Keep trust funds in a separate bank account. At no time should operating funds and trust funds commingle. Tracking funds become very difficult if you are using one account for general business and trust transactions. Additionally, mingling funds can lead to the appearance of impropriety.
Some small businesses go so far as to keep trust funds in a different bank from their general business account.
Small business owners often do not reconcile trust funds regularly and balance the trust liability in their balance sheet to the bank statement.
It’s best to use an accounting system, such as QuickBooks, to maintain records instead of a paper-based ledger system. In QuickBooks, it’s easy to provide an audit trail should you need to.
Make sure to only write checks that you have funds to cover. Overdrawing a trust account is immediately reported to the State and has unpleasant consequences.
Make sure you have clear documentation and are transparent with your client on how and when you will move funds from their trust account to your business account.
Each client should have their own sub-account showing all activity. Each sub-account should be reconciled monthly to ensure there were no mispostings between clients. Creating sub-accounts is very easy to do in QuickBooks.
Create a sub-account in QuickBooks Online by adding a new account in the Chart of Accounts. Below are the parameters you would use: