ACCOUNTING RECORDS

ACCOUNTING RECORDS

General Requirements

An important aspect of the broker’s fiduciary responsibility to the client is the maintenance of adequate records
to account for trust funds received and disbursed. This is true whether the funds are deposited to the trust fund
bank account, sent to escrow, held uncashed as authorized under Commissioner’s Regulation 2832, or released
to the owner(s) of the funds. These records:

1. provide a basis upon which the broker can prepare an accurate accounting for clients.

2. state the amount of money the broker owes the account beneficiaries at any one time. (This is especially
important when there are a large number of transactions.)

3. prove whether or not there is an imbalance in the trust account. Some brokers audited by DRE have
disagreed that their trust accounts had a shortage or an overage in the amount disclosed by the audit, but
could not provide documentation to support their position.

4. guarantee that beneficiary funds deposited in the trust account will be insured up to the maximum FDIC
insurance coverage.

There are two types of accounting records that may be used for trust funds: columnar records in the formats
prescribed by Commissioner’s Regulations 2831 and 2831.1; and records other than columnar that are in
accordance with generally accepted accounting practices which include details specified in subdivision (a) of the
Regulations and are in a format that will readily enable tracing and reconciliation in accordance with Section
2831.2. Regardless of the type of records used, they must include the following information:

1. all trust fund receipts and disbursements, with pertinent details, presented in chronological sequence;

2. the balance of the trust fund account, based on recorded transactions;

3. all receipts and disbursements affecting each beneficiary’s balance, presented in chronological sequence;
and

4. the balance owing to each beneficiary or for each transaction.

Either manually produced or computerized accounting records are acceptable. The type and form of records
appropriate to a particular real estate operation as well as the means of processing transactions will depend on
factors such as the nature of the business, the number of clients, the volume of transactions, and the types of
reports needed. For example, manual recording on columnar records might be satisfactory for a broker handling
a small number of transactions, while a computerized system might be more appropriate and practical for a large
property management operation.

Columnar Records

A broker may decide to use the columnar records prescribed by Commissioner’s Regulations 2831 and 2831.1.
The records required will depend on whether the trust funds received are deposited to the trust account or are
forwarded to an escrow depository or to the owner of the funds. These records are:

1. Columnar Record of All Trust Funds Received and Paid Out - Trust Fund Bank Account (DRE form RE
4522);

2. Separate Record for Each Beneficiary or Transaction (DRE form RE 4523); and

3. Record of All Trust Funds Received - Not Placed in Broker’s Trust Account (DRE form RE 4524).

The first two records are required when trust funds are received and deposited to the trust fund bank account.

The third record is required when trust funds received are not deposited to the trust account, but are instead
forwarded to the authorized person(s).

If the trust fund account involves clients’ funds from rental properties managed by the broker, the Separate
Record for Each Property Managed (DRE form RE 4525) may be used in lieu of the Separate Record for Each
Beneficiary or Transaction.

A broker who has an escrow division pursuant to Financial Code Section 17006(a)(4) must keep the above
mentioned records for escrow funds. (Commissioner’s Regulation 2951)

Record of All Trust Funds Received and Paid Out - Trust Fund Bank Account

This record is used to journalize all trust funds deposited to and disbursed from the trust fund bank account. At a
minimum, it must show the following information in columnar form: date funds were received; name of payee or
payor; amount received; date of deposit; amount paid out; check number and date; and the daily balance of the
trust account.

All transactions affecting the trust account are entered in chronological order on this record regardless of payee,
payor or beneficiary. If there is more than one trust fund bank account, a different columnar record must be
maintained for each account, pursuant to Commissioner’s Regulation 2831.

Separate Record for Each Beneficiary or Transaction

This record is maintained to account for funds received from or for the account of each beneficiary, or for each
transaction, and deposited to the trust account. With this record, the broker can ascertain the funds owed to each
beneficiary or for each transaction. The record must show the following in chronological order: date of deposit;

amount of deposit; name of payee or payor; check number; date and amount; and balance of the individual
account after posting transactions on any date.

A separate record must be maintained for each beneficiary or transaction from whom the broker received funds
that were deposited to the trust fund bank account. If the broker has more than one trust account, each account
must have its own set of beneficiary records so that they can be reconciled with the individual trust fund bank
account record required by Commissioner’s Regulation 2831.2.

Record of All Trust Funds Received - Not Placed in Broker’s Trust Account

This record is used to keep track of funds received and not deposited to a trust fund bank account. In this
situation, the broker is handling the funds and must keep records of same. Examples are:

1. earnest money deposits forwarded to escrow;

2. rents forwarded to landlords; and

3. borrowers’ payments forwarded to lenders.

This record must show the date funds were received, the form of payment (check, note, etc.), amount received,
description of property, identity of the person to whom funds were forwarded, and date of disposition. Trust
fund receipts are recorded in chronological sequence, while their disposition is recorded in the same line where
the corresponding receipt is recorded.

Transaction folders usually maintained by a broker for each real estate sales transaction showing the receipt and
disposition of undeposited checks are not acceptable alternatives to the Record of Trust Funds Received But Not
Deposited to the Trust Fund Bank Account.

An exception to this record keeping requirement is provided in Commissioner’s Regulation 2831(e), which
states that a broker is not required to keep records of checks made payable to service providers, including but
not limited to escrow, credit and appraisal services, when the total amount of such checks for any transaction
does not exceed $1,000. However, a broker shall retain for three years copies of receipts issued or obtained in
connection with the receipt and distribution of such checks and, upon request of the Department or the maker of
the checks, a broker must account for the receipt and distribution of the checks.

Separate Record for Each Property Managed

This record is similar to, and serves the same purpose as, the Separate Record for Each Beneficiary or
Transaction. It does not have to be maintained if a separate record is already used for a property owner’s
account. The Separate Record for Each Property Managed is useful when the broker wants to show some
detailed information about a specific property being managed.