SAMPLE TRANSACTIONS

SAMPLE TRANSACTIONS

To demonstrate the record keeping requirements discussed in this chapter, we have simulated trust account
records for typical real estate transactions occurring over a thirty-day period. To set the stage, let us assume that
James Adams, a real estate broker, owns and operates a one-man real estate office specializing in residential
sales and property management. Broker Adams has one trust fund bank account. We will look at the trust
account activity for this office for the month of May, 2010.

The use of columnar records to record these transactions is illustrated in Exhibits 1 - 10 at the end of this
chapter. As previously discussed, a broker may use other types of records as long as they meet generally
accepted accounting standards.

2010 TRANSACTIONS

May 1 Opened a trust account with First County Bank, and deposited $100 of his own money to cover bank

service charges.

May 1 Entered into agreements to manage the following rental properties:

Address Owner’s Name T. Eddie Number of Units 1
a. 1538 South Ave. Anycity, CA
b. 3490 Tower St. Anycity, CA L. Stewart 4
c. 9152 High Way Anycity, CA W. Allen 4
d. 2351-2353 Kingston Way Anycity, CA S. Manly 2
e. 7365 Meadow Cir. Anycity, CA J. Bird 1

May 3 Deposited the following rents received from tenants of managed properties:

Tenant’s Rent
Property Name Received
a. 1538 South Ave. B. Hamns $600
b. 3490 Tower St., Unit 1 R. Robertson 350
c. 2351 Kingston Way I. Warren 450

$1,400

May 5 Received a $2,000 check payable to broker from Mr. and Mrs. Dennis White as deposit for their

offer to buy a house at 615 Lake Drive, Anycity, owned by Mr. and Mrs. Richard J. Jensen. Buyers’
offer instructed broker to hold the check uncashed until their offer was accepted by the Jensens.

May 5 Received and deposited $750 from T. Sundance representing rent of $500 for May 5 to 30, and

$250 security deposits for 7365 Meadow Circle.

May 5 Was notified by the Jensens that they accepted the offer on their property.

May 6 Deposited the $2,000 check from Mr. and Mrs. White.

May 8 Obtained an exclusive listing to sell a six-plex at 915 Galaxy St., Anycity, owned by R. Jays.

May 9 Received $1,000 from W. Allen, owner of 9152 High Way, to cover anticipated expenses for the

property. Amount was deposited the same day.

May 10 Issued the following checks to pay for various expenses connected with the managed properties
Check No. Payee Purpose Amount
1001 ABC Mortgage Co. Mortgage payment for 1538 South Ave. $450
1002 Anycity Treasury Utilities for 1538 South Ave. 35
1003 Professional Cleaning for 3490 55
Cleaners Tower St.
1004 Mr. Handyman Minor repairs on 2351 Kingston 25
TOTAL $565

May 14 Received a $4,000 check from B. Sun, payable to Title Escrow Company, with an offer to buy the
915 Galaxy property.

May 15 Received R. Jays’ acceptance of the buyer’s offer on 915 Galaxy Street.

May 16 Delivered the $4,000 check from B. Sun to Title Escrow Company.

May 19 Issued check number 1005 for $2,000 to First Title Co. for account of Mr. and Mrs. White, buyers

of the 615 Lake Drive property.

May 22 Received an offer and a $3,000 check as deposit from R. Olive to buy a single family house at
31009 Technology Street owned by T. Evans.

May 24 Returned R. Olive’s check after seller rejected the offer.

May 31 Charged property management fees to the following accounts and issued check number 1006 for

$330 payable to himself:

Property Owner Management Fee
T. Eddie $45
L. Stewart 100
W. Allen 80

S. Manly 60
J. Bird 45
Total $330

May 31 Sent statement of account to each owner of the managed properties.

Background Information

James Adams keeps four types of columnar records:

1. Record of all Trust Funds Received and Paid Out - Trust Fund Bank Account (hereinafter referred to as
“Bank Account Record”). This record is required under Commissioner’s Regulation 2831 for each trust
account a broker has.

2. Record of all Trust Funds Received - Not Placed in Broker’s Trust Account (hereinafter referred to as
“Record of Undeposited Receipts”). This is required under Commissioner’s Regulation 2831.

3. Separate Record For Each Beneficiary or Transaction (hereinafter referred to as “Separate Beneficiary
Record”). This is required under Commissioner’s Regulation 2831.1.

4. Separate Record For Each Property Managed (hereinafter referred to as “Separate Property Record”).
This serves the same purpose as the Separate Beneficiary Record.

To illustrate the recording process, listed below are the entries made on the books by James Adams as well as
the documents prepared or obtained as support for each transaction. The actual entries are shown on the
forms/exhibits at the end of this chapter.

Note that:

• Each entry to any record shows all the pertinent information of the transaction, such as the date, name
of payee, name of payor, amount, check number, etc.

• The daily bank balance is computed and posted on the Account Record after recording the
transactions.

• The balance owing to the client is computed and posted on the Beneficiary Record or Separate Property
Record, after posting transactions.

• Any entry made on the Bank Account Record has a corresponding entry on a Beneficiary Record or a
Separate Property Record, and vice versa.

• All records except the Record of Undeposited Receipts show entries in chronological sequence
regardless of transaction type. The Record of Undeposited Receipts shows the disposition of a trust
fund in the same line as the receipt is entered, rather than in chronological sequence.

Step-By-Step Narrative of Trust Account Entries

(Actual recording shown on Exhibits 1 - 10 at end of chapter.)

Transaction Date May 1 Documentation Deposit slip prepared by broker. Entries Record the deposit on: 1. The Bank Account Record. Balance is $100. (Exh. 1) 2. A newly prepared Separate Beneficiary for James Adams. Balance is $100. (Exh. 2)
May 1 May 3 Management agreements signed by property owners and broker. Collection receipts Nos. 2, 3 and 4 issued to B. Hamns, R. Robertson, and I. Warren, respectively. No entries needed since there was no receipt nor disbursement of trust funds. Record the $1,400 receipt on: 1. The Bank Account Record. New balance is $1,500. (Exh. 1) 2. Newly prepared Separate Beneficiary Records for: T. Eddie - balance is $600 (Exh. 4) L. Stewart – bal. is $350 (Exh. 5) S. Manly - balance is $450 (Exh. 6)
May 5 Real Estate Purchase Contract and Receipt for Deposit signed by Mr. and Mrs. White. Collection receipt No. 1 issued to the Whites. Enter transaction on the Record of Undeposited Receipts. (Exh. 3) No Separate Beneficiary Record is necessary since the check was not deposited.

May 5 Collection receipt No. 5

issued to T. Sundance.
Receipt showed that
$500 of the $750 was
for rent and the other
$250 was for security
deposit.

May 5 Real Estate Contract

and Receipt for trust
funds were received for
Deposit signed by Mr.
and Mrs. Jensen.

Record the $750 deposit on:

1. The Bank Account Record. (Exh.

1)

2. Separate Beneficiary Records for:

J. Bird - Sundance’s Security

Deposit, bal. is $250. (Exh. 7)

J. Bird - balance is $500. (Exh. 8)
(Since security deposits will be
accounted to the tenant in the future,
James Adams keeps a separate record
for deposits. Total liability to the
owner is the sum of the two records -
one for security deposits, another for
rents and other transactions.)

No entries were made since no trust
funds were received or disbursed.

Transaction

Date

May 6

Documentation

Deposit receipt
prepared by broker.

Entries

Record $2,000 deposit on:

1. Bank Account record. New balance

is $4,250. (Exh. 1)

2. A newly prepared Separate
Beneficiary Record - Mr. and Mrs.
White/Mr. and Mrs. Jensen.

Account balance is $2,000. (Exh. 9)

3. Record of Undeposited Receipts.
(Exh. 3) Shows disposition of
check previously entered on the
record.

May 8 Exclusive Listing

Agreement signed by
sellers and broker.

May 9 Collection receipt No. 6

issued to W. Allen.

May 10 Checks issued by

broker. Supporting
papers for each check.

May 14 Real Estate Purchase

Contract and Receipt
for Deposit signed by
B. Sun.

May 15 Real Estate Purchase

Contract and Receipt
for Deposit signed by
R. Jays.

May 16 Receipt issued by Title

Escrow Company.

Record receipt on:

1. The Bank Account Record. New
balance is $5,250. (Exh. 1)

2. A newly prepared Separate
Beneficiary Record - W. Allen.

Balance is $1,000. (Exh. 10)

Record disbursements on:

1. Bank Account Record. New

Balance is $4,685. (Exh. 1)

2. Separate Beneficiary Records for:
T. Eddie - New balance is $115.

(Exh. 4)

L. Stewart - New balance is $295.

(Exh. 5)

S. Manly - New balance is $425.

(Exh. 6)

Record receipt on the Record of

Undeposited Receipts. (Exh. 3)

No entry was needed since there was
no receipt or disbursement of funds.

Note disposition of check on the
Record of Undeposited Receipts.

(Exh. 3)

Transaction Date May 19 Documentation Entries Check issued by broker. Record disbursements on the: Receipt issued by First 1. Bank Account Record. New balance Title Company. is $2,685. (Exh. 1) 2. Separate Beneficiary Record - Mr. and Mrs. White/Mr. and Mrs. Jensen. New balance is $0. (Exh. 9)
May 22 Real Estate Purchase Contract and receipt for Deposit signed by R. Olive.
May 24 Real Estate Purchase Post the return of check on the Record Contract and Receipt of Undeposited Receipts. (Exh. 3) for Deposit rejected by T. Evans.
May 31 List showing the Record disbursements on the: breakdown of the check 1. Bank Account Record. New balance amount, showing the is $2,685. (Exh. 1) charge to each owner. 2. Separate Beneficiary Records for: New Owners Balance T. Eddie $70 L. Stewart $195 (NOTE: A list is W. Allen $920 necessary as support for S. Manly $365 a check disbursement J. Bird $455 chargeable to a number of beneficiaries. Posting the entries on the separate records without such a list is not sufficient.)

After recording the daily transactions, the next step in the trust fund accounting process is the reconciling of
records at the end of the month. James Adams prepared reconciliation schedules by comparing the bank balance
on the Bank Account Record with the bank statement balance (the bank reconciliation) and also with the total of
the Separate Beneficiary Records balances (the reconciliation report).

The bank statement and reconciliations are shown on the next two pages.

FIRST COUNTY BANK STATEMENT.

MAIN BRANCH.

5 Main Avenue

ANYCITY, CA 90002.

PAGE 1 of 1.

DATE OF THIS STATEMENT 05/31/10.

JAMES ADAMS.

TRUST ACCOUNT.

8310 ORANGE AVENUE.

ANYCITY, CA 90002.

CHECKING ACCT. 123456 CUSTOMER SINCE 1995.

SUMMARY: PREVIOUS STATEMENT BALANCE ON 04/30/10 . 00.00

TOTAL OF 5 DEPOSITS FOR....................... 5,250.00

TOTAL OF 4 CHECKS FOR......................... 2,540.00

TOTAL OF 1 OTHER DEBIT FOR........................ 7.00

STATEMENT BALANCE ON 05/31/10 ................ 2,703.00

CHECKS/ CHECKS.

OTHER CHECK DATE.
DEBITS NUMBER POSTED AMOUNT.
1001 5/14 450.00
1002 5/16 35.00
1003 5/16 55.00
1005 5/21 2,000.00

OTHER DEBITS.

DATE POSTED .
05/31 SERVICE CHARGE AMOUNT 7.00
DEPOSITS/ OTHER DEPOSITS DATE .
CREDITS POSTED AMOUNT.
5/1 100.00
5/5 1,400.00
5/5 750.00
5/6 2,000.00
5/9 1,000.00

DAILY .
BALANCE DATE AMOUNT DATE AMOUNT.
5/1 100.00 5/14 4,800.00
5/5 2,250.00 5/16 4,710.00
5/6 4,250.00 5/21 2,710.00
5/9 5,250.00 5/31 2,703.00

James Adams
Bank Reconciliation
First County Bank
May 31, 2010

Balance per bank statement, 5/31/10 .................................... $2,703.00

Add deposits in transit ...................................................... -0-

Less outstanding checks:
check #1004...................................... $25.00

#1006 ................................................. 330.00

Adjusted bank balance, 5/31/10.......................................... $2,348.00

Balance per books, 5/31/10.............................................. $2,355.00

Less May bank service charge ..............................................

Adjusted balance, 5/31/10............................................... $2,348.00

James Adams
Reconciliation Report
First County Bank
Account No. 123456
May 31, 2010

Beneficiary Balance

James Adams (Broker)...................................................... $93.00

W. Allen.................................................................. 920.00

J. Bird .................................................................. 250.00

J. Bird .................................................................. 455.00

T. Eddie .................................................................. 70.00

S. Manly.................................................................. 365.00

L. Stewart................................................................ 195.00

Total per subsidiary records......................................... $2,348.00

(Agrees with bank account record balance.)