Three Way Reconciliation for Trust Accounts: How to Do It Step by Step

What is a three way reconciliation?

A three way reconciliation is a monthly check that the 3 records behind a trust account agree. It proves the money in the bank matches what the firm owes its clients. For the bigger picture, see my guide to law firm trust accounting.

The rule texts from the ABA, California, Texas, Florida, and New York do not use the phrase three way. They describe the pieces instead:

• The ABA comment on its Model Rules for Client Trust Account Records has you compare the client ledger total to a control balance each month, then reconcile to the bank.
• California's Rule 1.15 and record keeping standards call for a monthly reconciliation of the client ledgers, the account journal, and the bank statements.
• Florida Rule 5-1.2 requires a monthly reconciliation of every trust bank account and a comparison of the total to the client ledgers, with a specific description of any difference and its reason.

The ABA Model Rules are a model that each state adopts in its own form. Your state's version binds your firm, so check your state bar's rules.

Why does a three way reconciliation matter?

A bank balance can look right while a client ledger is wrong. The bank and books can still agree, and only the client ledgers show the problem.

The State Bar of Texas says trust account errors frequently bring lawyers into the disciplinary system. Its opening tip is to reconcile monthly.

In short: the bank balance tells you how much cash there is. The 3 way check tells you whose it is.

How to do a three way reconciliation

These are the steps for each month's trust reconciliation.

1. Gather the records. Pull the bank statement, the trust receipts and disbursements journals, and the ledger for each client. Done means all of them cover the same dates.
2. Build the control balance. Start with last month's trust balance, add the month's receipts, and subtract the month's disbursements. Done means you have 1 book balance.
3. Add up the client ledgers. Total the ending balance of every client ledger. The ABA comment calls this the trial balance. Done means you have looked at every balance. A negative ledger is a problem, covered below.
4. Adjust the bank balance. List every outstanding check by date and check number, and every deposit in transit. Subtract the outstanding checks from the bank statement balance and add the deposits in transit. The ABA comment runs the same math from the books side, adding outstanding checks and subtracting deposits the bank has not yet credited, until the result agrees with the bank statement. Done means you have an adjusted balance and a list behind it.
5. Compare all 3 numbers. Match the ledgers to the control balance, then the control balance to the bank, the order the ABA comment uses. Done means all 3 agree to the cent.
6. Investigate every difference. If the 3 numbers don't agree, find the reason before you do anything else. Done means every difference has a written reason and a fix.
7. Sign off and keep the record. Sign, date, and file the reconciliation with the bank statement, the journals, and the ledger totals. The ABA records rules list reconciliations among the records to keep. I run a 2nd review pass on every close before it reaches the firm, and the period is locked so nobody posts into a closed month.

The ABA records rule sets a model retention of 5 years that each state fills in. California's standards say 5 years after disbursement. Florida says at least 6 years. Each runs from a different event.

Three way reconciliation example

Example figures, not a real firm.

All 3 numbers land on $53,400, so the difference is $0 and the account ties.

What if the 3 numbers don't match?

Explain it and fix it in the same month. That is my rule. The ABA comment makes a related point about frequency: finding an error across 3 months of activity is hard, which is why monthly beats quarterly.

• A negative client ledger. If the bank and books match but 1 client's ledger is negative, 1 client's money covered another client's cost. I tie all 3 records, then explain the negative ledger and fix it in the same month. A close is not done while any ledger is negative.
• Timing items. A check that has not cleared, or a deposit the bank has not credited yet, makes the bank and books differ for a reason that fixes itself. Confirm each clears on the next statement, since trust checks can clear weeks after they're written.
• Unrecorded bank fees. A fee on the statement that is not in the journal leaves the bank lower than the books by that amount. The ABA model rule lets a lawyer put the firm's own money in trust only for bank service charges on that account (Rule 1.15(b)). State rules differ, so see my guide on commingling client funds.
• Posting errors. A receipt or disbursement posted to the wrong client, or entered in the journal but not on a ledger, shows up when you compare the trial balance to the control balance. For catching a wrong payee before a check goes out, see my guide to the settlement disbursement statement.

Three way reconciliation template

Copy this layout into a spreadsheet.

How often should you do a three way reconciliation?

Monthly. The ABA comment says quarterly reconciliation is only the minimum and that monthly reconciliation is the preferred practice. California and Florida call for it monthly. Texas sets no frequency in its rule text, but State Bar of Texas guidance recommends monthly. My full breakdown is in How Often Should Trust Accounts Be Reconciled?

Does an IOLTA 3 way reconciliation work differently?

The method is the same. An IOLTA is a pooled, interest bearing client trust account for nominal or short term funds, per the ABA Commission on IOLTA. It is still a client trust account, so the same 3 records apply. With several trust accounts, reconcile each, then compare the reconciled total to the client ledger total, as Florida's rule describes.

Three way reconciliation in QuickBooks Online

I work in QuickBooks Online. For account setup, see my guide to QuickBooks Online for law firms. 3 habits matter for the 3 way check:

• Tie the bank side before anything else. Before I finish any reconciliation, cleared payment and deposit counts and totals equal the statement, in addition to a 0.00 difference.
• Match trust checks on check number plus amount. Checks can clear weeks after they're written, so a date match alone can mislead. The uncleared ones become your outstanding checks list.
• Pull client balances from the trust liability account. Intuit's retainer help article records trust money as a liability. To see each customer's held balance, run the Balance Sheet, open the trust liability account's transaction report, then Customize, Rows/Columns, Group by Customer. That view is the client ledger side. Intuit's article does not cover the 3 way comparison, so that is its own step.

FAQ

What is a three way reconciliation in simple terms?

It is a monthly check that a trust account's bank balance, book balance, and client ledger total all agree, after the bank balance is adjusted for outstanding checks and deposits in transit. When all 3 match, the money in the bank equals what the firm owes its clients.

What is the difference between a bank reconciliation and a three way reconciliation?

A bank reconciliation compares the bank statement to your books. A three way reconciliation adds the client ledgers as the 3rd record. Florida's rule describes both parts: reconcile each trust bank account, then compare the total to the client ledgers.

What do I do if my three way reconciliation does not balance?

Compare the ledgers to the control balance, then the control balance to the bank. Check for posting errors, timing items, unrecorded bank fees, and negative client ledgers. Write down the reason and fix it in the same month.

Who is responsible for the reconciliation?

It depends on your state. In California, from January 1, 2026, each client trust account has a designated licensee responsible for performing or supervising the monthly reconciliations. In my work, a 2nd review pass checks every reconciliation before it reaches the firm.