A three-way reconciliation proves that three figures agree: the money sitting in your trust account, the balance your accounting system reports for it, and the sum of what you owe every owner and tenant it holds funds for. All three, struck as at the same date, have to be the same number.
Two out of three is the trap. An account can tie to the bank statement exactly and still be short on one owner, because a distribution ran ahead of collected rent and another owner's money absorbed it. The bank has no opinion about whose money it is. Only the third number does.
The three numbers
- The adjusted bank balance. Closing balance on the statement, less cheques written that have not cleared, plus deposits not yet landed.
- The book balance. What your accounting system says is in that trust account on the same date.
- The trust liability. The sum of every individual ledger the account carries: each owner's unexpended balance, each tenant deposit, every amount held for someone else.
The third number is the one people skip, and the one that catches real problems. The first two are a cash count. The third is an ownership count.
What the rules require, and by when
If you are licensed, the deadline is not yours to pick.
In British Columbia, a brokerage prepares a monthly bank reconciliation for every account it maintains, even in a month with no transactions, plus a monthly trust asset and liability reconciliation for each pooled trust account. Both are due within five weeks of month end, carry a date of preparation, and are reviewed, dated and initialled by the managing broker or a designate. Money held for rental or strata property management needs a separate trust ledger for each principal. Those requirements are set out in the BCFSA trust account guidelines.
In Alberta, Rule 86 of the Real Estate Act Rules requires a monthly bank reconciliation within 30 days of the date of the prior month's bank statement, for every account holding money in trust. The same rule requires you to identify the balance owing to each client and reconcile the trust liability to the reconciled bank balance. The broker reviews, signs and dates it inside the same 30 days.
If you hold other people's money without a licence, nothing external sets the date. Set one yourself and treat it as fixed. A reconciliation run whenever there is time stops happening in a busy month, which is the month that needed it.
Run it in this order
- Close the period first. Pick the cut-off date and stop posting into the month you are reconciling. If entries keep arriving while you work, every number you write down goes stale.
- Adjust the bank balance. Start from the statement closing balance. Subtract each cheque written and not yet cleared, add each deposit not yet credited, and list them individually with dates. BC expects the date and description of each outstanding item on the reconciliation, and a single unexplained lump is where errors hide.
- Compare the adjusted bank balance to the book balance. If they match, the cash is accounted for and any remaining problem is internal. If not, the cause is timing, a bank charge, or a transaction the system never saw.
- Produce the trust liability listing. Every ledger in the account, every unexpended balance, totalled. One line per ledger, not a summary by property.
- Compare that total to the book balance. A difference here is never a timing issue. Money moved without landing on a ledger, or it landed on the wrong one.
- Scan every ledger for a negative balance, not only the total. A pooled account can hold a healthy total while individual owners sit below zero. Alberta Rule 87 prohibits any payment or transfer that would put a client's ledger into a negative balance. BC applies the bar at both levels: no withdrawal that creates a negative balance in the account record or in a ledger or sub-ledger, and none at all where that record is already negative.
- Fund a shortage the day you size it. Alberta Rule 88 requires the brokerage to deposit its own money into the account as soon as the amount is determined. Rule 89 covers the harder cases: if you know there is a shortage but not how large, or cannot fund it immediately, the broker notifies the registrar in writing with the corrective action. Reporting a shortage you are fixing is routine. Carrying one quietly is what ends licences.
- Get it reviewed, signed and dated. Both provinces require a named person to review and date it, and the point is not the signature. Someone who did not do the postings has to look at the ledger list.
Read the difference before you go hunting
The size of the gap usually names the error.
- The difference equals one transaction on the statement. That item was never posted, or was posted twice. Search the amount first.
- The difference divides evenly by nine. Almost always a transposition: 1,540 keyed as 1,450. Any two transposed digits produce a gap that is a multiple of nine.
- Bank and book agree, liability does not. The cash is right and the attribution is wrong. Look for a receipt applied to the wrong ledger, usually two owners with similar entity names or a unit number two systems spell differently.
- A small gap that grows each month. Check for bank and card charges hitting the trust account. In BC those may not come out of a pooled trust account and have to be paid from the brokerage operating account.
The habits that prevent most shortages
Almost every trust shortage traces back to a distribution that went out before the money behind it came in. An owner draw against rent that has not cleared, a repair paid on an owner whose ledger was at zero, a deposit refunded before the replacement landed. Each is defensible in the moment and invisible until the ledger list is printed.
Two controls remove most of them. Pay from the ledger, never from the account, so the balance you check before a disbursement is that owner's balance rather than the pooled total. And hold disbursements on funds that are still reversible: a pre-authorized debit can be pulled back long after it shows in your balance, so paying against it puts you in a shortage someone else created.
Once the ledgers are clean the reconciliation takes under an hour. The pain in a bad month comes from postings made weeks earlier, by someone who could not see the ledger they were touching.