I receive a retainer and deposit into a mixed trust account (liability). After invoicing the client, for billable time spent and/or billable expenses, the money is transferred into the general bank account as payment for those invoices.
What is the best way to record these transactions? I have setup a liability control account with special sub-account for each client. I create invoices for billable hours, for example. How are they paid, given that the payment is from trust into general account?
I setup a trust account for solicitor / migration agent this way.
In Manager:
- Create a bank account called ‘Trust Account’
- Create an account through chart of accounts - Name ‘Held in Trust’; Group ‘Liabilities’
- When receipting payments select ‘Trust Account’ you also receipt it against ‘Held in Trust’ which is located on the lower part of the receipting under Account
- When you are drawing down on funds to pay invoices you need to bank transfer amount from Trust Account to your business account (at your bank); you will need to also do an ‘Inter Account Transfer’ and then receipt money against the invoice in Manager
- Any money that is held in trust needs to be paid back to the customer comes out of the Trust Account from the bank and in Manager
- any transaction, receipt, transfer, invoice, payment etc in relation to money held in trust for an individual must have the name or ability (code) to track back to the person who the money is held in trust for
This will comply with trust account obligations
I created the Trust Account as a Bank Account. But when I created the Held in Trust Account under the Liabilities group it was not accessible (greyed out dash and name in bold).
I then created a Held in Trust Control Account (Liabilities) and a client sub-account: Client A Trust.
I receipted monies into ‘Account’ Trust Account, and also in the same transaction into Client A Trust.
Now in the Summary I have the retainer monies showing as an asset in Cash at bank and showing as a Liability ‘Held in Trust’.
Next step is invoice client. I make an entry in Billable Time for that client.
I go to Customers and create New Sales Invoice for them.
I want to be sure about the next step: should I now create a new receipt from that same Invoice page? Or record the transfer first?
And when you say to transfer funds from Trust to business account, should that be done only by using the Inter Account Transfers tab, paid from Client A Trust to the business account, and not by a Journal entry?
Here is what I next did:
Invoiced the client.
Then recorded a payment: Trust Account / Held in Trust / Client Trust Account
Recorded a receipt for that client: General Account / Account Receivable / Client / Invoice#
The result appears to be okay, the balances match the bank account; the invoice is paid.
In addition to your suggestion (to create a Trust bank acct in addition to a liability trust acct), I looked at this page for the above: https://quickbooks.intuit.com/learn-support/en-us/reports-and-accounting/how-do-i-set-this-trust-account/00/234076/message-id/14008
steps for liabilities
settings
chart of accounts
New account on Balance Sheet
Name: Held in Trust
Group: Liabilities
I understand what you have done in relation to creating sub-accounts but believe that this list will get very long on your balance sheet. The way I tracked clients money in trust is to create a client that you are going to bill or create an invoice against and anything you do with the clients money has their name against it.
That is probably a better method. I am trying that now in a new company.
I am still not clear about the inter acct transfer:
I created an invoice. Then I transferred the amount paid from Trust to General.
But when I pay the invoice with a receipt the banks acct balances show the Trust unchanged. If the money is receipted into the General acct then the Trust is accurate but the General is twice it should be.
so when you raise an invoice for the customer you are paying from money held in trust you need to transfer funds from trust account to your business account at the your bank.
In Manager you just need to replicate what you have done at the bank by completing it in this order 1. Inter Account Transfer 2. receipt payment of invoice against that invoice
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