REAA - CPPREP4005 - Student Learner Guide v1.3

CPPREP4005 - Prepare to work with real estate trust
accounts (Release 1)
Student Learner Guide

RTO ID 32426
CPPREP4005 - Prepare to work with real estate trust accounts (Release 1)
CPPREP4005 - Prepare to work with real estate trust accounts

(Release 1)
This unit of competency specifies the outcomes required to establish and manage trust
accounts in an agency context.
It includes reviewing agency accounts for compliance with trust account requirements,
establishing and managing trust accounts, maintaining records of trust transactions, and
monitoring and reviewing trust accounts.
The unit may form part of the licensing requirements for persons engaged in real estate
activities in those States and Territories where these are regulated activities
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Contents
Introduction ..........................................................................................................................5
Key Terms ........................................................................................................................6
Acronyms .........................................................................................................................7
What is Trust Money? ......................................................................................................8
What is Trust Accounting?................................................................................................9
Section One: ......................................................................................................................10
Trust Accounting Legislative Requirements ...................................................................10
The Legislation ...............................................................................................................10
Common Law..............................................................................................................11
PSAA Act 2002 and Regulations 2014 .......................................................................11
Opening / Establishing a Trust Account .........................................................................12
Responsibilities of the Licensee ..................................................................................12
Responsibilities of the Financial Institution .................................................................13
Advertising Contributions................................................................................................14
Operating and Maintaining Trust Accounts.....................................................................14
Records that must be kept by the Licensee – PSAA 2002 (ss 103-104) ....................14
Information that must appear on Trust records ...........................................................15
The requirements for Computer Systems ...................................................................15
Interest earned on trust accounts ...................................................................................18
Trust Cashbook 80 .....................................................................................................20
Trust Cashbook 80 .....................................................................................................21
Trust Account Operating Costs ......................................................................................22
Dishonoured Cheques .......................................................................................................23
Trust Cashbook 86 .....................................................................................................24
Unclaimed Trust Money..................................................................................................26
Information about Trust Accounts or Transactions .........................................................26
Trust Records ....................................................................................................................27
Receipt Book ..................................................................................................................27
Cheque book ..................................................................................................................28
Delegation Authority ...................................................................................................28
Deposit book ..................................................................................................................28
Cashbook .......................................................................................................................28
Receipt Side ...............................................................................................................29
Payment side ..............................................................................................................29
Journals ..........................................................................................................................29
Ledgers ..........................................................................................................................29
Bank Ledger ...............................................................................................................30
Rental Bond Suspense Ledger ...................................................................................30
Client Ledgers.............................................................................................................30
Trial Balance ..................................................................................................................31
Bank Statements ............................................................................................................31
Bank Reconciliation ........................................................................................................32
Audit Report ...................................................................................................................32
Auditing Requirements .......................................................................................................33
Trust Internal Audit Controls ...........................................................................................35
Section Two Operating, Monitoring, and Verifying Trust Account Records to meet
Legislative Requirements...................................................................................................36
Introduction.....................................................................................................................37
Key Accounting Principles ..............................................................................................37
Books of Account ...........................................................................................................37
The Accounting Cycle .................................................................................................39
The Accounting Cycle for a Trust Account ..................................................................40
The Trust Trial Balance...............................................................................................42
Month End Procedures ...............................................................................................42
Paragon Real Estate ...................................................................................................43
October .......................................................................................................................44
TRUST CASH BOOK / ...................................................................................................46
TRUST TRIAL BALANCE ...........................................................................................52
Trust Bank Reconciliation ...........................................................................................52
NSW Legislation .........................................................................................................57
Reporting to Clients ...........................................................................................................57
Reports ...........................................................................................................................57
Statements .....................................................................................................................57
Introduction
Trust Accounts are specific forms of bank accounts that must be used by professionals
whose services require them to hold money in ‘trust’ for their clients. Accountants, Real
Estate Agents, and Solicitors are examples of professionals that may be required to
operate a Trust Account in order to facilitate transactions on half of their clients.
Clients, whose money is held by these types of businesses, have their interests protected
against fraud and mismanagement by regulatory bodies. Therefore, there are very strict
rules and regulations relating to who can open and operate a trust account and how it is
managed, controlled, monitored, and reviewed to ensure accountability and the protection
of client money.
For Real Estate Agents in NSW, the Property and Stock and Agents Act (PSAA) Act 2002
and Regulations 2014 stipulate the ‘who, what, how and when’ of trust account
management, as well as the penalties for offences which include fines and can be as severe
as loss of license or even jail.
The Office of Fair Trading (OFT) is the regulatory body that ensures the legislation is
adhered to. An agent cannot open a Trust Account without being licensed, and, in order to
gain a licence, the agent needs to demonstrate that they not only understand the legislation,
but that they are able to apply it to their day to day operations.
Licensees are responsible for supervising their staff, and ensuring that they utilise the
office systems and procedures developed to reflect the legislative requirements. In other
words, the licensee in charge is held totally accountable for any breaches of the legislation
that occurs in their office.
This unit will provide you with explanations of the legislative requirements and the
mechanics involved in operating a trust account to meet the legislative requirements.
Additionally, it will enable you to demonstrate your knowledge of the legislation by applying
the information provided to create the systems and procedures for ensuring requirements
are met in a timely fashion. You will also be required to demonstrate your ability to implement
methods for record keeping and effecting accurate reports as well as the monitoring,
reviewing and the security measures and procedures to protect, update, and verify trust
accounts on an on-going basis.
In this unit we will first be examining the rules, regulations, and legislative requirements
surrounding trust accounts to establish systems and procedures that ensure compliance
with the legislation. Then, we will be applying our knowledge of the legislation to the
mechanics involved in operating and maintaining trust accounts, including cashbook
entries, trial balance, and bank reconciliations.
Key Terms
Audit The process of reviewing, examining, and checking company

books and records to ensure accuracy and compliance.
Cashbook A journal of all transactions in chronological order grouped
according to whether they are receipts or payments.
Chronological In order of time

Credit A trust ledger has two sides - a left side and a right side. The
right side is called ‘credit’ (Latin for right). On the client ledger,
money received on behalf of the client is ‘posted’ or entered into
the ‘credit’ side of the ledger.
Debit The left side of the ledger is called ‘debit’ (Latin for left). On a
client ledger, money paid out of their account is posted on the
debit side.
Delegation To designate someone to act on your behalf, for example, to
sign cheques or authorise EFT transactions.
Disbursement The process of paying funds out of an account.

Discrepancy The difference between the recorded amounts in our records.
For example, a difference between a particular payment or
receipt on a Bank Statement when compared to the cashbook
is called a discrepancy.
Financial Bank, Credit Union, etc

Institution
Interest An account that earns interest for a client. When a vendor and
Bearing purchaser want to share the interest accrued on a deposit, they
Deposit instruct the Agent to place the funds in interest bearing account.
This is because although Trust Accounts earn interest, the
interest is paid to the OFT.
Landlord: The owner of a property that is being leased / rented.

Ledger All transactions entered into the cashbook are also posted to
the relevant ledger. The ledger classifies all transactions
according to the ‘owner’ of those transactions. For example,
every landlord on your books has their own ledger which
summarises transaction carried out on their behalf.
Legislation Laws, rules & regulations that need to be complied with by the
Agency.
Payee The person or organisation a cheque is written to.
Posting The process of recording entries from the cashbook to the

relevant ledger is called ‘posting’.
Reconciliation The process of comparing internal company records to the bank
statement to check and verify entries / funds, and to eliminate
known differences. Any unknown differences have to be
investigated as they would have been caused by either errors or
fraud.
Source Documents kept to provide a trail of all transactions from origin

Document to completion.
Transaction The act of dealing with money, for example paying a plumber’s
invoice / bill.
Trial Balance The process of comparing the cashbook to the legers. The total
payments are subtracted from the total receipts in the cashbook.
The difference between these two figures has to add up to the
addition of all ledgers without a ‘nil’ balance.
Trust The general term to cover the accounting records and practices
Accounting required to enable real estate agents to properly account for
trust money in their possession.
Vendor: The owner of a property that is being sold. The purchaser is the
buyer of that property.
Outstanding Deposit entered into the cashbook that has not yet appeared
Deposit in the Bank Statement.
Un-presented A cheque the office has written that has not yet been presented
Cheque (cashed) at the bank.
Acronyms
CB Cashbook
IBA Interest Bearing Account
IBD Interest Bearing Deposit
LF Ledger Folio (Number)
OFT Office of Fair Trading
PSAA Property and Stock Agents Act
TC Trust Cashbook
What is Trust Money?

The role of a Real Estate Agent is to facilitate property transactions between sellers and
buyers, and landlords and tenants.
These transactions all involve the transfer of money from one party to another and the
agent, being the negotiator and facilitator of their client’s property transaction, may well
also be involved in the transfer of that money or may be required to hold that money whilst
the transaction completes.
That money does not belong to the agent, it belongs to one of the parties involved in the
transaction, and the agent has been ‘entrusted’ to hold those funds for a period of time
until the transaction is completed. The timescale may range from a day or two up to
several months, depending on the transaction.
What is significant is that the agent has no rights to that money, which is referred to as
“Trust Money”
Trust money cannot be held in the agent’s general operating bank account, but must be
kept separate. Every agency that is likely to receive or hold client funds is required to
operate at least one Trust Account, set up specifically for the purpose of holding client
funds.
All trust money must be held in a trust account in the real estate agent’s name. The real
estate agent is required to open and maintain a trust account in the name of the estate
agent (if a sole trader) or the corporation which holds the real estate licence. The funds
are to be held at a financial institution approved by the OFT to hold deposits of trust
money. A list of approved institutions is provided on the OFT website.
Deposits on sales received from buyers, security bonds and rents received from tenants and
marketing funds received from sellers (whether paid in cash, by cheque or credit / debit card)
are all examples of trust money.
Other money received and paid out in the course of running the business, (such as office
overheads) is not trust money and therefore does not fall within trust accounting
requirements.
In reality, though, if money is received from a client, or potential client of an agency, by any
employee of the agency, it should be considered as trust money. If there is any doubt as to
whether the funds are trust money or not, it is recommended that you should err on the side
of caution and treat it as trust money.
What is Trust Accounting?

Trust accounting is the general term to cover the accounting records and practices
required to enable real estate agents to properly account for trust money in their
possession.
Many larger agencies will create 2 distinct accounts, one for sales transactions; the other
for property management. This is often done to ensure ease of auditing and compliance.
Some agents, whilst apparently trading under one banner, may have several trading and
business names – in such circumstances each separate legal entity is required to operate
their own trust account.
Example of rental bond paid to an agency:

A new tenant brings in $1200 cash, representing the bond a property he is leasing. The Bond has
to be lodged with (say) the Rental Bonds Authority. The agent must pay that money into their Trust
Account, and then prepare a cheque payable to the Rental Bonds Authority to be sent with the
relevant lodgement advice. At no time does this money “belong” to the agent, and to pass it
through the agency’s general account would, therefore, be an offence.
On the other hand, the agency’s general or operating account is for the use of the agency,
to receipt agency income and manage expenditure. It should never contain client money.
The money that flows through the agency’s general operating accounts forms the basis of
the agency’s financial reporting systems and documents (GST, Balance Sheet, Profit and
Loss etc) and reporting to the Australian Taxation Office (ATO).
The Trust Account records the flow of client’s money held by the business and the reporting
is to the clients concerned and the Office of Fair Trading who have established rules and
regulations to ensure the security of client funds.
Very often, some of the funds in the trust account will become agency income at some point
in time, and therefore are transferred from the trust account to the general account.
Example
An agency sells a property for $500,000. A deposit of $50,000 is paid by the buyer and held in the
agency trust account. This money is held in trust for both the seller and buyer of the property
pending settlement.
As part of the conditions of agency with the seller, the agency can claim their commission of $12,500
upon settlement.
Settlement takes place and once the agency has received instructions the deposit can be disbursed.
In this case, $37,500 would be forwarded to the seller, and the agency can claim their fee of
$12,500, which would be transferred to the general account.
Legislation specifies how and when the money can be transferred, what authorisations
are required by the owners of the money, and the internal procedures, authorisations and
controls that must be enforced in the office.
Section One:
Trust Accounting Legislative Requirements
In order to effectively operate a Real Estate Office that is involved in handling other people’s
money, a licensee needs to:-
1. Understand the legislative requirements underpinning trust accounts
2. Apply the requirements to their day to day operations
3. Demonstrate compliance with the legislation through developing and applying
office policies and procedures to effectively fulfil requirements that are monitored
and verified on on-going basis.
In this section we will:

1. Examine the legislation by reviewing the areas you need to comply with in terms of the
requirements for Trust Accounts, including Common Law and the Real Estate
Legislation.
2. Apply the legislative knowledge acquired by devising office policies and procedures that
meet the stipulated guidelines including managing, monitoring and verifying trust
accounts.
The Legislation
In NSW the relevant trust accounting legislation is:
• Property and Stock Agents Act 2002
• Property and Stock Agents Regulation 2014
As part of your preparation for this unit you should print a copy of the Act and Regulations
and familiarise yourself with Part 7 of the Act which specifically deals with the legislative
requirements for trust accounts.
This can be downloaded from: http://www.legislation.nsw.gov.au/
The legislation is the foundation that ensures that a real estate agents trust accounts
fulfil both the needs of general record keeping and the law of Principal and Agent (Principal
in this context meaning your client i.e. landlords and vendors)
The act and regulations need to be read in conjunction with each other as the act contains
the general requirements and the regulations provide the detail.
Both the act and regulations are determined through the Office of Fair Trading.
CPPDSM4006A – Establish and Manage Agency Trust Accounts
Common Law
Managing a trust account includes Common Law principles and the fiduciary
duties and responsibilities between the agent (or agency) and the principal
(client), whereby an agent is required to:
• Take such care in keeping safe the money of the principal as a reasonably
prudent person would take in caring for their own property or money.
• Keep all the monies and property of their principal separate from their own.
• Keep separate accounts of all dealings on behalf of their principal and to
be ready to account to the principal at any time.
PSAA Act 2002 and Regulations 2014
Trust Account legislation can be classified into 3 main areas:-

• Opening Trust Accounts including:
▪ The responsibilities of the Licensee and
▪ The responsibilities of the Financial Institution
• Operating and Maintaining Trust Accounts including:

▪ The records that need to be kept and the information that must appear
be entered on these records
▪ the information that needs to be entered and how it is entered;
▪ The requirements for computer systems used
▪ The end of month procedures
▪ The Licensee’s responsibilities in terms of:- -
Dealing with unclaimed trust money
- Dealing with dishonoured cheques
- Dealing with an overdrawn Trust Account
- Dealing with advertising contributions
- Delegating duties
- Dealing with deposits where the vendor and purchaser want to share
accrued interest
▪ Licensee’s responsibilities if they want to close a Trust Account
▪ The accounting Cycle
▪ Credits and Debits / Payments and Receipts
▪ How and what information is entered on records
▪ End of month requirements
• Reviewing and Monitoring Trust Accounts including

▪ When and how to complete a Trial Balance and Bank Reconciliation
▪ Internal control and security procedures to minimise errors and fraud
▪ Dealing with discrepancies
▪ External Audit requirements
Opening / Establishing a Trust Account

Trust accounts can only be opened by a licensed agent with authorised deposit
taking institutions and there are strict rules surrounding the notifications that are
required to be made to both the bank, and the commissioner or director of Fair
Trading.
Responsibilities of the Licensee

PSAA Act 2002 (s 86(4))
Before opening a Trust Account with a Financial Institution, the Licensee must
ensure that the financial institution is authorised by the OFT. A list of authorised
financial institutions can be found on the OFT website.
The licensee must inform the financial institution in writing that the business is
opening a Trust Account. The words “Trust Account’ must be included as part of
the account name and on all related trust books and records.
Some agents, whilst apparently trading under one banner, may have several
trading and business names – in such circumstances each separate legal entity
is required to operate their own trust account.
In all cases, the name of the account MUST include the words “Trust Account”,
as well as the registered business name of the agency. And, all documents
relating to the trust account MUST include the words “Trust Account”.
The agency’s general or operating account is for the use of the agency, to receipt
agency income and manage expenditure. It should never contain client money.
The Trust Account records cash flow of client money held by the business and
the reporting is to the OFT who ensure the security of client funds.
When opening the Trust Account, the Licensee must also advise the financial
institution that the trust account must be established in accordance with the
appropriate legislation for the state or territory in which they operate.
For instance:
In Canberra many real estate agencies are licensed to transact sales and rentals in
both the ACT and NSW. In order to ensure complete compliance with the legislation
in both states, Canberra agents will typically establish 2 trust accounts, one for ACT
business under ACT legislation, and another for transactions conducted in NSW and
under their legislation.
The same would apply to ‘border’ towns eg. Albury / Wodonga, Tweed Heads /
Coolangatta etc.
Many larger agencies will may also create 2 distinct accounts, one for sales
transactions; the other for property management. This is often done to ensure ease
of auditing and compliance.
Responsibilities of the Financial Institution

PSAA Act 2002 (ss 91-95)
The financial institution must operate all Trust Accounts in compliance with
relevant legislation, which will specify operating requirements, and where any
interest on the account is to be paid.
In NSW authorised deposit taking institutions are required to:-
 Notify the Commissioner of Fair trading within fourteen days after the
end of each month of any new trust accounts opened or closed during
the month. PSAA 2002 (s 91 (1), (2))
 Report to the Commissioner of Fair Trading within five business days if

any trust account is overdrawn. PSAA 2002 (s 92)
 Report to the Commissioner of Fair Trading within five business days if

any cheques have become dishonoured on a Trust Account and the
relevant details. PSAA 2002 (s 93)
 Pay interest accrued on all trust accounts to the OFT

PSAA 2002 (s 91 (3))
Note:
The licensee is also required to notify the OFT in writing within fourteen days if
they have closed a trust account. PSAA 2002 (s 86 (5))
Advertising Contributions
One of the transactions you may encounter is the payment of advertising. There
are two ways of receiving advertising funds:-
1. The client pays the advertising contribution in advance.
2. The agent pays for the advertising and is later reimbursed by the client.
Depending on which method is used will determine whether the funds are treated
as trust money.
If the client pays for the advertising in advance the funds belong to the client (until
they have been expended) and are treated as trust money. Therefore they must
be banked in the trust account.
If the agent pays for the advertising and is later reimbursed, the funds are the
agents, and can be banked directly into the agent’s general account.
Operating and Maintaining Trust Accounts

Records that must be kept by the Licensee – PSAA 2002 (ss 103-104)
These records include:

 All Source documents (including invoices, receipts, Bank Statements etc.
 Trust Journals and Cashbooks
 Trust cheque book
 Trust deposit book
 Trust ledgers
 Trust Trial Balance
 Trust Bank reconciliation
All trust records must be kept at the Licensee’s registered office for three years.
The PSAA Act 2002 (Section 104) and Regulations (Clause 22) specify that records
kept at the registered office must be kept in a visible form and if the business
operates at more than one site, the records for the transactions that occurred at
each location may be kept at those places.
Information that must appear on Trust records
Parts 4 and 5 of the PSA Regulations 2014 detail how records are to be kept.
The requirements for Computer Systems
PSAA Regulations 2003 (Clause 24)

All records maintained by the licensee must be compiled in chronological
sequence of all changes, including creations, amendments or deletions.
Journals / Cashbooks:
The licensee must ensure that entries balance before entries are made in the
ledger and that allocated journal reference numbers are in sequence and under
program control.
Ledgers:
The Licensee must ensure that the program is not capable of accepting the entry
of a transaction which would result in a debit balance to a ledger. They must also
ensure that no program allows the deletion of a ledger unless the balance is zero
and the account, when deleted, is retained in visible form.
The ledger is kept in columnar form and is made up of the individual accounts of
clients. Each account must be numbered and entries about each transaction must
include the date and description of the transaction, where the transaction comes
from, the amount of the transaction, and the resulting current balance.
Cashbooks and Ledgers:

The licensee must ensure that:-
o Each page or entry in a report is numbered sequentially
o No amendments to a transaction already recorded can be made except
by a separate transaction.
A back up copy of all records must be made on a computer disk or magnetic tape
(or other electronic means) at least once a month and that the most recent back
up copy is kept in a separate location where no incident could adversely affect
the back-up records.
Receipts for trust money

As soon as trust money is received from a client, a receipt must be issued from
the trust receipt book for the amount to be paid into the trust account.
Receipts from this book must have been consecutively numbered by machine and
each receipt consisting of the original and a duplicate. Receipts must be issued
in numerical order.
The specific information that must be shown on the trust receipt includes:
 Date of issue
 Receipt number
 Name of the licensee and the words ‘Trust Account’
 Name of the ledger reference number for whom the money is held
 Reason for the transaction
 Amount and how it was received (e.g. cash, cheque)
 If it is a rent receipt, it must show the date to which the rent has been
calculated and if it is in advance or arrears
The original of the receipt must be issued on demand to the person from whom
the trust money was received. If the original receipt is not issued, the licensee
must retain the original copy as well as all dup0plicate copies.
Payment of trust money

All payments from trust accounts must be made by either cheque or electronic
funds transfer (EFT). Cash payments from a trust account are not permitted under
any circumstances.
Cheques must be marked ‘Not Negotiable’, show the name of the licensee,
include the words ‘Trust Account’ and be signed correctly. Details of each cheque
drawn must be entered into the cashbook.
When payments are made by EFT, the following records must be kept:-
 Name of person directing the transfer and under whose delegation it is
being made.
 Date and reference number of the transfer.
 Name of the payee
 Amount transferred to or from each ledger account
 Details of the ledger accounts debited including the name and ledger
number of the client on whose behalf the transfer was made.
 Reason for the transfer.
Trust deposits
PSA Regulations 2014 (Clause 27)
Except for direct deposits, all deposits made into the licensee’s trust account must
be made using the trust deposit book showing the details of the deposit.
Duplicates of the particulars of each deposit must be retained by the licensee.
Banking of Trust money

All trust money must be banked before the end of the next business day after it
was received. If this was not possible, it must be banked the next possible day.
Trust Cashbook
Every transaction that occurs in the office must be immediately recorded in
sequential order in the cashbook under cash receipts or cash payments.
End of month requirements

Within 21 days of the end of each month, the licensee must prepare trial balance
statements and keep the original as part of the trust account records.
A trial balance is a comparison between:-
The total cashbook transactions showing the amount that is in the trust bank
ledger (the difference between the total receipts and the total payments of
our cashbook will be the balance in the trust bank according to our records)
AND
The ledgers WITHOUT A NIL balance.
For Example
LF Debit Credit
Bank 100 $92,900
Jones to Stewart 150 $32,000
Peters (Landlord) 170 $ 2,100
Towns to Pravaz 200 $55,500
Barrett 220 $ 3,300
$92,900 $92,900
A couple of notes:
When a ledger is opened for a landlord, only the landlord’s name is used (e.g.
Peters in the above trail balance example).
When a ledger is for a vendor, the vendor’s name is used initially until a buyer is
found, at which point the name of the buyer is added after the vendor’s (as shown
above in the Jones to Stewart example --- the vendor is Jones and the buyer is
Stewart)
LF is the ledger number.

Notice the ‘Bank’ ledger balance is under ‘Debit’ --- this is because the ‘bank’
(according to our cashbook) owes a total of $92,900 (in the above example) to
all the clients combined in our ledgers at the end of that month. This amount is
the opening balance for the next month because it is the amount still sitting in
the bank waiting for instruction to be paid to our clients.
If the amount in our bank ledger and the total of amounts in the clients’ ledgers do
not match or balance, then obviously an error has been made because all ledgers
should include every entry made in our cashbook. (This will be further explained and
practised in the next section of this unit)
Within 21 days of the end of each month, the licensee is required to reconcile the
bank account with the transactions that have taken place in that month. This is
known as the bank reconciliation. The bank reconciliation is a cash control
measure designed to eliminate known differences between the bank account and
the cash book. Any unknown differences could be caused by errors or fraud and
therefore need to be investigated.
If there is a difference between our books and the Bank statement received from
the financial institution holding the trust funds that require adjustment, the
following applies:-
 If the bank statement is correct, adjustments are entered in the cash

book.
 If the cash book is correct, adjustments are entered on the reconciliation.
(This will be further explained and practised in the next section of this unit).
Interest earned on trust accounts

As mentioned in the previous section, interest payable on the balance in the trust
account is not credited to the trust account itself, but has to be remitted to the
OFT. This money is used by the OFT for a variety of purposes including grants or
loans for educational programs.
PSAA 2002 (s 90)
Agency clients that have funds in the trust account do not earn interest on that
money.
There are two exceptions to this that result in the creation of unregulated trust
accounts whereby interest is payable to the client:-
1. A client instructs an agent to keep a separate trust account for the

exclusive benefit of the client.
2. A vendor and purchaser in a property sale instruct the agent to place the
trust money into and interest bearing account, and on settlement, the two
parties share the interest that accrues.
This has implications in terms of the completion of the cashbook and ledger. If
you receive a deposit for a property and the vendor and purchaser instruct you to
place the deposit in an interest bearing account to share the interest accrued on
settlement, the following process occurs:-
1. The deposit is receipted, posted in the receipt side of the cashbook.
2. It is then paid into the interest bearing account. This transaction is posted
on the payment side of the cashbook.
3. The client ledger shows the funds credited, then debited.
4. At a later day on settlement the deposit plus interest is posted into the
receipt side of the trust cashbook ready for disbursement.
5. Disbursement on settlement involves a number of transactions:-
(1) The agency commission is deducted
(2) The interest component is halved; half paid to the purchaser. (3)
The remaining amount is paid to the vendor
The following is an example of the calculations involved and how the information
is to be recorded in the trust cash book and ledger
Example
On 2nd July the agency receives a cheque for $180,000 representing a 10%
deposit from a purchaser, James Stevens for a property owned by David Jones.
The purchaser and vendor instruct you in writing to place the funds in an interest
bearing account (IBA). On 29th July, the deposit and interest is deposited back
into the agency Trust Account from the Bank ready for settlement. The interest
earned is $2,200. Therefore the agency would receipt $182,200 received from the
bank where the interest bearing account is held. The agreed agency commission
is 2% (incl GST).
Therefore, on settlement, the following disbursements would occur
Half the interest to the purchaser $ 1,100

2% commission (inc GST) (i.e. 2% of $1,800,000) $ 36,000
Deposit – commission + half interest to vendor $ 145,100
Total $ 182,200
1. Initial Deposit: Once the deposit is receipted (receipt number 268), the
following is entered into the cashbook and client ledger.
An Important Note:
Receipts and cheques are consecutively numbered to meet legislative
requirements. On the examples provided there’s a space left between entries when
the dates vary for the transactions. This space represents other transactions that
have occurred during the month, and therefore other consecutively numbered
deposits and receipts.
On the receipt side of the cash book the following information is entered /
posted:-
Trust Cashbook 80
Receipt Side
Date Type L.F Transaction Amount Payment
Received On Account
Receipt #
From of
2/ 268 Chq Stevens Jones / 270 Deposit 180,000
Stevens
On the payment side (cheque number 733) of the cashbook the following
information is posted:-
Payment Side
Date Cheque # Payee On Account L.F Transaction Bank
of
29/ 733 IBD Jones / 270 Invested 180,000
Stevens Deposit
On the client ledger (ledger number 270) the following information is posted:-
Trust Ledger
Account Name: Jones / Stevens Number 270
Date Particulars LF Debit Credit Balance

2/ Deposit TC 80 $180,000 180,000 CR
29/ IBA TC 80 $180,000 NIL
2. Deposit + Interest from IBA: Once the deposit + interest are receipted
(receipt number 288), the following is entered into the cashbook and
ledger.
On the receipt side of the cashbook the following information is posted.

Trust Cashbook 80
Receipt Side
Received On Account
Receipt #
From of
2/ 268 Chq Stevens Jones / 270 Deposit 180,000
Stevens
29/ 288 Chq IBA Jones / 270 Dep. + Int. 182,200
Stevens
On the payment side of the cashbook the following information is posted.

(Next cheque number is 752
Payment Side
Date Cheque Payee On Account L.F Transaction Bank
# of
2/ 733 IBA Jones / 270 Deposit 180,000
Stevens
29/ 752 Paragon Real Jones / 270 Commission 36,000
Estate Stevens
753 Stevens Jones / 270 Half interest 1,100
Stevens
754 Jones Jones / 270 Settlement + Int 145,100
Stevens
On the client ledger the following information is posted.

Trust Ledger
Account Name: Jones / Stevens Number 270

2/ Deposit TC 80 $180,000 180,000CR
2/ IBA TC 80 $180,000 NIL
29/ IBA – Deposit + Int. TC 80 $182,200 182,200CR
Commission TC 80 $36,000 146,200CR

Stevens – half Interest TC 80 $1,100 145,100CR
Jones – half interest TC 80 $1,100 144,000 CR
Settlement + Interest TC 80 $144,000 NIL
Trust Account Operating Costs

All charges relating to the operation of the trust account are paid from the
agency’s general operating account. Operating costs (e.g. bank charges) are not
debited to the trust account as that would effectively be using client funds for a
purpose contrary to the reason for investment in the trust account.
The agency is entitled to recoup fees and charges from the client. These must be
documented in the original listing contract authorised by the client. The fee
charged will depend on the agency’s policy.
As mentioned earlier, when setting up the trust account the agent informs the
financial institution in writing that the account is for Trust purposes.
The financial institution will then offset all charges against the agency’s general
account, rather than a charge against the trust account.
Should the financial institution deduct charges from a Trust Account by error, the
agent needs to notify the financial institution of the required amendment.
On the Bank Reconciliation for that month the charges would be entered under
“Add Outstanding Deposits” to be checked against the next bank statement that
is received by the agent to ensure that the error has been reversed and credited
back into the account.
We will look at Bank Reconciliation in detail in the next section.
Dishonoured Cheques
One of the responsibilities of deposit-taking institutions is to report to the Director
General / OFT within five business days the details of any dishonoured cheques
drawn on the trust. In NSW the relevant ruling can be found in PSBA Act (s 93).
The licensee is responsible for ensuring the event is remedied and the likelihood
of reoccurrence is minimised. Therefore, clear procedures should be in place for
dealing with dishonoured cheques.
When notification is received from the financial institution regarding a client’s

dishonoured cheque, the client should be contacted immediately.
If the client asks for a re-presentation of the cheque because of a perceived error,
for example, late deposit of funds into the cheque account, the client should be
asked to pay a dishonour fee.
This fee when presented should be recorded on a general account receipt and
paid into the agency’s general account, where all financial institution charges
should appear.
If the cheque is refused again or there is no valid excuse, the client should be
asked to return to the office with the original trust receipt, and bring funds in cash,
money order or financial institution cheque plus a separate dishonour fee.
The agency must then ensure that the original receipt is crossed out with the word
‘cancelled’.
A separate entry is then made into the Payment Side of the Trust Cashbook.
Since the cheque money was never received this process will negate / reverse
the value of the original entry. In this instance, there is no cheque number. The
information that needs to appear on the Payment Side of the Cashbook includes:-
 The date the cheque was dishonoured,
 The name of the account (i.e. If it is a cheque for rent, the account
name is the landlords name)
 The ledger number it relates to
 The transaction which is ‘dishonoured cheque
 And the dollar amount under ‘bank’.
You then need to go to the relevant ledger and debit the dishonoured cheque.
When the client pays in cash, money order or financial institution cheque, a new
receipt is issued.
It is then entered into the Receipt Side of the Trust Cashbook. The information
that appears includes:-
 The date
 The receipt number
 Whether payment was made by cash, money order or financial
institution cheque (under ‘type’ in the cashbook)
 Who it was received from
 On whose account
 Ledger number
 The transaction
 The amount
You then need to go to the relevant ledger and credit the amount paid.
If a dishonoured cheque is from a tenant, it may be advisable to ask that all future
transactions be in cash, money order or financial institution cheque to ensure
there are no problem payments in the future.
Example
On the 2nd of this month James (tenant) paid $1,000 by cheque for rent of a
property owned by Smith.
On 6th you found out that the cheque has been dishonoured.
You immediately contacted the tenant who came into the office on the same day
and paid the rent and the dishonour fee by cash.
Following is how the information would be recorded on the cashbook and the
landlord’s ledger.
Trust Cashbook 86
Receipt Side
Received On Account
Receipt #
From of
2 822 Chq James Smith 320 Rent 1,000
6 824 Cash James Smith 320 Rent 1,000
Payment Side
Date Cheque Payee On Account L.F Transaction Bank
# of
6 --------- --------- Smith 320 $1,000

James-
Dishonoured
Cheque
Trust Ledger
Account Name: Smith Number 320
1/05/ Opening Bal 2,000CR
2/05/ Rent TC 86 $1,000 3,000CR
6/05/ Dishonoured cheque TC 86 $1,000 2,000CR
6/05/ Rent TC 86 $1,000 3,000CR
KEY POINTS TO REMEMBER!!!
 Interest earned on money held in trust accounts is paid to the

OFT
 Bank charges for trust accounts are deducted from the agency’s
general account.
 The agent is entitled to re-coup charges from clients, but the
charges must be documented in the original agreement and
authorised by the client.
 If an error occurs and charges are levied against the trust
account, the agency must inform the financial institution and
include the charges on the Bank Reconciliation so that their
reversal can be checked.
 If a trust account becomes inadvertently overdrawn, the
licensee must notify the OFT in writing within five days.
 Clear office procedures must be developed, implemented and
monitored by the licensee to minimise the possibility of a trust
account becoming overdrawn.
 Procedures must be implemented to deal with an overdrawn
account to ensure a swift correction.
Unclaimed Trust Money

Funds held in trust by an estate agent who cannot identify the present address of
the person entitled to the payment of the money are known as “Unclaimed Trust
Money”. The Conveyancers Licensing Act 2003 governs this situation.
In NSW, in January each year the licensee must prepare a statement for the OFT
of unclaimed trust money that has been held for two or more years (as at 31st
December). This is set out under section 62(1) of the Conveyancers Licensing
Act 2003.
Information about Trust Accounts or Transactions

‘Duly authorised officers’ are able to gain access to trust account records. These
officers include police officers, officers from the OFT, or other persons authorised
in writing by the OFT.
Clients may also request information about their account and money transacted
on their behalf by an agent. The legislation states that clients can request an
itemised account of all the transactions from the previous six months. The request
must be in writing and the licensee has fourteen days to comply.
Trust Records
As mentioned earlier, all trust records and documents must be kept by the
licensee for 3 years (PSAA s104).
The Trust records and documents required by the legislation, the information they
need to contain, and when they are to be produced are outlined below.
When examining these requirements, you should also be thinking about the office
policies and procedures that need to be implemented to ensure legislative
compliance.
Receipt Book
 Once money is received from a client the agent must issue a receipt from
the Trust receipt book.
 The individual receipts in the receipt book must have been consecutively
numbered by machine.
 Each receipt must consist of an original and a duplicate.
 Receipts must be issued in numerical order.
 Information on the trust receipt must include:-
• Date of issue
• Receipt number
• The name of the licensee
• The words ‘Trust Account
• The name and ledger reference number for or of the person from whom
the money was received.
• Why it was received
• The sum and how it was received
• If it is a rent receipt, it must show the date to which the rent has been
calculated, and if it is in advance or arrears.
 Original receipt must be issued on demand to the person paying the trust
money.
 If the original receipt is not issued, it must be retained by the licensee along
with all duplicate copies.
Every time trust money is received, a receipt must be created.
Cheque book
 All payments from a trust account must only be made by cheque or electronic
transfer (EFT).
 Under no circumstances are cash payments allowed.
 Cheques must be marked ‘not negotiable’, show the name of the licensee
and the words ‘Trust Account’, and be signed correctly.
 For EFT payments, the following records must be kept:-
• Name of the person directing the transfer and under whose delegation
it is made.
• Date and reference number of the transfer
• Name of the payee
• The amount to or from each ledger account
• Details of ledger accounts debited including the name and ledger
number of each client on whose behalf the transfer occurred.
• The reason for the transfer.
Trust cheques and EFT transactions must be signed by the licensee.
These requirements MUST be followed every time a payment is made on
behalf of a client for whom the licensee holds trust funds.
Delegation Authority
 The licensee can delegate this authority to one or two employees working at
the licensed premises to be used if the licensee is unable to sign due to
illness, injury, or is absent from the office for good reason.
 The delegation must be in writing, signed by both parties.
 It can be withdrawn by giving notice in writing.
Deposit book
Except for direct deposits, all deposits made into the licensee’s trust account must
be made using trust deposit book which shows the details of the deposit.
Duplicate of the particulars of each deposit must also be retained by the licensee.
Every time funds are deposited into trust account.
Cashbook
(Examine the cashbook provided in the next section while reading these notes)
Receipt Side
Details of each receipt must be entered manually or electronically into the
Receipt side of the cashbook
The information entered includes:-
 Date funds were received
 Receipt number (chronological order)
 Type – whether by cash, cheque, bank cheque, money order
 Who it was received from
 On whose behalf / account (Client name)
 The ledger number the transaction relates to (i.e. the client’s ledger
#)
 The reason for the transaction
 The amount
Payment side
Details of each cheque drawn must be entered manually or electronically into the
cashbook – Payment side
The information entered includes:-
 The date
 The cheque number (in chronological order)
 The payee (who the cheque is written to)
 The client / account on whose behalf funds are being paid.
 The ledger number the transaction relates to.
 The reason for the transaction
 The amount
This MUST happen EVERY time a transaction occurs.
Journals
 A journal record must be kept of all transfers between accounts in the trust
account ledger that were not brought about by cheque or EFT.
 Journal pages are numbered consecutively and each entry must be made
in chronological order.
 Entries in journals must balance before entries are made in the ledger.
The program must not allow amendments except by a separate journal entry
Ledgers
(Examine the ledgers in the next section while reading these notes)
All information contained in the cashbook is classified into the ledgers.
Each ledger has a unique number which also appears on the cashbook in line
with each transaction.
Ledgers include:-
Bank Ledger
This summarises all the money held at the bank owing to the clients collectively
by the agency.
Every ledger has two sides – left and right. The Left side is called Debit, and the
right side is Credit
When funds are received on behalf of a client, you debit the bank. That is, the
bank owes the client these funds.
When funds are disbursed / paid on behalf of a client, you credit the bank.
Therefore, the amount owed to the clients by the bank (receipt side of cashbook)
is placed on the Debit side of the bank ledger, while the total payments made on
behalf of clients is placed on the Credit side of the bank ledger.
The difference between these figures is the balance in the bank carried forward
to next month - owing to your clients.
It will also be the total of the ledgers that do not have a zero balance.
These ledgers will be listed on the trial balance to show that what is in the bank
adds-up to what is in the ledgers.
Rental Bond Suspense Ledger

This shows all bond money collected to be sent to the Rental Bond Board.
It is shown as a ‘credit’ when it is collected from tenants and a ‘debit’ when it is

paid to the Rental Bond Board.
Client Ledgers
Each client has their own ledger showing all transactions made on their behalf.
When money is received on behalf of a client it is posted on the ‘credit’ side of the
ledger. When money is paid on behalf of a client it is posted on the ‘debit’ side of
the ledger.
In a computer system, ledger programs must not allow a debit balance in any
account unless it is capable of producing a separate chronological report (in
permanent legible form) of all such occurrences.
The ledger program must ensure accounts cannot be deleted unless their balance
is zero and they can still be retained in a form that is visible.
Trial Balance
(Examine a trial balance from the next section while reading these notes)
At month’s end, all transactions on the receipt side and payment side of the cash
book are totalled. Original Trail balance records (or true copies) must be kept by
the licensee.
Total payments are subtracted from total receipts.
The difference between the total payments and total receipts represents what is
left in the trust account which will be carried over to the following month. This
amount is the amount that all ledgers without a zero balance should add up to.
If, when you add up all the ledger amounts they total the difference between the
total receipts and the total payments of the cashbook, everything balances.
If it does not balance, you need to identify the reason.
Possible reasons that it is not balancing include:-

 Calculation error – check additions
 Incorrect balances carried to the trial balance – re-check all balances
carried to the trial balance.
 Reversal of figures when posting (e.g. $375 as $357 – if this has
occurred, the difference between the total debit and credit on the trial
balance will be evenly divisible by nine.
 Missed payment or receipt entry on either the cashbook or the legers
– determine the difference in totals and look for half this amount.
The Trial Balance MUST be completed within 21 days of the end of each
month.
Bank Statements
The bank statement is one of the documents used when completing a Bank
Reconciliation.
Transactions on the bank statement are compared / cross checked with the
cashbook. The purpose is to verify whether the trust account records are correct.
This check is conducted at least Monthly
Bank Reconciliation
(Examine the Bank Reconciliation from the next section while reading these notes).
A bank reconciliation is performed in order to eliminate known differences

between the agency’s (internal) cashbook and the bank account (an external
document).
Any unknown differences need to be investigated as they could be caused by

errors, requiring adjustment either by the bank or internally, or caused by fraud.
Larger agencies may well carry out Bank Reconciliations twice monthly or weekly.
(Refer to the next section for the process involved in completing a Bank Reconciliation)
A Bank Reconciliation MUST be undertaken within 21 days of the end
of each month.
Audit Report
A licensee who has received or held trust funds during the financial year ending
30th June must submit an audit of their trust account.
Audit reports must be retained by the licensee for a minimum of 3 years following
the audit.
(Refer to notes below for more details)
The Audit Report MUST be lodged with the OFT by 30th September each year.
 No Cash payments from trust accounts

 All cheques and EFT transactions to be signed by licensee or
employee with delegated authority if licensee is unable to
sign.
 All money received must be receipted, original given to the
payer of the funds, duplicate receipt retained, and banked by
the end of the next business day.
 Bank Reconciliation and Trial Balance to be completed within
21 days of the end of month.
 Audit report completed by authorised company auditor to be
lodged by 30th September for previous financial year.
 All records to be retained by the Licensee for at least 3 years.
 Records must be backed up on an on-going basis (at least

monthly) and secured off site where no adverse conditions
will affect them.
Auditing Requirements
The OFT website states that the purpose of the Act’s trust account audit
requirements is to address consumer risks in relation to the licensee’s handling
of trust money.
A licensee, a former licensee or a personal representative of a licensee who has

received or held trust funds during the financial year ending 30th June must submit
an audit of their trust account. The auditor’s report must be lodged by
30th September (PBAA s.111).
Before the 30th June each year every licensee receives a letter and form from the
OFT which is to be completed. A statutory declaration is attached to the form
provided which is completed if a licensee has not received or held trust money
during the audit period.
It is a requirement that each agency that operates a trust account appoints an

auditor who must ensure compliance with the Act and regulations in respect of
auditing the trust account. The auditor must be a registered company auditor or
an auditor approved by the OFT. They cannot be a licensee or a past employee
from the previous two years.
The documents and records discussed above are source documents that enable
the tracking of each trust transaction at any time to verify that the money has been
dealt with as required under the Act and the Regulations. The auditor will require
access to all these records to complete the audit. The verification that legislative
requirements have been complied with is a major purpose of the annual audit.
The auditor’s role is to ensure the trust accounts are being maintained and office
procedures implemented that ensure legislative requirements are being met and
that mechanisms are in place to ensure employees are aware and adhere to
these procedures and requirements.
It is the agent’s responsibility to ensure that the auditor has everything required
to be able to carry out the audit including source documents, for example, listing
authorities and receipt duplicates; supporting records and documents, for
example, trust journals, contractors’ invoices and banking statement; and, all the
evidence provided should show that it is correctly filled out, monitored, verified,
and where necessary, signed by the responsible person so authorised.
If the agency commenced business within the last year, the agent must provide a
statement reporting which funds were held on the first day.
When the agent submits this statement, the auditor will check the paperwork from
the commencement date. If all is satisfactory, the auditor will prepare a report and
submit a copy of this to the agent.
If the agency is unable to meet that deadline or, for example, the agency is
changing hands at the end of July, an application may be made in writing to Fair
Trading for approval to alter the date from 30 June.
Once the audit has been carried out, the auditor is obliged to give a copy of the
report to the agent to sign and to forward a copy to Fair Trading
Not only are the auditor’s reports to be retained, but all trust documentation must
also be kept for up to seven years. In NSW trust documentation must be retained
for at least three complete years following the end of the trust account year. This
includes the trust account audit reports (PSAA s111 (3)).
However, as records are retained for tax purposes for 7 years, many agencies
retain all records (including trust accounts) for that period.
If the auditor finds a deficiency during the year, the auditor must write a report
setting out the findings and deliver a copy to Fair Trading and a copy to the
agency (PSAA Act s89).
Where an auditor becomes aware of a reportable deficiency in the trust account

(i.e. the trust account is overdrawn), the auditor must notify the Director of Fair
Trading and the agent immediately on becoming aware of the position. The same
actions are to be exercised in the case of a shortfall in a client’s account or the
trust account in general.

 A licensee who has received or held trust funds must during
the year ending 30th June must submit an audit report,
completed by a qualified and approved auditor by 30th
September.
 On completion of the audit report, the auditor will provide the
licensee with a copy to sign and forward to the relevant
regulatory body / Fair Trading.
 If the licensee has not operated a trust account over the last
financial year, they are required to complete a Statutory
Declaration.
 Copies of audit reports and trust documentation are to be

retained for at least three years
Trust Internal Audit Controls

A major component of the operation of the Trust Account is the control process
that works to minimise and eliminate errors and fraud. Control mechanisms fulfil
a major part of the risk management policy and procedure of any agency.
The Key Principles of Internal Audit Control are:
1) Policies and procedures for the employees to follow, particularly in terms of

recording procedures
2) Reliable reporting systems to measure efficiency and effectiveness, this

includes clearly delineated lines of authority and responsibility
3) The measures should be preventative
4) The financial management system needs to be designed so that

management can easily monitor the input and output
5) The procedures and policies should be consistently followed by all staff,

including management
6) Organisational charts allow for clear lines of authority and responsibility so

that any gaps in procedure can be clearly identified
7) Performance standards and benchmarking that align with the set

procedures to ensure that the system is being utilised appropriately and
fulfilling requirements
8) Careful employee selection. Staff experience must match their

responsibilities. Personnel responsible for the financial management of the
business must be competent and well trained. It is imperative that they are
suitable qualified, have appropriate experience in the relevant software and
that they undertake continuing education. Most importantly, background
checks will assist in judging integrity.
9) Job rotation reduces the incidence of fraud
10) Maintenance of accurate and adequate records
11) Divide responsibilities for related transactions so that verification of tasks

can be achieved. Responsibilities where possible should be separated
between operations and recording and accounting for transactions
12) Separate record keeping and asset control
13) Mandatory vacations ensures that long term fraud and theft are minimised
14) External audits that test the system
15) Create and utilise an audit trail using source documents, and ensure that all
employees are informed and educated about the audit trail.
These are just some of the principles and mechanisms that can be used to
minimise errors and fraud.
It is important in any agency that an analysis is completed outlining the

mechanisms that are required to ensure that the company’s, and its client’s,
assets are being protected at all times.
In addition, the agency’s financial management systems need to reflect the

outcome of trust account transactions so that an audit is easily able to track the
payment of funds from the trust to the general account and create a paper trail.
Effective internal control systems require first and foremost a commitment from
the agency’s management to protecting the assets and communicating,
implementing and preserving the integrity of the controls.
Section Two Operating, Monitoring, and Verifying

Trust Account Records to meet Legislative
Requirements
In this section we will complete trust cashbooks, trial balance and bank
reconciliations ensuring compliance with the legislative requirements.
Introduction
Although there are legislatively compliant computer systems where an agent can
enter transactions and the computer system automatically posts these
transactions to ledgers, certain information can be entered incorrectly, and so a
manual check may need to be conducted.
Therefore the Licensee in Charge has to understand the mechanics behind the
system as they will ultimately be held liable if there are any breaches of the
legislation.
To gain competency in this unit, and therefore your real estate licence in NSW,
you are required to be able to manually complete a Cashbook, Ledgers, Trial
Balance and Bank Reconciliation in accordance with legislative requirements.
Key Accounting Principles

Accurate trust accounting keeping relies on the ability to understand and comply
with key accounting principles. This section will consider the following aspects of
accounting (books of Account and the Accounting Cycle) in order to see how the
particular record keeping systems are applied to trust accounting in order to
ensure that funds are appropriately managed.
Books of Account
This is a term used to describe the records that provide the information to be
recorded by a business and for Trust Accounting. These include:
 Trust Receipt book ( all monies required to come into the trust will flow
through the receipt book)
 Trust Cash Book ( has two sides, cash receipts and cash payments)
 Cheque book
 Trial Balance
 Bank Statements
 Bank Reconciliation
These documents are utilised in the following manner:
The accounting cycle within a real estate agency is repeated each month and
again at the end of the financial year when the accounts close as at the end of
each financial year.
It is this cycle that captures all of the systems, requirements, tools of

measurement and review processes necessary for successful financial
management.
The Accounting Cycle
Step 1:
Identifies financial
transactions from
source documents
Step 6: Step 2:
Closing the Books Transactions are
recorded in the
accounting system
Step 5: Step 3:
Adjusted Trial Posting journal
Balance entries to General
Ledger
Step 4:
End of Period
Procedures
e.g. statements and reports
The accounting cycle contains the requirements for efficient financial

management and hence good management practice.
Each of these steps forms the basis of good financial business practice and each
of the steps in themselves have associated books and registers that support the
process, the accountability and the quality of each transaction.
Each step will now be considered in greater detail.
The Accounting Cycle for a Trust Account
When operating a trust account, we utilise the accounting principles outlined in

the accounting cycle – these are undertaken in the following manner.
Source Document is recorded into the Trust Receipt Book
Information is then recorded into the Trust Cash Book
Information from the Cash book is recorded into Ledgers.

Each Principal (client) will have their own Ledger
With its own unique identifiable number
Information from the Trust ledgers is summarised into the Trust

Trial Balance
The Balance as per the Trust Trial Balance is reconciled to the Trust Bank
Statement to verify the validity of the Licensee’s records
The Role of Debit and Credit in Trust Ledger Accounts.
If you examine the columnar ledger you will notice columns for debit and credit.
The Trust Account is a simple cash accounting system where cash in and cash
out is recorded. When cash comes in, a receipt is written, the source document
is then used to record the transaction in the cashbook. The information is then
recorded in the ledgers.
When the transaction is recorded in the trust, the bank ledger is debited and the
client is credited. When amounts are drawn from the trust the client is debited and
the bank is credited.
Basic Rules:
Debit cash (bank) ledger

Cash into a Trust ledger account
= and
Credit client ledger
Debit Client Ledger

Cash out of a Trust ledger account
= And
Credit Cash (Bank) Ledger
In the client trust ledgers, the credit entries represent receipts and the debit entries
represent payments. With a columnar ledger account the client balance is
calculated after each transaction.
As per the Regulations, the Office of Fair Trading requires that the ledger
accounts exist as columnar ledgers.
This means that each ledger has two sides – a left and right side with provision
for name and number. The columnar format allows for the balance to be updated
after each transaction.
Example
Sale: Clearey to Johnson (Client Ledger Account) No 152
Date Particulars Ref: Debit Credit Balance
2/09/ Initial Deposit CB 1,000.00 1,000.00CR

7/09/ Deposit CB 25,000.00 26,000.00CR
12/10/ Settlement CB 15,000.00 11,000.00CR
12/10/ Commission CB 11,000.00
In Trust Accounting ledgers exist for:
1) The Bank
2) Each Principal (client)
Each ledger has its own unique identifiable number. The ledger is a centralised
document that enables an agent or an employee to account for a client at any
time. The ledger is made up of accounts (usually one page per account) for each
person and is updated as each transaction occurs
The Trust Trial Balance
Information from the Trust ledgers is summarised into the Trust Trial Balance.
At the end of each month the Bank Ledger and Trust Client Ledgers with
balances other than zero are listed as in the following example.
Trial Balance Paragon Real Estate

As at 30 November
Debit Credit
Bank $141,400
Davies to Kinglake $58,000
Daniels (Landlord) $ 2,600
Hall to Yates $62,500
Burns $ 18,300
$141,400 $141,400
Month End Procedures
In order to maintain the accuracy and integrity of the Trust Account records it is
imperative that the trust account is periodically checked and reported on. This
occurs at the end of each month. The processes undertaken each month that
ensure compliance with agency and statutory requirements in regard to the
accuracy of trust records are:
Step 1 Balance the Trust Cash Book

At the end of the month the total of trust receipts and the total of trust payments
are totalled to calculate the balance as per the trust cash book. The regulations
require that this process be completed 21 days after that month end.
Step 2 Extract a Trial balance

Once the trust cash book is balanced and the transactions have been
summarised to the bank and client ledgers the licensee is required to produce a
trial balance which details which clients the licensee is holding trust monies for.
This trial balance is required under the regulations to be produced 21 days after
that month end.
Step 3 Bank Reconciliation

The trial balance represents the balance of trust monies held as per the licensee’s
records. As an internal control this trust balance is reconciled to the trust bank
statement to verify the trust balance. Under the regulations the bank reconciliation
is required 21 days after that month end.
Example of a Bank Reconciliation:-
Paragon Real Estate

TRUST BANK RECONCILIATION AS AT 30/10/2008
Credit balance as per bank statement 30/10/2008 $104,575.00
Add: Outstanding deposits

30/10/ #1008 $600.00.00
30/10/ #1009 $1,200.00 $1,800.00
Less: Un-presented cheques

Cheque No 2510 ($6,500.00)
2512 ($75.00) ($6,575.00)
Debit balance as per Trust Cash Book 30/10/2008 $99,800.00
These processes enable the licensee to feel certain that the records are being
maintained accurately so as to ensure that proper auditing procedures can take
place, both internally and externally.
In addition, the monthly process can alert the licensee to discrepancies or

potential risks to the security of the records and funds and enable timely
contingencies to be put into place.
Example of Cashbook & Trust Ledger
Using the following information provided by the licensee of Paragon Real Estate,
you are required to:
1. Correctly complete the Trust Cash Book
2. Correctly complete the Trust Ledger
3. Correctly complete the Trust Trial Balance as at 30th October 2008
Please note the following:
 The Trust Cash Book, Trust Ledger and Trust Trial Balance are to be
completed so as to comply with the regulations.
 The next Trust Receipt Number to be issued is Number 1000
 The next Trust Cheque Number is Number 2500.
 All trust receipts are banked on day of receipt.
 All receipts and payments are by cheque unless otherwise stated.
 The accounts in the Trust Ledger had the following opening balances as at
1st October 2008
Ledger # Ledger Name Debit Credit

100 Bank $135,000
110 West to Soul $30,000
120 Peters to Best $25,000
130 Rental Bond Suspense $10,000
140 Barnes to Moss $65,000
150 Hunt $5,000
October
1st Payment Paid amount due to the Rental Bond Board

3rd Receipt Received Deposit from Smith for Clearey $12,000
Paid $500 plumbing repairs to Anapolous on behalf of

Payment
Hunt
8th Receipt Sale to Soul settled your commission was $10,000
10th Received $50,000 from Smile for property owned by
Brown. The solicitors Smile and Brown requested that
Receipt
you deposit the funds being held into an Interest Bearing
Deposit
11th Receipt Received $1000 rent from Graham – owner Hunt
Settled Hunt’s account. Paid $4500 to Hunt Paid
Payment property management fees of $500 to agency
general account
18th Receipt Deposit received from Pernar for Love of $20,000.
Received $1000 cheque from Thorpe for rent – Owner
Receipt
is Hunt
20th Peters to Best - sale settles.
Payments $22000 deposit paid to Peters. Agency commission
$3,000 paid to agency general account
24th The cheque received from Thorpe on the 18th was
Payment
dishonoured.
The tenant agreed to pay cash, which was banked this
Receipt
day
29th Settled the sale, Brown to Smile. The initial investment
Receipt plus interest earned of $150 (total $50,150) was banked
into the Trust Account.
Settlement of Brown to Smile. Payments made for:
Agency commission $6,500
Payments
Cheque to Brown for deposit plus interest: $43,575
Cheque to Smile for interest share $75
30th Obtained a new tenant McHugh – owner Hunt. The
tenant paid with two cheques. One cheque was for 2
Receipts
weeks rent which totalled $600, and the other cheque
represents bond of 4 weeks for $1200
TRUST CASH BOOK PARAGON REAL ESTATE
CASH RECEIPTS
CPPDSM4006A BOOK
– Establish and Manage Agency Trust Accounts
DATE Rec # TYPE RECEIVED FROM ON ACCOUNT OF L.F TRANSACTION AMOUNT PAYMENTS
1/10/ bal b/fwd $135,000.00
3/10/ 1001 chq Smith Clearey to Smith 160 Deposit $12,000.00
10/10/ 1002 chq Smile Brown to Smile 170 Deposit $50,000.00
11/10/ 1003 chq Graham Hunt 150 Rent $1,000.00
18/10/ 1004 chq Pernar Love to Pernar 180 Deposit $20,000.00
18/10/ 1005 chq Thorpe Hunt 150 Rent $1,000.00
24/10/ 1006 Cash Thorpe Hunt 150 Rent $1,000.00
29/10/ 1007 chq IBD Brown to Smile 170 IBD + Interest $50,150.00
30/10/ 1008 chq McHugh Hunt 150 Rent $600.00
30/10/ 1009 chq McHugh Rental Bond Board Suspense 130 $1,200.00
$271,950.00 $172,150.00
Bal c/fwd $99,800
$271,950.00 $271,950.00
Bal b/fwd $99,800
TRUST CASH BOOK /

TRUST CASH BOOK PARAGON REAL ESTATE
CASH PAYMENTS BOOK
CHEQUE
DATE PAYEE ON ACCOUNT OF L.F TRANSACTION AMOUNT
NUMBER
1/10/ 2501 Rental Bond Board Rental Bond Board Suspense 130 Bond $10,000.00
3/10/ 2502 Anapolous Hunt 150 Repairs $500.00
8/10/ 2503 Paragon Real Estate West to Soul 110 Commission $10,000.00
8/10/ 2504 West West to Soul 110 Settlement $20,000.00
10/10/ 2505 Interest Bearing Deposit Brown to Smile 170 IBD $50,000.00
11/10/ 2506 Paragon Real Estate Hunt 150 Property Mgt Fees $500.00
11/10/ 2507 Hunt Hunt 150 Rent - Landlord $5,000.00
20/10/ 2508 Paragon Real Estate Peters to Best 120 Commission $3,000.00
20/10/ 2509 Peters Peters to Best 120 Settlement $22,000.00
24/10/ ------------ Hunt 150 Dishonoured Chq $1,000.00
29/10/ 2510 Paragon Real Estate Brown to Smile 170 Commission $6,500.00
29/10/ 2511 Brown Brown to Smile 170 Settlement & Interest $43,575.00
29/10/ 2512 Smile Brown to Smile 170 Interest $75.00
$172,150.00
Trust Ledgers
Account Name: Bank Number 100
DATE PARTICULARS LF DEBIT CREDIT BALANCE

1/10/ Opening Bal 135,000DR
31/10/ Cash Receipts TC $136,950 271,950DR
31/10/ Cash Payments TC $172,150 99,800DR
Account Name: West to Soul Number 110

8/10/ Commission TC $10,000 20,000CR

8/10/ Settlement TC $20,000 -
Account Name: Peters to Best Number 120
20/10/ Commission TC $3,000 22,000CR
20/10/ Settlement TC $22,000 -
Account Name: Rental Bond Board Number 130

1/10/ Bond TC $10,000 -

30/10/ Bond TC $1,200 1,200CR
Account Name: Barnes to Moss Number 140
Account Name: Hunt Number 150
3/10/ Repairs TC $500 4,500CR
11/10/ Rent TC $1,000 5,500CR
11/10/ Prop Mgt Fees TC $500 5,000CR
11/10/ Rent TC $5,000 -
18/10/ Rent TC $1,000 1,000CR
24/10/ Dishonoured cheque TC $1,000 -
24/10/ Rent TC $1,000 1,000CR
30/10/ Rent TC $600 1,600CR
Account Name: Clearey to Smith Number 160

3/10/2 Deposit TC $12,000 12,000CR
Account Name: Brown to Smile Number 170

10/10/ Deposit TC $50,000 50,000CR
10/10/ IBD TC $50,000 -

29/10/ IBD & Interest TC 50,150 50,150CR
29/10/ Commission TC $6,500 43,650CR

29/10/ Settlement & Interest TC $43,575 75CR
29/10/ Interest TC $75 -
Account Name: Love to Pernar Number 180

18/10/ Deposit TC $20,000 20,000CR
TRUST TRIAL BALANCE
Paragon Real Estate

TRUST TRIAL BALANCE
AS AT 30-Oct-08
L.F ON ACCOUNT OF DEBIT CREDIT
$ $
100 Bank $99,800
130 Rental Bond Board $1,200
140 Barnes to Moss $65,000
150 Hunt $1,600
160 Clearey to Smith $12,000
180 Love to Pernar $20,000

$99,800 $99,800
Trust Bank Reconciliation
The Bank Reconciliation is designed to check the validity of the trust cash balance
to the bank statement supplied by the bank. At any point in time, the bank
statement and the books will generally not agree.
Differences will be due to:

 Deposits made at the bank, and recorded in the books but not yet recorded
on the bank statement
 Cheques issued by the office but which have not yet been presented at the
bank by the payee and
 Electronic funds transfers that have not been received into the bank, but
which have not yet been recorded as received in the books
 Fees and / or charges that have been levied by the bank in error
(remember…trust account fees should have been charged to the agency’s
general account – not the trust account).
The bank reconciliation is designed as a control mechanism to ensure that the

known differences between the bank statement and the books are identified. If the
known differences can be eliminated and they do not balance, then only the
unknown differences remain.
These need to be investigated as they may uncover fraudulent activities.
Bank Reconciliation should be carried out at least once a month. In a large agency
this may carried out more often. The bank reconciliation controls the cash receipts
and cash payments of the real estate business, which is essential.
The procedure for completing the bank reconciliation is as follows:

(Note: a highlighter will be very useful for the matching exercise so make sure you
have one handy when doing a bank reconciliation)
Step 1: Match that unreconciled items from the last bank reconciliation to the
current bank statement. Any items unmatched will remain a difference between
the cash book and the bank statement and must be included in the current
month’s bank reconciliation.
Step 2: Match this month’s receipts in the Trust cash book to the deposits shown
on this month’s bank statement.
Step 3: Crosscheck the cheques and payments in the Trust cash book to the
cheques and payments presented on the bank statement. It is common that some
of the cheques that you have drawn have not yet been presented at the bank.
Step 4: Update your Trust cash book by adding to it anything on the bank
statement that should be entered into your Trust cash book or any errors that
require correcting in the trust cash book. For example, direct deposits
Step 5: Balance the Trust cash book and complete reconciliation
Example
The following pages illustrate the process involved in completing a Bank
Reconciliation.
The documents used are the previous month’s reconciliation document, the trust
account book, and the bank statement. The bank reconciliation for the period
ended 31st May should show any outstanding deposits and un-presented cheques
as at that date.
In the reconciliation each amount will have a matching amount in another

document.
To make it easier to match up the amounts in the various source documents

used and to follow the process, these have been matched with superscript
letters eg A B C etc.
Trust Reconciliation as at 31 May
Date
31 May Credit balance as per bank statement $510.00
Add: 30 May
Outstanding deposits (Receipt No 411)
$450.00 A
(Deposits paid into the
bank but not yet showing 31 May B
on the bank statement) (Receipt No 412) $255.00

Total Outstanding Deposits $705.00
(Adjusted Bank balance) $1215.00
Less: Un-presented cheques Chq No 8056 $100.00 C

(Cheques issued but not presented.
These have
paid from D
not yet been Chq No 8074 $ 60.00 the bank
account)
Total un-presented cheques ($160.00)
31 May Debit balance as per Trust Cash Book $1,055.00 E
The adjusted balance of $1055.00 would match the Trust Cash Book balance
as at 31 May.
During June, the following transactions took place in the trust account:
Trust Cash Book – June
RECEIPTS PAYMENTS
June Receipt June Chq.

$ $
No No.
1 May Balance Brought 1,055.00 E 1 Payments 8079
Forward 175.00 F
4 Payments 8080 2,120.00 G

7 Receipt 413 8,400.00 H
11 Payments 8081 2,163.00 J
12 Receipt 414 3,200.00 K
15 Payments 8082 1,124.00 L
18 Receipts 415 7,800.00 M
23 Payments 8083 293.00 N
26 Receipts 416 899.00 P
27 Payments 8084 4,090.00 R
29 Receipts 417 14,362.00 S 29 Payments 8085 174.00 T
29 Payments 8086 81.00 V
30 Receipts 418 10,566.00 W
Total Receipts 46,282.00 Total Payments 10,220.00
Balance Carried forward to July 36,062.00 X

Add total payments and
balance to check they 46,282.00
equal total receipts
Bank Account Statement – June
Date Details Debit Credit Balance

June $ $ $
1 Balance B/Fwd 510.00
1 Deposit (Receipt No 411) 450.00 A 960.00
1 Deposit (Receipt No 412) 255.00 B 1,215.00
8 Deposit (Receipt No 413) 8,400.00 H 9,615.00
8 Cheque No 8074 60.00 D 9,555.00
12 Deposit (Receipt No 414) 3,200.00 K 12,755.00
12 Cheque No 8080 2,120.00 G 10,635.00
16 Cheque No 8081 2,163.00 J 8,472.00
19 Deposit (Receipt No 415) 7.800.00 M 16,272.00
27 Deposit (Receipt No 416) 899.00 P 17,171.00
30 Deposit (Receipt No 417) 14,362.00 S 31,533.00
30 Cheque No 8079 175.00 F 31,358.00

30 Cheque No 8082 1,124.00 L 30,234.00
30 Cheque No 8084 4,090.00 R 26,144.00
30 Closing Balance 26,144.00 Z
Where amounts differ between the Trust Cash Book and Trust Bank Statements, you should
assume that the Bank Statement is correct.
Trust Bank Reconciliation as at 30th June
30 June Credit balance as per bank statement $26,144.00 Z

Outstanding Deposits Add: (Deposits paid into the 30(Receipt
No 418 June ) $10,566.00 W bank but not yet showing on the bank
statement)
Total Outstanding Deposits $10,566.00
$36,710.00
Less: Un-presented cheques Chq No 8056 $100.00 C (Cheques
issued but not Chq No 8083 $293.00 presented. These have T
N
not yet been paid from Chq No 8085 $174.00 the bank account)
Chq No 8086 $81.00 V Total un-presented cheques ($648.00)
30 June Debit balance as per Trust Cash Book $36,062.00 X
Helpful websites
www.fairtrading.nsw.gov.au Office of Fair Trading – Legislation, Trust

Account regulations
www.austlii.edu.au Australian Legal Information Institute –
legislation, case law
www.abs.gov.au Australian Bureau of Statistics
www.ato.gov.au Australian Taxation Office
www.reiq.com.au Real Estate Institute Queensland
www.bestpractice.com.au Advice on real estate from Robert Bevan
www.cpaaustralia.com.au Australian Society of Certified Practicing
Accountants – limited access to information,
library, unless a member
NSW Legislation
Please note: This legislative summary was verified as correct at the date of preparation (11
May 2009). Legislation may have been amended since that date and course participants are
advised to check the current legislation at http://www.legislation.nsw.gov.au/.
The Property and Stock Agents Act (2002) (“The Act”) and Regulation (2014), (“The Regulation”)
specifically relate to Trust Accounting as per the following.
a) The Act
Part 7 – Trust Accounts
Part 8 - Records
a) The Regulation
Part 4 - Trust Money
Part 5 - Records
Schedule 15 – Penalty
notice offences
Reporting to Clients
As part of agency duties there are reports and statements that a developed for
clients.
Reports
At the end of each month landlords are sent a rental statement outlining the income
and expenditure for the month, and the net rent is remitted into our landlords’
nominated bank accounts by way of electronic funds transfer.
At the end of each financial year a profit and loss statement is provided. These
statements provide an annual summary of all the income and expenditure relating
to the property.
Statements
Another type of document that is developed for clients is a closing statement at
settlement of sale property. This is issued to the client/solicitor detailing the funds
being held in the trust account and the disbursements to be deduced such as
commission and agency fees and the balance of funds that is due to be forwarded
to the client/solicitor following settlement.
CPPDSM4006A – Appendix – New South Wales - Legislation summary
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CPPREP4005 - Prepare to work with real estate trust

Student Learner Guide

CPPREP4005 - Prepare to work with real estate trust accounts

Audit The process of reviewing, examining, and checking company

Chronological In order of time

Disbursement The process of paying funds out of an account.

Financial Bank, Credit Union, etc

Landlord: The owner of a property that is being leased / rented.

Payee The person or organisation a cheque is written to.

Posting The process of recording entries from the cashbook to the

Source Documents kept to provide a trail of all transactions from origin

What is Trust Money?

What is Trust Accounting?

Example of rental bond paid to an agency:

In this section we will:

This can be downloaded from: http://www.legislation.nsw.gov.au/

PSAA Act 2002 and Regulations 2014

Trust Account legislation can be classified into 3 main areas:-

• Operating and Maintaining Trust Accounts including:

• Reviewing and Monitoring Trust Accounts including

Opening / Establishing a Trust Account

Responsibilities of the Licensee

Responsibilities of the Financial Institution

In NSW authorised deposit taking institutions are required to:-

 Report to the Commissioner of Fair Trading within five business days if

 Report to the Commissioner of Fair Trading within five business days if

 Pay interest accrued on all trust accounts to the OFT

Operating and Maintaining Trust Accounts

These records include:

Information that must appear on Trust records

The requirements for Computer Systems

PSAA Regulations 2003 (Clause 24)

Cashbooks and Ledgers:

Receipts for trust money

Payment of trust money

Banking of Trust money

End of month requirements

The ledgers WITHOUT A NIL balance.

LF is the ledger number.

 If the bank statement is correct, adjustments are entered in the cash

Interest earned on trust accounts

PSAA 2002 (s 90)

1. A client instructs an agent to keep a separate trust account for the

Therefore, on settlement, the following disbursements would occur

Half the interest to the purchaser $ 1,100

Date Particulars LF Debit Credit Balance

29/ IBA TC 80 $180,000 NIL

On the receipt side of the cashbook the following information is posted.

On the payment side of the cashbook the following information is posted.

On the client ledger the following information is posted.

Date Particulars LF Debit Credit Balance

2/ IBA TC 80 $180,000 NIL

29/ IBA – Deposit + Int. TC 80 $182,200 182,200CR

Commission TC 80 $36,000 146,200CR

Settlement + Interest TC 80 $144,000 NIL

Trust Account Operating Costs

We will look at Bank Reconciliation in detail in the next section.

When notification is received from the financial institution regarding a client’s

2 822 Chq James Smith 320 Rent 1,000

6 824 Cash James Smith 320 Rent 1,000

6 --------- --------- Smith 320 $1,000

Date Particulars LF Debit Credit Balance

1/05/ Opening Bal 2,000CR

2/05/ Rent TC 86 $1,000 3,000CR