Bank reconciliation for law firm client accounts: a bookkeeper's guide

Law firms keep client money apart from office money, and that single rule shapes most of the reconciliation work. The client bank account must always be reconcilable to the client ledger, and the office account to the general ledger. In this article we walk through the sequence we use, the evidence to keep, and the judgement calls that trip people up.

Why the client account is reconciled differently

Client money is not the firm's money. It sits on the balance sheet as a liability, not an asset, because the firm owes it back to clients and third parties. That means the client bank balance and the total of client ledger balances should agree at all times, not just at period end.

The office account is reconciled the ordinary way: bank statement to cash book, with outstanding items listed and cleared the following month. The client account is reconciled to two things at once: the bank statement and the client ledger listing. A three-way agreement, in effect, and any leg that will not tie is a finding in its own right.

The sequence we follow

Start with the bank statement, not the ledger. Tick statement lines to the ledger, then tick the ledger back to the statement. Doing it both ways catches one-sided entries: a receipt posted but never banked, or a bank credit with no ledger posting behind it.

Next, reconcile the client ledger listing to the client bank balance. Individual client ledgers with negative balances deserve attention. A negative client balance usually means client money has funded something it should not have, or a transfer from office has not been posted. Either way it needs resolving, not netting off against a positive balance elsewhere.

Finally, check transfers between office and client accounts in both ledgers. Each transfer should appear on both sides for the same amount and the same date. Half a transfer is one of the most common causes of a reconciliation that is out by a round number.

What the close depends on

A client account reconciliation that does not tie blocks the close, full stop. You cannot accrue around it or journal it away. The difference must be identified, item by item, because the underlying cause is usually a posting error with a document behind it.

Keep the reconciliation as a working paper: the statement, the ticked ledger, the list of unpresented items, and a short note on anything aged. An unpresented client cheque from six months ago is not a timing difference. It is a question about whether the payment was ever received by the payee.

Telling a posting error from a control problem

An ordinary posting error shows up as a specific, traceable difference: a transposition, a duplicate payment, a receipt posted to the wrong client ledger. You can find it, evidence it, and correct it with a documented adjustment.

A control problem shows up differently. Reconciliations that are perpetually out by small, shifting amounts point to weak matching between the case management system and the books, or to transfers posted on one side only as routine. That is a process fault, and fixing it belongs to the firm, not to the month-end.

Where specialist help starts

If the books themselves are damaged, for example a migration has corrupted client ledger balances or transactions have been lost, stop and preserve the data before anyone attempts repairs. Take a verified backup, note the last reconciliation that agreed, and document what changed. At that point it is no longer bookkeeping, and our QuickBooks data repair service is the right next step rather than working through it in the live file.

For everything else, the discipline is simple and unforgiving: both accounts reconciled monthly, three-way agreement on the client side, negative balances investigated the day they appear, and working papers kept so the next person can follow the trail.