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1Repair Windows errors before they cause bigger problems2Scan for outdated or missing drivers - takes under a minute3Clear out junk files and repair common Windows errorsA three-way IOLTA reconciliation compares the trust account journal, the sum of every client ledger (plus any applicable administrative ledger), and the bank statement adjusted for recorded transactions that have not cleared. Reconcile all three to the same statement cutoff date; the adjusted bank balance, journal balance, and ledger total should agree. The procedure below uses California State Bar guidance as a practical example, not as a rule for every state.
What the three sides are
- Trust account journal: the chronological record of receipts, disbursements, and the running account balance.
- Client ledgers: separate running balances showing the funds held for each client or matter. Include every client with funds in the account.
- Bank statement, adjusted: the bank’s ending balance, adjusted for supported deposits and disbursements recorded by the cutoff but not yet cleared.
Some jurisdictions’ methods also call for a bank charges or administrative ledger. The client-ledger total is an independent check: a journal can match the bank while still failing to show accurately whose money is held. California’s Client Trust Account Guidelines, Iowa Judicial Branch guidance, Arizona State Bar guidance, and Washington State Bar guidance express requirements in their own jurisdictional terms. Check the rules where you practice rather than treating one state’s procedure as universal.
Monthly close: step-by-step
1. Set the period and cutoff
Obtain the complete bank statement and supporting transaction records, such as deposit slips, check images, and electronic payment confirmations. Use one reconciliation date for all three sides. In the California handbook’s example, that date is the statement period end; it is often, but not always, the last calendar day of the month. Record the period, year, account identification, and cutoff date on the workpaper.
2. Match the journal to every ledger
Begin with the prior closing balances. For each receipt or disbursement in the journal, locate the corresponding client-ledger entry or, where applicable, the bank charges or administrative ledger entry. Then check in reverse: each ledger transaction should also appear in the account journal.
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Investigate missing entries, incorrect amounts, and transactions assigned to the wrong matter. Maintain a separate running balance for each client. The State Bar of California’s Handbook on Client Trust Accounting for California Attorneys emphasizes keeping transactions traceable; combining multiple checks into one journal deposit can obscure which client supplied the funds.
3. Match the journal to the bank statement
Trace deposits, checks, electronic payments, fees, and other activity to statement entries and supporting records. List a journal item as outstanding only when it was recorded by the cutoff but has not appeared at the bank. A bank transaction missing from the journal needs investigation: it may be an omitted book entry or, less commonly, a bank error. Do not label an unexplained difference a timing item without evidence.
4. Calculate and compare all three balances
Total the journal as of the cutoff. Separately total the running balances of all client ledgers and include the administrative or bank charges ledger if the applicable method requires one. Then calculate the adjusted bank balance:
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Statement ending balance + outstanding deposits − outstanding checks and other recorded disbursements not yet cleared = adjusted bank balance.
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The journal balance, ledger total, and adjusted bank balance must agree. Outstanding items are adjustments for genuine timing differences, not a way to force the totals to match.
5. Investigate and correct differences
If the journal and ledgers disagree, trace entries transaction by transaction and correct the affected record. If the bank side differs, check cutoff timing, amounts, missing deposits, uncleared checks, bank fees, and unrecorded activity. Recalculate all totals after each correction.
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Make corrections as dated adjusting entries, with an explanation and a reference to the original transaction. Preserve the original entry so the audit trail remains understandable; do not erase it. A negative client ledger or a shortage that may affect client funds warrants prompt investigation, documentation, and corrective action.
6. Review, sign off, and retain the records
Save the reconciliation and its supporting records in the format required by your jurisdiction. Under California handbook guidance, different formats are acceptable if they support the three-way process; the guidance calls for documented monthly reconciliation of each trust account. If a bookkeeper prepares the reconciliation, the supervising lawyer remains responsible for reviewing it under that handbook. Iowa separately advises retaining monthly reconciliation records and related statements and registers. Do not assume another state’s form or retention period applies to you.
Reconciliation workpaper checklist
| Check | Record or value |
|---|---|
| Period and cutoff | Month, year, account identification, and statement end date |
| Journal ending balance | Running account total as of the cutoff |
| Client-ledger total | Sum of every client or matter balance as of the cutoff |
| Administrative or bank charges ledger | Include when required by the applicable local procedure |
| Statement ending balance | Closing amount shown on the bank statement |
| Outstanding deposits | Supported deposits recorded but not credited by the bank by cutoff |
| Outstanding disbursements | Recorded payments not cleared by cutoff |
| Adjusted bank balance | Statement balance plus outstanding deposits minus outstanding disbursements |
| Exceptions and corrections | Explanation, supporting evidence, adjustment date, and reviewer |
Choosing a recordkeeping format
Paper records, spreadsheets, and accounting software can all support the work; the relevant question is whether the chosen method can produce a complete and reviewable reconciliation. California guidance permits different formats when they support its three-way process. Iowa advises that computer users retain the monthly register, subledger balances, and reconciliation report.
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- A chronological journal with a running account balance.
- Separate, current client or matter balances and any required administrative ledger.
- Supporting records for receipts, disbursements, and adjustments.
- A way to identify and track outstanding items.
- A correction history that preserves the original entry.
- A retained workpaper showing the three balances and reviewer sign-off.
What varies by state
Frequency, required records, forms, retention, and related deadlines are determined by local bar, court, and IOLTA program rules. California’s handbook provides a detailed monthly procedure, but its monthly requirement and workpaper details should not be assumed to apply elsewhere. Consult the applicable state guidance, including the Iowa Judicial Branch Trust Accounts page, the State Bar of Arizona Trust Accounts page, and the Washington State Bar IOLTA Lawyer Trust Accounting FAQ.
California’s current account guidelines also describe designated-licensee reporting requirements that began January 1, 2026, with information for existing accounts due to institutions by July 1, 2026. These are account-administration obligations, not part of the arithmetic reconciliation. The California handbook’s foreword says its 2024 update significantly revised Section VIII, Reconciliation; rules reproduced in its appendix are stated to be current as of January 1, 2023, so consult current rules separately before relying on a rule number or wording.
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