Three-Way Reconciliation for Trust Accounts, With a Worked Example

A three-way reconciliation checks that three figures for a law firm’s client trust account agree: the bank balance, the firm’s trust journal and the total of the individual client ledgers. If all three match, the money in the bank equals the total the firm’s records say it holds for clients.

Illinois defines the process in its rule. The figures from the check register, the client ledgers and the receipts and disbursements journals must all agree with the adjusted bank statement balance Ill. RPC 1.15A(c) [1].

The three balances in a three-way reconciliation

• The adjusted bank balance. The bank statement balance, less checks written but not yet cleared, plus deposits made but not yet credited. Florida’s monthly bank reconciliation accounts for both R. Regulating Fla. Bar 5-1.2(d)(1)(A) [2].
• The trust journal balance. The firm’s running record of every deposit into and payment out of the account. The ABA’s model records rules call it the receipts and disbursements journal ABA Model Trust Account Records Rule 1(a) [3].
• The sum of client ledgers. Each client or matter has its own ledger ABA Model Trust Account Records Rule 1(b) [3]. Added together, they should equal the journal. New Jersey requires a regular trial balance of client ledgers that agrees with a control figure R. 1:21-6(c)(1)(B) (as reproduced in OAE outline, App. B) [4].

A plain bank reconciliation compares only the first two. It can balance while one client’s ledger is wrong. The third figure catches that kind of gap.

Where the term comes from

Of the jurisdictions cited here, only Illinois uses the words “three-way reconciliation” in its rule text Ill. RPC 1.15A(b)(7) [1]. California’s State Bar handbook calls its required monthly reconciliation a three-way reconciliation of the account journal, the client ledgers and the bank statements California, Handbook (2024) Section VIII 'Reconciliation', printed p. 36 (PDF p. 46) [5]. New Jersey’s Office of Attorney Ethics describes a three-way reconciliation of book balance, reconciled bank balance and client ledger total New Jersey, OAE outline Part III.B 'Three-Way Reconciliation', p. 12 (PDF p. 15) [6].

Florida requires the same comparison without the name. Each month the lawyer compares the reconciled trust balances with the total of the client ledger cards and explains any difference R. Regulating Fla. Bar 5-1.2(d)(1)(B) [2]. The comment to the ABA’s model records rules also describes a ledger, control and bank comparison without the term ABA Model Trust Account Records Rule 1, Comment (Rule 1(i) paragraph) [7].

How often a three-way reconciliation is required

Rules differ by state.

• California: monthly Cal. RPC 1.15, Standards (1)(d) [8], for IOLTA and non-IOLTA trust accounts alike California, Handbook (2024) Section VIII, printed p. 36 (PDF p. 46) [5].
• Florida: a monthly bank reconciliation R. Regulating Fla. Bar 5-1.2(d)(1)(A) [2] and a monthly comparison with the client ledger total R. Regulating Fla. Bar 5-1.2(d)(1)(B) [2].
• New Jersey: at least monthly R. 1:21-6(c)(1)(H) (as reproduced in OAE outline, App. B) [4].
• Illinois: at least quarterly Ill. RPC 1.15A(b)(7) [1]. The comment notes that a bank may allow only 30 days from the statement date to report errors Ill. RPC 1.15A cmt. [2] [1].
• Texas: the State Bar’s guidance says to reconcile the trust account every month State Bar of Texas Trust Accounts page, 'Trust Account tips' [9].
• ABA model: the records rules leave the frequency in brackets for each state to choose ABA Model Trust Account Records Rule 1(i) [3]. The comment calls quarterly a minimum and monthly the preferred practice ABA Model Trust Account Records Rule 1, Comment (Rule 1(i) paragraph) [7].

Who does it and what is kept

In California, the licensee designated for each trust account performs or supervises its monthly reconciliation California, State Bar Rule 2.5(E) [10]. Florida firms with more than one lawyer name the lawyer responsible in a written trust account plan R. Regulating Fla. Bar 5-1.2(c)(1) [2]. Florida requires reconciliations to be kept for at least six years R. Regulating Fla. Bar 5-1.2(d)(2)-(3) [2], and Illinois requires the reports to be prepared and kept Ill. RPC 1.15A(b)(7) [1].

A three-way reconciliation, step by step

A match in totals does not prove that each entry sits on the right client’s ledger. A payment posted to Client A instead of Client B leaves all three totals equal. Only a check of each client’s ledger shows that.

Where software fits

Trust accounting software keeps the journal and the client ledgers in one place, so two of the three figures come from the same entries. Products differ in where the report sits:

• Clio Accounting runs a three-way reconciliation of bank records, client trust ledgers and the firm’s trust ledger [11].
• CosmoLex’s three-way reconciliation report starts on its Core plan [12] [13].
• MyCase sells three-way reconciliation in its MyCase Accounting add-on [14].
• LeanLaw’s reconciliation is done mainly in QuickBooks Online, with LeanLaw supplying the trust figures [15].

The trust accounting software comparison shows which plan includes the report and what it costs. Vendor detail is on the Clio pricing, CosmoLex pricing, MyCase pricing and LeanLaw pricing pages. Firms keeping their books in QuickBooks Online can see QuickBooks for law firms.