Trust Accounting MATERIAL.pdf
TABLE OF CONTENTS
Introduction 5
The Licensee and Licensee in Charge 6
What are Trust Funds? 8
Trust Internal Audit Controls 8
General Account 9
Setting up a Trust Account 10
Interest and Bank Charges 11
Maintaining Trust Accounts 12
Unclaimed Trust money 13
Auditing Requirements (S111) 13
Manual or Computerised Records 15
Books of Entry 16
i. Cash Book 16
ii. Ledgers 16
Trust Accounting Cycle 17
Receipts, Cheques, Cash book and Ledgers 18
i. Receipts 18
ii. Sales Receipt 19
iii. Property Management Receipt 19
iv. Banking 20
v. Deposits 20
vi. Cheques 21
vii. EFT 22
Signatories and Authorised Persons 22
The Cash Book 23
Cash Book Payments 25
Ledgers 26
Sales Ledgers 27
Property Management Ledgers 28
Rental Bond 29
Entering Payments in Ledgers 29
End of Month for Property Management 31
i. Chart of Accounts 32
ii. Overdrawn Trust Account 32
iii. Dishonoured Cheques 32
Invested Sales Deposits 35
Learning Activity 1 38
Monthly Reporting 42
Cash Book Reconciliation 42
Bank Reconciliation 43
The Process of Reconciling 44
i. Cash Book Reconciliation 44
ii. Bank Reconciliation 44
iii. Adjustment Rules 45
Trial Balance 51
Learning Activity 2 53
Learning Activity 3 55
Learning Activity 4 66
Glossary 82
CPPDSM4006A
ESTABLISH AND MANAGE TRUST ACCOUNTS
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
eviewing trust accounts.
The unit may form part of the licensing requirements for persons engaged in real estate activities in
those States and Te
itories where these are regulatedactivities.
This Unit of Competence (CPPDSM4006A) is one of the elective units in the Certificate IV in Property
Services (Real Estate) qualification (CPP40307).
Assessment
Assessment for this unit includes tasks to be marked by your Assessor, which may include multiple
choice questions, short answer questions, case studies, projects, role-plays and / or demonstrations.
Assessment activities for this unit are provided in a separate assessment document, which has been
customised to meet the legislative requirements in your state or te
itory.
You may apply for assessment through Leverage’s recognition process whereby you demonstrate your
cu
ent competence through prior learning (RPL) by compiling a portfolio of evidence to demonstrate
your skills and knowledge. Your RPL will be supported by interview questions and / or third party
eports to confirm your skills and abilities.
Competence in this unit will be demonstrated when you are able to show that you can meet the
Elements and Performance criteria, shown on the following page. These have been extracted from the
full Unit Descriptor which is available upon request.
Tutorial Assistance
Should you require assistance or tutorial support at any time during your study, a course facilitator is
available to assist you.
To request a support call, please send an email to XXXXXXXXXX with a
ief outline of
your query.
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ELEMENT PERFORMANCE CRITERIA
Elements describe the essential outcomes of
a unit of competency
Performance criteria describe the required performance
needed to demonstrate achievement of the element.
Where bold italicised text is used, further information is
detailed in the required skills and knowledge and/or the
ange statement. Assessment of performance is to be
consistent with the evidence guide.
1 Review agency trust accounts for compliance with
trust account requirements.
1.1 Agency trust account requirements are clearly
identified, accurately recorded and continuously updated in
line with relevant legislation and regulations.
1.2 Policies and procedures for accurate trust account
keeping are developed which comply with trustaccount
equirements, key principles of accounting and financial
management, agency practice and legislative
equirements.
1.3 Criteria for evaluating electronic and manual trust
accounting systems are identified and applied to ensure
compliance with all trust account requirements.
2 Establish and maintain trust accounts. 2.1 Source documents for trust transactions are identified
and accessed in line with legislative requirements.
2.2 Documentation of trust records and transactions are
produced to give an accurate record of agency
transactions on behalf of clients.
2.3 Transactions are supported by appropriate
authorisation and documentation and are in line with
agency practice and legislative requirements.
2.4 Entries and transactions are promptly and accurately
ecorded in line with relevant trust account requirements
and agency requirements, and can be provided on
demand.
2.5 Discrepancies in entries or documentation are
promptly followed up to ensure clarification or resolution
and are reported to relevant authorities where necessary.
2.6 Audit and security a
angements are checked to
ensure they provide adequate protection for client
confidentiality and client funds held in trust.
3 Manage and control trust accounts. 3.1 Disbursements to and from trust accounts are
authorised and managed within agreed agency protocols
and legislative requirements.
3.2 Appropriate a
angements are made with third parties
and other professionals to ensure that agency trust
accounts comply with legislative requirements.
3.3 Agency trust administration policies and procedures
are disseminated or made readily available to relevant
staff in line with agency practice and legislative
equirements.
3.4 Ongoing training of relevant agency staff is provided to
ensure efficient operation of trust accounts and financial
and IT systems, and compliance with agency practice and
legislative requirements.
3.5 Procedures for monitoring records and ensuring the
security of trust account records are developed and
implemented.
4 Monitor and review trust accounts. 4.1 Documentation and other reporting requirements are
egularly reviewed for compliance with legislative
equirements.
4.2 Trust account entries and transactions are regularly
checked and monitored to ensure compliance with agency
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practice and legislative requirements.
4.3 Trust account transactions are monitored to ensure
appropriate authorisation is obtained prior to any
disbursements.
5 Authorise and verify trust accounts. 5.1 Periodic reconciliation is verified by licensee in
charge, in compliance with legislative requirements.
5.2 Periodic financial reports are prepared and discussed
with clients to ensure their continued accuracy.
5.3 Records are maintained to enable them to be
conveniently and properly audited.
5.4 Legislative audit requirements are met.
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INTRODUCTION
Trust Accounts are specific forms of bank accounts that must be used by professionals who are
equired 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 behalf 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
eviewed to ensure accountability and the protection of clientmoney.
For Real Estate Agents in NSW, the Property Stock and Business Agents (PSBA) Act 2002 (the Act)
and Regulations 2014 stipulate the ‘who, what, how and when’ of trust account management, as wellas
the penalties for offences. Penalties include fines and can be as severe as loss of licence or even jail.
Individual smaller parts of the Act are refe
ed to as Sections, and of the Regulations, as Clauses,
denoted as “S”, and “C” followed by a number of the section or clause.
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.
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 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 su
ounding
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, ledgers, trial balance, and end of month
econciliations.
Trust accounting in general terms is all about ensuring an agent properly cares for the funds entrusted
to him/her by the agent’s clients.
At the outset it is important to recognise that an agency office acts for its principal first and foremost. An
agent cannot commence to sell property, obtain tenants and manage a property, or strata manage a
property without an agency agreement. The agreement is between the agent and his principal, that is,
the owner of the property.
The agreement sets out the terms under which the agent is authorised to act for the principal to sell or
to manage, including the rate at which commission can be charged, whether any other fees can be
claimed and under what circumstances, and when the fees can be claimed by the agent, and when
money owing to the principal and others can be paid.
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Clients of the agent include the principal, purchasers, tenants, tradespeople and the like.
“Clients” may also request information about their account and money transacted on their behalf by an
agent. The legislation (S101) states that a person directly concerned in any transaction by or with a
licensee may request the licensee in writing to render an itemised account of the transaction. The
equest can’t be for a transaction more than six months old. The request must be in writing and the
licensee has fourteen days to comply.
THE LICENSEE AND LICENSEE IN CHARGE
All real estate agencies are either under a company structure or run by a sole trader or partnership. If
the agency is run by a company, it will usually operate as a corporation such as ABC Pty Ltd trading as
123 Real Estate. The company must have a corporation licence, at least one director, and it must have
a licensee in charge who holds relevant licences to oversee the business being run. It may also employ
other licence and certificate of registration holders in the office. In this case, the trust account is to be in
the name of the licensee corporation, the name under which it conducts business, for example ABC Pty
Ltd trading as 123 Real Estate Trust