RECONCILIATION OF ACCOUNTING RECORDS

RECONCILIATION OF ACCOUNTING RECORDS

Purpose

The trust fund bank account record, the separate beneficiary or transaction record, and the bank statement are all
interrelated. Any entry made on the bank account record must have a corresponding entry on a separate
beneficiary record. By the same token, any entry or transaction shown on the bank statement must be reflected
on the bank account record. This applies to columnar as well as to other types of records.

The accuracy of the records is verified by reconciling them at least once a month. Reconciliation is the process
of comparing two or more sets of records to determine whether their balances agree. It will disclose whether the
records are completed accurately.

For trust fund record keeping purposes, two reconciliations must be made at the end of each month:

1. reconciliation of the bank account record (RE 4522) with the bank statement; and,

2. reconciliation of the bank account record (RE 4522) with the separate beneficiary or transaction records
(RE 4523).

Reconciling the Bank Account Record With the Bank Statement

The reconciliation of the bank account record with the bank statement will disclose any recording errors by the
broker or by the bank. If the balance on the bank account record agrees with the bank statement balance as
adjusted for outstanding checks, deposits in transit, and other transactions not yet included in the bank statement,
there is more assurance that the balance on the bank account record is correct. Although this reconciliation is not
required by the Real Estate Law or the Commissioner’s Regulations, it is an essential part of any good
accounting system.

Reconciling the Bank Account Record With the Separate Beneficiary or Transaction Records

This reconciliation, which is required by Commissioner’s Regulation 2831.2, will substantiate that all
transactions entered on the bank account record were posted on the separate beneficiary or transaction records.
The balance on the bank account record should equal the total of all beneficiary record balances. Any difference
should be located and the records corrected to reflect the correct bank and liabilities balances. Commissioner’s
Regulation 2831.2 requires that this reconciliation process be performed monthly except in those months when
there is no activity in the trust fund bank account, and that a record of each reconciliation be maintained. This
record should identify the bank account name and number, the date of the reconciliation, the account number or
name of the principals or beneficiaries or transactions, and the trust fund liabilities of the broker to each of the
principals, beneficiaries or transactions.

Unexplained Trust Account Overages

When a broker performs a reconciliation pursuant to Commissioner’s Regulation 2831.2, the broker may find an
unexplained overage. An unexplained overage is defined as funds in a real estate broker’s trust account which
exceed the aggregate trust fund liability of such account where the broker is unable to determine the ownership
of such excess funds.

Unexplained trust account overages are trust funds and unless the broker can establish the ownership of such
funds, the funds must be maintained in the broker’s trust fund account or in a separate trust fund account
established to hold such funds.

Unexplained trust account overages may not be used to offset or cover shortages that may exist otherwise in the
broker’s trust account.

A broker must keep a separate record of unexplained trust account overages including a separate subsidiary
ledger to record the potential trust fund liability. Such records must include the date of recording and the date on
which such funds became an unexplained trust account overage. A broker holding unexplained trust account
overages must perform a monthly reconciliation of such funds in accordance with Commissioner’s Regulation
2831.2.

Suggestions for Reconciling Records

The following is a general discussion on how to perform the trust account reconciliations.

1. Before performing the reconciliations, record all transactions up to the cut-off date in both the bank account
record and the separate beneficiary or transaction records.

2. Use balances as of the same cut-off date for the two records and the bank statement.

3. For the bank account reconciliation, calculate the adjusted bank balance from the bank statement and from
the bank account record. (Brokers commonly err by calculating the adjusted bank balance based solely on
the bank statement, ignoring the bank account record. While they may know the correct account balances,
they may not realize their records are incomplete or erroneous.)

4. Keep a record of the two reconciliations performed at the end of each month, along with the supporting
schedules.

5. Locate any difference between the three sets of accounting records. A difference can be caused by:

• not recording a transaction

• recording an incorrect figure

• erroneous calculations of entries used to arrive at account balances

• missing beneficiary records

• bank errors.