top of page

Mastering the Three-Way Reconciliation Equation: Trust Account Integrity in Property Management

Updated: Nov 7, 2023

What is a Three-Way Reconciliation?

The Three-Way Reconciliation Equation:

Reconciled Bank Balance = General Ledger Balance = Client/Portfolio Ledger Balance

A three-way reconciliation is a financial process used to verify the accuracy and consistency of financial records, particularly in the context of trust accounts, such as those used in law firms. This reconciliation involves comparing three sets of financial records to ensure they align:

  1. Bank Statement Balance: This is the actual balance reported by the bank, which reflects all financial transactions in and out of the account.

  2. General Ledger Balance aka Book Balance or Check Register: The General Ledger Balance is the internal record of transactions maintained by the organization or individual, indicating what they expect the balance to be based on their records.

  3. Client Ledger Balance: The client ledger balance is a detailed record of financial transactions for individual clients or matters, showing what should be in the trust account for each client.

The purpose of a three-way reconciliation is to make sure that all three of these balances match or can be reconciled with one another, ensuring that the trust account is accurate and compliant with legal and regulatory requirements. It's a crucial process to detect errors, discrepancies, or potential issues with client funds and maintain financial integrity. This is especially important to protect client funds and meet the ethical and legal obligations associated with trust accounts and Real Estate Commissions.

The Three Way Equation broken out so it’s easier to understand:

A three-way reconciliation is matching the bank balance (Trust account balance), with the Book Balance (bank ledger balance reflected in the software, minus uncleared deposits plus uncleared money out and the Client/Portfolio balance.

In an equation form:

Start with getting the Reconciled Bank Balance:

Bank Balance - Uncleared Money In + Uncleared Money Out = Reconciled Bank Balance

The Three-Way Reconciliation Equation:

Reconciled Bank Balance = General Ledger Balance = Client/Portfolio Balance

Bank Statement Balance - any uncleared money in + any uncleared money out = Reconciled Bank Balance

When your Reconciled Bank Balance equals your General Ledger Balance, and your Client Ledger Balance, you have a three-way reconciliation.


Subscribe to Our Newsletter

Thanks for subscribing!

bottom of page