📖 Trust Accounting Basics

Get started with Smokeball's powerful trust accounting features to run your firm. In this article, we will guide you through the core components of trust accounting:

• Setting up your trust account
• Recording trust transactions
  • Depositing trust funds and making trust payments
  • Transferring trust funds from one matter to another
  • Handling credit card trust deposits
  • Protecting trust funds
• Generating a trust account ledger
• Recording an invoice payment
• Reconciling your trust account and the End of Month process

Setting up your Trust Account

The first step in trust accounting is to verify that the trust account details in Smokeball are correct. 

1. Select the Settings icon on the bottom-left corner of the Smokeball Web App, then select Firm Settings.
2. Click on Accounts from the left menu. In the Trust & CMA Settings tab, add your trust account details or if they're already listed, click on them to check that the details are correct.
   • You can also add more than one trust account. 
3. It is recommended that you toggle on all the settings under the Trust and Controlled Money Options to readily view, print and email PDFs of any trust transaction made.

Recording Trust transactions

In Smokeball, trust transactions are handled from within a client's matter file. To get started:

1. Open a matter in the Smokeball Web App.
2. Select the Transactions tab.
3. On the left panel, click on your trust account.

The blue buttons underneath the trust account name and number are all the trust transaction actions you can take. We will go through each option in sequence.

Deposit funds

To record a client deposit into Smokeball:

1. Click on Deposit Funds.
2. A window will display on the screen, with the default date set to today's date. You can edit this date to reflect backdated deposits.

3. By default, the client's name on the matter will be populated in the Received From field. Select the X icon to replace them with an existing contact, or select the + icon to replace them with a new contact.
4. Enter the amount to deposit, the payment method, the reason for depositing and any internal notes.
   • Anything entered into the Reason field will show up on the Trust Receipt PDF.
   • Anything entered as an Internal Note will not show up on the Trust Receipt PDF.
   • Both the Reason and Internal Note can be viewed when clicking on the deposit transaction in the Transactions tab.
5. Once you are done with recording the deposit, select Process.

To make a reversal, click on the transaction from the Transactions tab then select Reverse and enter the reason for the reversal. 

All reversals will be noted in a separate line in the Transactions tab for audit purposes.

Make a Trust Payment

To pay money out of a client's trust account:

1. Click on Trust Payment.
2. Check that the date field is correct.
   • An incorrect date may affect your trust reconciliation, especially if the payment was made at the beginning or end of a month.
   • If your firm has multiple trust accounts, also ensure that you select the correct one from the Account drop-down menu.
3. Start typing the name of a contact in the Paid To field to select an existing contact. Otherwise, select the + icon to add a new contact.
4. Choose the payment type from the Type drop-down menu. Depending on what is selected here, enter additional information about the payment.
   • If you select Bank Transfer and select Direct Deposit as the transfer type, you will be asked to enter the account name, number and BSB. To save time from entering these details every time, you can open the contact in the Smokeball desktop app and add their bank details there. 
     

Transfer funds to another matter

For clients with multiple matters who have authorised their funds to be moved between matters, you can create a journal transfer by selecting Transfer Funds. 

Even though transfers are money movements between matters, still make sure that all details are correct before processing them. 

Process trust deposits from clients paying by credit card

Process trust deposits via credit card with the Credit Card Deposit or Credit Card Deposit Request options.

Select Credit Card Deposit if you are processing the credit card payment right now, i.e. if you are on the phone with the client or they are physically at the reception desk. Stripe fees and charges are outlined to you as you enter the deposit amount.

Select Credit Card Deposit Request to send an email to your client with a link to the Stripe payment portal, where they can make a deposit via credit card in their own time. Any Stripe fees and charges will be outlined to them at the point of payment.

Protect Trust Funds

You can lock away funds in a matter to prevent being able to disburse too much money from the trust account. To do this:

1. Click on Protect Funds.
2. Enter the reason for protecting funds, and the amount to be protected.
3. Select Process.

To view all amounts protected and to also unprotect funds, select Protected Funds from the left menu, under the Trust Account name. 

View and print a Trust Account Ledger

Select Print to generate a PDF document of the trust account ledger, which contains all line items in the Transactions tab. You can email or print the document from there.

Record payment to an invoice

Once a client has paid off an invoice sent from Smokeball Billing, make sure you have marked the invoice as paid:

1. From the Invoices tab in the matter, click on the invoice and select Add Payment.
2. Ensure the correct payment date and trust account are selected as entering the wrong information will affect your trust reconciliation.
3. Enter the rest of the details and select Process.

Invoice payments will then be transferred to the operating account, and will be referred to in the Transactions tab as a "Transfer to Operating Account". 

Reconcile your Trust Account and finalise End of Month 

To keep your trust account funds in check and stay compliant with regulatory requirements, you should reconcile your trust account regularly and run an end-of-month process every month.

Get started by navigating to Accounts from the left menu, then select the Bank Reconciliation tab.

Completing a trust reconciliation

To start reconciling:

1. Select Create Reconciliation from the Bank Reconciliation tab.
2. Enter the end date of the month or period in the field on the right-hand panel and enter the closing balance of your trust account bank statement in the Bank Statement Balance field. 
   • E.g. if your bank statement is for the period 1st March to 31st March, enter the closing date as 31st March and the balance at the bottom of the bank statement as of 31st March.
3. Now your goal is to make sure the list of transactions in the Payments and Receipts tab matches the transactions in your trust account's bank statement. 
   • Use the tick boxes next to each transaction to tick as you go when comparing transactions to your bank statement.
   • Reversed transactions will also show on this list. Make sure you have ticked both the original transaction and its reversal so that the transactions cancel themselves out.
4. Ideally, the Reconciliation Balance figure is shown in blue with a $0.00 difference. 
5. Finalise the reconciliation by selecting Reconcile.

You can reconcile more frequently than on a monthly basis (e.g. fortnightly, weekly) as long as all bank transactions have been settled in that period. To do this, enter a different end date on the reconciliation panel.

To finalise your end-of-month process, select the End of Month tab next to Bank Reconciliation. This allows you to generate an end-of-month report which outlines all reconciled transactions in the month.