What is Trust Accounting? – How It Works, Software To Use

Introduction

In the world of tax advisory, trust accounting aka statutory trust accounting plays a critical role, especially for tax practitioners and accounting firms. Understanding what trust accounting is and how it works is crucial to stay compliant. In this blog, we will delve into the intricacies of trust accounting, explore how it works, and highlight some of the best software available for managing trust accounts, including our very own “Trust Easy”
What is Trust Accounting?

Definition and Importance

Trust accounting refers to the management of funds on behalf of clients, ensuring that these funds are properly accounted for and used solely for their intended purpose. It involves maintaining detailed records and adhering to strict legal and ethical standards. For tax practitioners and accounting firms, trust accounting is essential to build trust with clients and comply with regulatory requirements.

How Trust Accounting Works?

Key Principles

Trust accounting operates on several key principles:
1. Segregation of Funds: Client funds (Like Refund from the ATO) must be kept separate from the firm’s operational funds and hence its best to maintain a separate trust account.
2. Name of the Trust Account: When an accounting firm opens a statutory trust account with a bank, they must use the words “Trust Account”. WEF 1st of July 2024, they can also use the words “Client Account”
3. Detailed Record-Keeping: Every transaction must be meticulously recorded to ensure transparency and accuracy within a certain timeframe (Three Business Days)
4. Regular Reconciliation: Accounts should be regularly reconciled to detect and rectify any discrepancies. Minimum is once a month within two weeks of end of the month.
5. Inability to Delete a general ledger entry: Trust Accounting software differs from a traditional bookkeeping or business accounting whereby, a user should not be able to delete any transaction entered in trust ledger. Journal Entries or reversal of entry should be used to fix an error and that also needs to be recorded along with the original entry.

Process Overview:

1. Opening a Trust Account: Establish a separate bank account specifically for client funds. The account name must contain the words “Trust Account” or “Client Account”.
2. Depositing Funds: Client funds are deposited into the trust account and documented.
3. Disbursing Funds: Funds are disbursed according to client instructions and legal requirements within a certain time frame. .ABA file can be used for bulk payment.
4. Reporting and Compliance: Regular reports are generated to ensure compliance with legal standards. For example, client statements, trial balance, cashbook with three-way verification and monthly bank reconciliation reports.
5. Assurance Report by an auditor (another member of an accounting body in simple terms) is necessary.

Software that Tax Practitioners use for Trust Accounting

Managing trust accounts manually can be cumbersome and error-prone. Trust accounting software automates many of the tasks involved, ensuring accuracy, compliance, and efficiency. Here are some of the top software options available:

1. Trust Easy

Trust Easy is a leading trust accounting software designed specifically for tax practitioners and accounting firms in Australia. It offers a user-friendly interface, comprehensive features, and robust compliance tools. With Trust Easy, you can manage client funds effortlessly, generate detailed reports, and ensure compliance with Australian regulations.

2. Xero

Xero is a popular accounting software but does not include all the trust accounting features. It provides seamless integration with bank accounts, easy tracking of transactions, and powerful reporting tools. Xero is suitable for small to medium size businesses to manage their books of accounts. Since, it allows for deletion of a transaction and inability to produce the client statement for the money in and out, it may not meet the trust accounting requirements. Also, there is no easy way to produce trial balance based on beneficiary interest; it makes it almost impossible to meet the trust accounting requirements.

3. MYOB

MYOB is another excellent option for business accounting. It offers features such as automatic bank feeds, detailed reporting, and compliance management. MYOB is widely used in Australia and provides reliable support for managing books of accounts.
MYOB firms traditionally been using HandiSoft to manage the trust accounting to manage their statutory trust account. Hence,

4. QuickBooks Online

QuickBooks Online is a versatile accounting software that also caters to accounting needs. It offers features like automated reconciliation, transaction tracking, and customizable reports. QuickBooks Online is known for its ease of use and scalability. But again, they don’t offer any trust accounting software.

5. Microsoft Excel

Before TrustEasy, accounting firms were maintaining client’s money coming in and out from the trust account in an excel. Same excel was used to reconcile the bank statements and EFT Reconciliation report or PLS report. Although a great tool and work around but clearly not going to help accounting firms meet the regulatory requirements.

6. HandiTrust

HandiTrust is a desktop-based trust accounting software that has been used traditionally to manage the trust accounting. It’s integrated with HandiTax and is very popular amongst Desktop HandiSoft users offering fee from refund service.

Why Choose TrustEasy for Trust Accounting?

Tailored for Tax Practitioners and Accounting Firms
Trust Easy is specifically designed to meet the needs of tax practitioners and accounting firms in Australia. Our software ensures compliance with local regulations and offers features that simplify trust accounting processes.

7. Day Free Trial

Choosing the right software is crucial. That’s why TrustEasy offer a 7-day free trial of currently allowing tax agents to explore its features and see how it can benefit the practice. Sign up today and experience the ease and efficiency of Trust Easy.

Conclusion

Trust accounting is a vital aspect of managing client funds and maintaining compliance for tax practitioners and accounting firms. By understanding how trust accounting works and utilizing the right software, such as Trust Easy, tax practitioners can streamline the processes, ensure accuracy, and build trust with clients.

Ready to simplify your trust accounting? Sign up for Trust Easy today and enjoy a 7-day free trial. Experience the benefits of efficient, accurate, and compliant trust accounting. Sign Up Now!