Industries where client funds are required to be held on behalf of the client are required to operate a Trust Account that is registered with the relevant State Authority. Examples of this are:
- Upfront payments on account of future Fees or disbursements to be billed
- Settlement money involved in a property sale where the money has to be distributed to the Mortgagor for the balance of the loan, the Agent for their commission and the balance paid to the seller.
- Estate money- where a deceased estate is in dispute the estate funds may be held in trust until the dispute is resolved.
Real Estate Firms
- Deposits for sale of land or buildings
- Fees received in advance for advertising
Trust Account Regulations
There are strict requirements around the operation of and administration of your Trust Account. Just like railway lines in the 19th century, the regulations are slightly different in each state but some things to watch out for are:
- Trust receipts- these need to be consecutively numbered and issued within a couple of days of receiving the money
- Trust payments to the Firm General Account to cover Fees must be explained in a Cost Agreement and the client must be given 7 days notification before funds are transferred to the General Account
- If the Firm transfers funds to the General Account to cover disbursements then these disbursements need to have actually been paid, not sitting in Trade Creditors
- Each clients individual Trust Ledger Balance must be kept at all times.
- The Trust Account Reconciliation must be performed and signed by the Principal within 15 days after each month end.
Trust Accounting Systems
When you are starting out and only have the occasional trust transaction you may be able to keep a manual Trust Account. The problem is that when you start to grow is usually the worst time to be implementing new systems. We have many new clients coming to us from manual Trust Accounting systems where the only option is to start the system from back when they started because they can’t provide us with a clean opening Trust Balance.
Some Trust Accounting systems such as LEAP Legal have rigorous controls and procedures built in to ensure you are complying with Trust Regulations. These include the ability to run Reconciliation, Trial Balance and Overdraw Reports a any stage of the month and tight controls around limiting the ability to change prior period reports. These controls mean that if you are audited by the Law Society or a Trust Account auditor and provided your Trust Account Bookkeeper has kept things up to date, then that process runs a lot smoother as the auditor can rely on your systems that have built in internal controls.
Books Onsite is a registered Law Practice and Estate Agent Trust Account Auditor in QLD, NSW and Victoria. Please feel free to contact us if you have any queries about how your Trust Account Bookkeeping is being managed.
In Australia, you have a choice to remain on a cash basis for lodging your BAS while your Turnover remains under the $2M threshold. The advantages of this are if you have outstanding debtors you do not have to pay GST on those sales until the cash is actually received. The problem is that cash reports are meaningless if you are trying to monitor the performance of your company. If you incurred wages to provide a service in period 1 then you want the revenue to appear in that period, not in the period the money was actually received. This is called the Matching Principal in Accounting. Luckily, bookkeeping software such as Xero, MYOB and Quickbooks allow you to remain on Cash for your BAS reporting while running Accrual based reporting for your Management Reports.
The Hybrid basis of Management Reporting allows you to capture all of your costs and revenue in the same period to get a true measure of how you are performing each month. You just need to be sure that all of your Suppliers Invoices and Sales Invoices are entered in the month that the transaction took place and be sure to run all of your Management Reports on an Accrual basis while leaving our GST Reports on a Cash basis.
3rd Party Add-ons
In specialist industries such as Legal, Property or Healthcare, there are many 3rd Party Add-ons integrate with your Accounting Software to provide you with Industry Specific requirements that your standard Software can’t provide. While most of these applications claim to have a “seamless Integration” with your bookkeeping software, you will find that the integration is actually driven by exporting General Journals. The problem with this is that many of these products are unable to differentiate between Cash or Accrual on a General Journal which makes it very difficult to produce both Cash and Accrual Reports on a Hybrid basis.
If we weren’t dealing with Legal Firms and more specifically Legal Trust Accounts there would be no need for “Anticipated Payments.” Legal Firms often receive money in advance into their General Trust Account which can be used for either direct payment of costs relating to the matter (eg.Barristers Fees) or for payment of the Legal Firms Invoices relating to that matter (providing they have a signed Cost Agreement in place and that they have given the client 7 days notice of their intention to withdraw fund from the clients trust account to pay their invoice ie. a Trust to Office Transfer).
The Regulations governing Legal Trust Accounts require that the Law Firm must have actually “Paid” any 3rd Party Disbursements before they are allowed to do a Trust to Office Transfer (TTOT). The reason for this is that some firms were writing cheques for the disbursements then putting them in a drawer for a couple of months but they were withdrawing the clients funds to pay their own invoice via a TTOT.
Therefore “Anticipated Payments” name for “Account Payable” that are specifically relating to Client Disbursements.
Although LEAP Cloud allows you to monitor these accurately within the Matter in LEAP, the accrual does not flow through to wither Xero or MYOB with the Office Account Integration. Therefore if the Law Firm is reporting on an accrual or hybrid basis you would need to manually enter this adjustment at the end of the month to account for it in both your BAS and Management Accounts.
After a couple of years delay, myob are nearly ready to go live with their full cloud product. MYOB have taken a different cloud strategy to it’s competitors which you need to comprehend when comparing the different cloud options. Each product has it’s strengths and weaknesses in which I’ve summarised below.
Quickbooks Hosted, Xero and Saasu are a fully cloud based product. This means that your data file is stored securely and fully encrypted on the cloud and you can only work on the file while you have the internet connected. MYOB AccountRight Live enables you to have the data file sored both online and locally at the same time. If the internet goes down or if you want to work on the file on a plane for example, you just work on the local file and the cloud version will be updated when you next go online. Here’s the basic monthly fees including GST and major product differences for each of the cloud based bookkeeping software :
|Bookkeeping Software||MYOB Account Right Live||QuickBooks Hosted||XERO||SAASU|
|Basic Monthly Package (No Payroll)||$23||$25.83||$29||$20|
|Medium Monthly Package||$59.50||$36.25||$49||$35|
|Premium Monthly Package||$59.50||$36.25||$64||$60|
|Detailed Job Costing||Y||Y||Y||N|
|Pay Suppliers and Payroll directly from software||Y||N||N||N|
As you can see features offered by each product vary across the range. If your main criteria is ease of use and functionality then Xero may have the edge- it just lacks the power and scope for growth of some of the other providers. A major point of difference that is unique to MYOB AccountRight Live is the ability to pay third parties such as suppliers and staff directly from the software. This allows your bookkeeper to setup all of your payments without the need to be given access to your online banking. You just need to login and complete a simple one-step authorisation process to approve the payments. Of course price is just one factor to consider when deciding which bookkeeping software to go with. Each has it’s own functionality and user interface which you can sample by signing up to a free trial or just give us a call to discuss.