On April 1st, 2012, we discussed the uses of the PCLaw Bank Error feature when doing the monthly bank reconciliations. This feature should only be used for actual bank/teller errors, but it is often misused to record bookkeeping mistakes.
I recently had a rather lengthy discussion with a LSUC auditor over this very subject. In this case, my client had mistakenly taken more trust funds than were on deposit for a particular matter (prior to PCLaw being used). Therefore, the funds needed to be paid back, requiring a General to Trust transfer. The auditor was of the opinion that the entry was self corrected by the deposit of new trust funds by my client’s client the following month.
That may be true as far as the LSUC (or this individual auditor) is concerned, but it has there are other things to consider. For example:
- Revenue Canada considers deposits from clients into your general account as income. If, in the above example, you do not record the General to Trust transfer as a disbursement, and amend your billing, CRA will consider the whole deposit as fees, and assess you income taxes the whole amount.
- LSUC – if you leave the client’s trust ledger in an overdrawn state for more than a month, you will have to report this on your Lawyer Annual Report. Instead, you can just have an outstanding receipt for the General to Trust Transfer.
As always, I invite your comments and suggestions for future post topics. Next Posting – PCLaw and Conveyancer – Part 2.