Manage overpayments made from trust accounts

Summary

Learn how to handle trust discrepancies by using alternate ledgers, reversed receipts, or reconciliation adjustments.

This article covers:

• Overview
• Resolve trust overpayment errors
  • Reconcile after funds are returned
  • Use another ledger
  • Use reversed receipts
  • Rollover without balancing

Overview

Sometimes, funds are mistakenly paid out of the trust account—more than what’s available in the ledger. This can occur due to:

• Human error (e.g., overpaying a client)
• Bank fees incorrectly withdrawn from the trust account
• Attempting to record a transaction that would make the ledger balance negative

There are four options you can try to resolve this error. However, you should always consult your accountant or auditor before proceeding. The options provided as general guidance only and do not constitute professional financial advice.

Resolve trust overpayment errors

Example Scenario:

On June 29, a client was due a $1,000 payout. However, $1,100 was accidentally paid. The error was discovered on July 2 during reconciliation. Since the ledger was empty on June 29, recording the extra $100 would result in a negative balance.

There are four options you could try to resolve this error:

Reconcile after funds are returned

Use this method if the overpaid amount has been reimbursed.

• Deposit the overpaid amount (e.g., $100) back into the trust account from your trading account
• Record a trust receipt for $100 dated today
  • Add a Description: “Reimbursement of overpayment made in error on June 29”
• Record a payment of $100 to the vendor, also dated today
  • Add a Description: “Overpayment made in error on June 29”
• Reconcile for June using today’s date instead of June 30

Use another ledger

Use this if the funds haven’t been returned yet.

• Select a ledger that had trust funds between June 29 and today (e.g., a Miscellaneous ledger)
• In that ledger, record a $100 payment to the vendor dated June 29 
  • Add a Description: “Overpayment made in error”
• Record a $100 trust receipt when the funds are returned
  • Add a Description: “Reimbursement of overpayment made in error”
• Hide these transactions from the Account Summary: 
  • Go to: Settings > Accounting > General > Select Office
  • Enable “Allow trust transactions to be hidden from Account Summary report”
  • Tick Hide from Account Summary on the transactions

Use reversed receipts

This workaround allows reconciliation without a negative ledger balance.

• Add a manual trust receipt for $100 dated June 29
• Add a Description: “Overpayment error”
• Reverse the receipt on the same date
• Go to: Accounting > Trust > Reconciliation and mark only the reversal as presented

Once the $100 is returned: 

• Add a manual trust receipt for $100 on the return date
• Add a Description: “Reversal of overpayment error”
• Reverse this receipt on the same date
• In Reconciliation, mark both transactions and the original receipt as presented

Rollover without balancing

Use this only if no other option is viable.

• Rollover the trust reconciliation with the deficiency
• Add a Note to the printed report explaining the overpayment
• Report the deficiency to Consumer Affairs
• Reimburse the trust account as soon as possible