holds money for three clients at the end of the month.

Step 1: Adjust the bank balance.

Step 2: Read the journal balance. The trust journal shows a month-end balance of $52,000.

Step 3: Add up the client ledgers.

All three numbers are $52,000, so the account reconciles. The report you keep lists the statement balance, the outstanding check by number and date, the deposit in transit, the journal balance and each client’s balance.

The same month with a difference. Now suppose the statement also shows a $25 service charge you had not recorded. The adjusted bank balance becomes $51,975, while the journal and the ledgers still say $52,000. The fix is to record the charge in the journal. The harder question is whose money paid it. ABA Model Rule 1.15(b) lets a lawyer keep only enough of their own money in trust to pay bank charges. If you keep that small cushion, recorded on its own ledger, the charge comes out of it. If you do not, the $25 came out of client money and you need to replace it and keep the cushion going forward.

Common causes of a difference

• Timing items. Checks written but not cleared, deposits made but not yet credited. These are expected; list them and confirm they clear next month.
• Bank charges and wire fees not entered in the journal.
• Returned deposits. A client’s check bounces after you recorded it and, worse, after you disbursed against it.
• Entry errors. A transposed figure ($1,890 entered as $1,980) or a deposit entered twice.
• Earned fees recorded but not moved, or moved at the bank but not recorded on the client ledger.
• Postings to the wrong client. This one is sneaky: if a deposit for Client C is posted to Client A, all three totals can still agree. Reviewing each ledger against the client’s file, and sending clients regular statements, is how you find it.
• Negative client balances hidden by the pool, as in the example above.

Florida’s rule is explicit about what to do with differences: the monthly comparison between the reconciled bank balances and the total of the client ledgers must include specific descriptions of any differences and the reasons for them.

How often to reconcile

There is no single national answer. The ABA Model Rule 1.15 itself does not set a frequency. Three sources that do say something:

• ABA Model Rules on Client Trust Account Records. Rule 1(i) lists copies of “[monthly] trial balances and [quarterly] reconciliations” among the required records. The brackets mean each state fills in its own interval. The comment says quarterly is recommended only as a minimum and monthly is the preferred practice, because an error is hard to find among three months of transactions.
• Florida. Rule 5-1.2(d) requires a monthly reconciliation of each trust account (balance per bank, deposits in transit, outstanding checks by date and number, and other reconciling items) and a monthly comparison of that reconciled total with the total of the client ledger cards. It also requires an annual list of each client’s unexpended balance, and keeping all of these for at least six years. Firms with more than one lawyer must have a written plan that names the lawyer responsible for monthly and annual reconciliation.
• California. The State Bar’s record standards under Rule 1.15 require a client ledger, an account journal, the bank statements and cancelled checks, and “each monthly reconciliation (balancing)” of the three, kept for five years after the funds are distributed.

If your state is not one of these, look up its version of Rule 1.15 and any separate trust account record rule. Monthly is a sensible habit even where the rule allows longer.

A short monthly routine

1. Download the statement as soon as it is available.
2. Mark every cleared item in the journal and list what has not cleared.
3. Adjust the bank balance for the uncleared items.
4. Compare it with the journal balance, then with the total of the client ledgers.
5. Explain every difference in writing and correct the entries that caused it.
6. Look for any client ledger below zero and any balance that has sat untouched for months.
7. Sign and date the report, and file it with the statement.

How Coil handles this

Coil runs the three-way reconciliation from its own records: your bank statement balance, the trust account balance in Coil and the sum of every client ledger, with each uncleared item that explains a gap listed beside it. Because Coil refuses any disbursement that would take a client below zero, the negative-balance case in the example cannot be entered in the first place. Once a period is reconciled, it is locked, and the trust ledger exports to CSV. Coil does not know your state’s schedule; you keep the habit, and the report is ready when you sit down to do it. More on trust accounting software.

Last checked October 28, 2026. This is general information, not legal advice. Rules differ by state and change; check your own bar’s rules before relying on it.