Trust Accounting and Bookkeeping are very different entities. Yet despite being in different worlds, it is important that bookkeeping and trust accounting operate in succinct harmony. Some agencies may have one staff member managing the trust account and reconciling the general account. This is completely acceptable. Other agencies may keep the roles completely separate. Also acceptable.
What is important is the way they communicate with one another.
The beauty of cloud-based trust accounting software is that they can talk to accounting packages such as Xero. They can quickly and easily report on the agencies income via an API key. This technology is not new. It has been around for some time. However, the key point is, if the data is not entered correctly on the trust accounting side, it will create havoc on the bookkeeping side.
Strive for Harmony
Both the trust accounting and bookkeeping departments must work in harmony. Working in unison will ensure the staff members record transactions correctly on both sides and meet regulatory standards.
As both trust accountants and bookkeepers, we come across the same consistent issues from clients on a regular basis. Property Managers need to be made aware they way they record data affects the bookkeeping side of the business. To help, we have created a list of processes to ensure your Property Managers are aware of the issues and the way they affect both your business, and your clients.
Where Bookkeeping and Trust Accounting Come Undone
Having multiple agency supplier cards in your trust accounting
Bookkeeping software only records transactions that are on the Agency ledger #1. If you create other ledgers in the software, the transactions are harder to reconcile. They will come across as ‘other income’ which will then require manual coding.
Creating multiple chart codes for the same thing
Unfortunately we see this all the time. One staff member may create ‘Landlord Reimbursements’ as the chart of account code. Another may then come in and create ‘Council Rates’ as an additional code. It is important that one code is chosen and all staff adhere to it. Landlords need to see this as ‘Council Rates’ on their EOFY statement. To correspond on the agency side, you need a matching code. This will enable your bookkeeper to track the monies coming back to the business for funds it has loaned to clients.
Not advising your bookkeeper of expected reimbursements
These reimbursements can include things such as tribunal fees, locksmith or key cutting and any repairs that are Cash on Delivery. It covers any cost the agency has paid for and entered as a reimbursement. You will need to create a code on both sides. The code on the the trust accounting side must match the code on the bookkeeping side. This will then create a clear line of communication to the bookkeeper and show that these funds are money coming back from the trust.
Keeping your Bookkeeper in the dark
This can occur when you set up new chart of account in the trust accounting software and don’t advise your bookkeeper. Your bookkeeper will then in turn not know to reintegrate your software. If you set up a new ‘Chart of Account’ in the trust accounting software for a Landlord reimbursement expense, you need to convey it immediately to your bookkeeper. They then know they need to create the same code with the same name. Then you can correctly track income and items will not be lumped together as ‘other income’. Dumping items as ‘other income’ can have a detriment effect on your BAS reporting.
Using personal credit cards
This is a big no no. Avoid having staff pay for Landlord expenses on their personal credit card. They will then in turn need to wait for the rent to be paid to be reimbursed. Staff members should never pay for expenses relating to a client. Any costs should be paid by the business. Funds are then reimbursed from the trust account back to the general account using the correct code. E.g. ‘Pest Inspections’. You must provide all purchases made on Landlords behalf to your bookkeeper. They can then reconcile against the source transaction in the accounting software.
Following these simple recommendations will ensure your trust accountant and Bookkeeper live and operate in perfect harmony. Plus the added benefit of correctly reconciled accounts.
– Jane Morgan is the Director of End of Month Angels, a consultancy firm specialising in Trust Accounting. Jane knows the legislative requirements of running a successful Real Estate office through her 21 years industry experience. Don’t trust just anyone with your trust accounting. Book an appointment with an End of Month Angel today.