Three-Way Reconciliation

For most state bars, reconciling your trust account on a regular schedule is not a best practice you may adopt. It is a rule you must follow. Three-Way Reconciliation is how Outlaw Practice does it, and it is the strongest proof you can produce that the money in your trust account is exactly the money your records say should be there.

The premise is simple and unforgiving: three numbers must all agree. Your bank statement balance, your firm’s trust ledger balance, and the sum of every individual client’s balance should be one and the same number. When all three match, your trust account is proven in balance. When they diverge, you have caught a problem (a missing entry, a misposted transaction, a check that never cleared) before it becomes a grievance.

Running the Reconciliation

You start by entering the statement date and the bank statement balance for your trust account, taken from the statement your bank sent for that period. If your firm has connected accounting software, the bank balance can be pulled in for you automatically, so you confirm it rather than retype it. Otherwise you enter it by hand from the statement.

That single number you provide (the bank’s view of the account) is the outside anchor the report measures everything else against. Run the reconciliation each time a new statement arrives, on the schedule your bar requires.

Reading the Three Balances

The report lays the three balances side by side as summary figures:

• Bank Statement Balance is what you entered, the bank’s record of the account.
• Firm Trust Ledger is the total of all trust activity in Outlaw, the running balance built from every receipt and disbursement you have recorded.
• Sum of Client Ledgers adds up what each individual client is owed, the bottom-up total of everyone’s money held in trust.

It then computes the differences between them: bank versus firm, firm versus the client total, and the overall variance. Three balances that came from three different directions should still land on the same number, and the variances are how you see whether they did.

What the Variance Tells You

A variance of essentially zero (under one cent) means the account is reconciled, and you are done. The report flags a small difference (under a dollar) as a warning worth checking, usually a rounding artifact or a single misentered cent. Anything larger is an out-of-balance condition you should run down and resolve before you sign off: a deposit recorded in one place but not the other, a disbursement entered against the wrong client, or a transaction that has not yet cleared the bank.

The Client Ledger Breakdown

Below the summary, a client ledger breakdown lists each client’s balance, keeping funds held for a specific case (case trust) separate from general funds held for the client (client trust). A chart of client trust balances shows the same picture visually. This is where you find the source of a variance: scan the breakdown for the client whose balance looks wrong, and you have your starting point.

Filing the Reconciliation

You can export the whole reconciliation to Excel or PDF. That export is the artifact you keep on file: dated proof that on a specific day, your bank, your firm ledger, and your clients’ balances all agreed. It is exactly what you produce for a bar audit or hand to your accountant.

Who Can See It

Because it exposes the full trust picture, the Three-Way Reconciliation is limited to your bookkeeper, the person who keeps the trust account and performs the reconciliation. Your Owner and Administrator always have access.