Three-Way Trust Reconciliation for Law Firms: A Monthly Checklist

By Kapil Garg, Chartered Accountant (India) · November 2026

Most state bars expect your trust account to be reconciled three ways every month. Here's what that means in practice, and a checklist you can use or hand to your bookkeeper.

What "three-way" actually means

A three-way reconciliation proves that three independent records agree on the same date, usually the last day of the month:

1. The bank statement for the trust (IOLTA) account, adjusted for outstanding checks and deposits in transit.
2. The trust account ledger (the checkbook register for that account).
3. The sum of every individual client ledger, the balance you hold for each client or matter.

If all three numbers match, the money you are holding is fully accounted for, client by client. If they don't, you need to find out why before the next month starts.

Monthly checklist

1. Download the trust bank statement as soon as it is available.
2. Record every deposit and disbursement in the trust ledger against the right client or matter.
3. List outstanding checks and deposits in transit, then compute the adjusted bank balance.
4. Run a client ledger balance report and total it.
5. Compare adjusted bank balance, trust ledger balance and client ledger total. All three must match.
6. Scan client ledgers for negative balances. A negative balance means one client's money was used for another.
7. Look for stale balances: funds sitting for a client with a closed matter.
8. Confirm no operating expenses or fees were paid directly from trust.
9. Have the responsible attorney review and sign the reconciliation.
10. Save the report and supporting statements. Most states expect years of retention.

The mistakes we see most

• Earned fees left in trust. Once a fee is earned, it should move to operating promptly; leaving it in trust can count as commingling.
• Bank fees charged to trust. Arrange for fees to be charged to operating, or cover them correctly.
• Disbursing before deposits clear. Paying out a settlement before the check clears can temporarily use other clients' money.
• Only a two-way reconciliation. Matching the bank to the register isn't enough if you never check client ledgers.

Software

Practice management tools like Clio, MyCase and PracticePanther keep client ledgers; QuickBooks typically holds the firm's operating books. The reconciliation ties them together each month.

This article is general information, not legal advice. Trust accounting rules vary by state; check your state bar's requirements.