Record-Keeping How To’s: The Ultimate Guide to Client Ledgers

As an attorney practicing in California, maintaining accurate records for client trust accounts is a legal obligation and a critical aspect of ethical practice. At SmartBean®, we understand the importance of meticulous record-keeping to protect both your client’s interest and your professional reputation. 

Under the Client Trust Account Protection Program, three-way reconciliation must occur for client trust accounts monthly.

This requires using the trust ledger, the client ledger, and bank statements. Maintaining a client ledger is a crucial practice that ensures transparency and accountability. Rule 1.15(e) also mandates that attorneys use one for each client they hold funds for. Here's a quick primer on the trust ledger, client ledger, and bank statement.

Now, let’s delve into the essential components of ledger entry requirements specific to California to ensure compliance and transparency. 

What Is the Client Ledger? 

The client ledger serves as a detailed record of all financial transactions related to a specific client.

Think of keeping a client ledger as managing a checkbook for each client. The client ledger meticulously records all money received and paid out on behalf of the client. It also provides a running balance after every transaction, a practice that must be followed even if the funds are kept in a pooled trust or IOLTA account.

The ledger must be personalized, including the client's name for transaction records. These are the essential pieces of information that must go into your client's ledger.

Recording Transactions 

Every transaction whether entering or leaving the account, must be entered into the ledger. This is not only for compliance's sake but for account and ledger management.

When receiving funds, the ledger entry must list these details: 

• Date of receipt 
• The amount of money received 
• The source the funds are coming from 

For payments, it is nearly the same: 

• Date of payment 
• The amount and to whom the payment is going (the payee) 
• Purpose of the payment 
• Check number 

After listing each transaction, a new total must be calculated for both receipts and payments. This is done by adding or subtracting the receipt or payment amount from the prior total. This is your running balance. Remember never to round off the running balance. Reminder: always leave spaces blank for updates after the monthly reconciliation. 

Best Practices for Client Ledgers

• Individual Pages: Avoid combining multiple clients onto a single page. Use the front of a page for one client and the back for another. Dedicate separate pages for each client to maintain chronological order and for easier recall. 
• Separate Matters: If handling multiple cases for the same client, consider maintaining a separate client ledger for each matter. Alternatively, ensure clear references to the related case when recording receipts and payments. 
• Maintain an Audit Trail: Identify and correct accounting errors and keep all necessary receipts during the reconciliation process. Attorneys are required to hold client records for up to 5 years post-case close.
• Individual Entries: When using one deposit slip for multiple deposits, be sure to record each check in the client ledger individually so you can know the exact amounts and circumstances for each. 

Client Ledgers: Final Thoughts

Remember, accurate record-keeping fulfills legal requirements and builds trust with your clients. At SmartBean®, we are not just a resource, but a partner who is here to support your practice every step of the way. If you are an attorney seeking expert bookkeeping services in Orange County, contact SmartBean® for a free consultation.

Let us help you maintain compliant and transparent client trust accounts!