A proper trust account reconciliation, also known as escrow account reconciliation, compares three separate records: the bank balance, the brokerage trust book balance, and the total of all individual deal or client ledgers. When the reconciliation is complete, all three should agree.

A bank statement can show $150,000 while your brokerage records show $149,500. Or both numbers can match while the individual deal ledgers add up to something completely different. That is why simply checking the bank balance is not enough.

For brokers, this is more than an accounting task because trust money belongs to clients and other parties. Errors can create shortages, hide incorrect payments, and turn a routine audit into a serious compliance problem.

Here is how to complete a three-way trust account reconciliation and what to look for when the numbers do not match. For the broader compliance picture, including deposit timing rules and the most common violations regulators cite, see our complete guide to real estate trust accounting.

What Is a Three-Way Escrow Account Reconciliation?

A three-way reconciliation confirms that three views of the same trust money agree.

The first is your adjusted bank balance, which starts with the balance on your bank statement and accounts for items such as outstanding cheques and deposits that haven’t cleared yet.

The second is your trust book balance, also known as the trust cash record, control account, journal, or general ledger balance. It records all money that came into and went out of the trust account.

The third is the total of your individual trust ledgers. Each deal, client, beneficiary, or other party whose money you hold should have its own record showing what came in, what went out, and what remains.

At month-end, the basic test is simple:

Adjusted bank balance = trust book balance = total individual ledger balances.

If one number differs, the reconciliation is not finished.

Regulators use slightly different terms for these records, but the principle stays the same. Your brokerage must be able to show that the money in the trust account supports the amount you owe to the people whose funds you are holding.

Step 1: Choose One Reconciliation Date

Start with a clear cut-off date, often the final day of the month. Keep in mind that every record you compare must use that same date, so don’t compare a January 31 bank balance with trust records that include transactions from February 2, for example. Even a correct transaction creates a false difference when the dates don’t line up.

Before you begin, make sure all trust transactions up to the cut-off date have been entered, including deposits, transfers, cheques, electronic payments, refunds, commissions transferred out of trust, and corrections made during the month.

This first step sounds basic, but poor cut-off controls cause many reconciliation problems.

Step 2: Reconcile the Bank Statement

Next, take the ending balance shown on the trust account bank statement. Don’t assume that number is your actual month-end trust balance, because often there are transactions recorded by your brokerage that the bank hasn’t processed yet.‍

Add legitimate deposits in transit (deposits recorded before month-end that haven’t appeared on the bank statement yet), then subtract outstanding cheques or other valid disbursements that were issued before month-end but haven’t cleared. The result is your adjusted bank balance.

For example, assume your bank statement shows $120,000. You have a $5,000 deposit made on the final day of the month that hasn’t appeared at the bank yet. You also have an outstanding cheque for $2,000. So your adjusted bank balance is $123,000.

Keep a clear list of every outstanding item used in the calculation.

A deposit from the last day of the month that clears two days later is normal, but a deposit that remains outstanding through another reconciliation deserves investigation. The same applies to an old cheque that has been sitting on your reconciliation for months.

Find out what happened rather than carrying strange items forward simply because they were on last month's reconciliation

Step 3: Confirm the Trust Book Balance

Now turn to your brokerage's trust book or control record, which should contain every trust receipt and disbursement processed during the period. Confirm that all bank activity has a matching entry in your books.

Look for missing deposits, duplicate entries, incorrect amounts, payments entered against the wrong account, or transactions posted in the wrong month.

A bank transaction for $8,750 and a book entry for $8,570 will leave you chasing a $180 difference until someone checks the original amount.

Your adjusted bank balance and trust book balance should agree before you move on.

Don’t create a random adjustment just to force them to match, as a reconciliation adjustment needs a reason and supporting record. Otherwise, you have hidden the difference instead of solving it.

Step 4: Add Up Every Individual Trust Ledger

This is where the third part of the reconciliation comes in. Each deal or beneficiary should have its own ledger.

Suppose your brokerage's trust account holds deposits for 18 active transactions, and each transaction has a balance representing the amount your brokerage still holds for that deal. Add all 18 balances together. The total should match both the trust book balance and the adjusted bank balance.

This step proves that the total amount in the account can be explained.

If the bank contains $123,000, your records need to identify who that $123,000 belongs to.

In British Columbia, for example, BCFSA requires separate trust ledgers for trades involving pooled trust funds and requires the monthly trust liability reconciliation to list the amount being held for each trade or party. California also requires separate beneficiary or transaction records and monthly reconciliation of their total against the trust control record.

Step 5: Make Sure All Three Numbers Agree

You now have three numbers:

The adjusted bank balance
The trust book balance
The combined balance of every individual trust ledger

They should be identical. If that’s the case, document the reconciliation and complete the required review. If it is not, stop and find the difference.

Don’t wait until next month to see if it disappears, because it usually makes the situation worse, as carrying an unexplained difference forward makes the next reconciliation harder because you now have two months of activity sitting on top of the original problem. This often leads to a trust accounting problem.

What to Do When the Trust Account Doesn’t Balance

Start with the amount of the difference. This number itself often gives you a clue.

If you are off by the exact amount of one deposit, check whether it was entered in both the trust book and the related deal ledger. If the difference matches a cheque, check whether it was recorded twice or posted against the wrong deal.

Then review the common causes:

A deposit was entered in the bank record but not the deal ledger
A payment was posted to the wrong transaction
The amount entered doesn’t match the actual bank transaction
A transaction was entered twice
A bank item was never entered in the trust book
An outstanding cheque or deposit cleared but remains on the reconciliation
A deal ledger is missing
The wrong month-end balance was used
A correction was entered into one record but not the others

Work back to the source document and, once you find the error, correct the record where the error started and run the reconciliation again.

How Often Should Brokers Reconcile Trust Accounts?

Monthly reconciliation is a core requirement in many real estate jurisdictions, but brokers should always confirm the exact rules that apply where they operate.

British Columbia, in Canada, provides a clear example: BCFSA requires a monthly bank reconciliation for brokerage accounts and a monthly trust asset and liability reconciliation for pooled trust accounts. These reconciliations must be completed no later than five weeks after month-end. Trust reconciliations must also be reviewed, dated, and initialled by the managing broker or a designated person.

California requires brokers to reconcile the total of the separate beneficiary or transaction records with the trust control record at least monthly, except during months with no trust account activity. A record of the reconciliation must be maintained. California DRE guidance also recommends reconciling the control record to the bank statement as part of the process.

The important point is that reconciliation should produce a record. Opening online banking once a month and thinking the balance looks right is not a reconciliation.

Your brokerage needs to be able to show what was reviewed, which balances were compared, what outstanding items existed, when the review took place, and who completed or approved it where required.

Red Flags Auditors Look For

Commingling

Client trust money should remain separate from brokerage operating funds. Commingling happens when brokerage or personal money is improperly mixed with money held for others, or when trust money is placed into an operating or personal account, and can lead to licence suspension or revocation.

Negative Deal Ledgers

A negative ledger can mean your brokerage paid out more money for a transaction than it held for that transaction. Money belonging to another client can then be covering the difference. Brokerages must not make withdrawals that create a negative trust ledger or make payments from a ledger that is already negative. If that happens, negative balances must be addressed immediately.

Old Outstanding Deposits and Cheques

Outstanding items need an explanation. A recent deposit in transit is normal, but an item that remains unresolved month after month can point to an entry error, lost payment, incorrect posting, or poor follow-up. Review the age of every outstanding item instead of automatically copying it onto next month's reconciliation.

Unexplained Overages

Having more money in trust than your ledgers explain is still a problem, because it means you can’t identify who owns part of the balance. Don’t treat an overage as extra brokerage money. Research it and maintain proper records until ownership is defined.

Repeated Reconciliation Differences

A difference that keeps appearing every month is not a normal part of trust accounting and often means the underlying records haven’t been corrected. Auditors want to see that your brokerage finds errors, identifies the cause, fixes the source record, and prevents the same issue from repeating.

Why Escrow Reconciliation Gets Harder as a Brokerage Grows

A spreadsheet can look manageable when you have a few transactions open, until volume increases, more deposits enter the account, deals fall apart, funds get returned, referral payments move between brokerages, commission amounts transfer out of trust, and several team members enter financial information.

The bank statement tells you what moved through the account, but it doesn’t tell you the full story behind every deal. That is where real estate trust accounting software becomes useful.

Instead of maintaining a bank record in one place and transaction balances somewhere else, the system can keep deposits, disbursements, holds, and deal records connected. Loft47, for example, records trust and escrow activity with an audit trail and supports automatic reconciliation.

The goal is not to eliminate the broker's responsibility to review trust activity. Rather, it is to make that review easier because the underlying records remain current.

Skipping Reconciliation Creates More Than an Accounting Problem

Trust accounting is tied directly to a broker's responsibility for money belonging to other people, so when reconciliation is skipped, errors remain hidden:

A missing deposit can go unnoticed.
A negative deal balance can continue for months.
One client's funds can cover another client's shortage.

By the time the problem reaches an audit, rebuilding the history becomes far more difficult, and the consequences can be serious, resulting in licence suspension or revocation, and financial liability for damages caused to clients.‍

That doesn’t mean every reconciliation error leads to licence suspension. It means trust accounting deserves the same attention as any other major brokerage compliance responsibility.

Record every trust transaction when it happens, keep each deal ledger current, reconcile the bank, trust book, and individual ledgers every month, investigate differences immediately, and keep the completed reconciliation on file.

With clean records and the right system behind them, month-end becomes a review of numbers you already trust instead of a search for money you cannot explain.

Disclaimer: This article is for informational purposes only. Escrow or trust accounting requirements vary between states and provinces. Brokers should confirm the specific reconciliation, record retention, review, and reporting requirements that apply in their jurisdiction.

The Three-Way Trust Account Reconciliation: A Step-by-Step Guide for Brokers