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How Quickbooks handles trust payments
How Quickbooks handles trust payments

What happens in Quickbooks when you create an invoice and pay from trust?

Tracie Cook avatar
Written by Tracie Cook
Updated over a week ago

Here is what happens behind the scenes in QBO as an invoice is created in LeanLaw and then paid from trust.

Example: Invoice #1103 for ABC company has been billed and then paid out of trust

Upon creating the invoice the following QuickBooks Online accounts are affected:

Debit: Accounts Receivable 323.67 (increased)

Credit: income acct 323.67 (increased)

(Note: If your firm reports on Cash basis, your P&L will not reflect the invoice as revenue until it has been paid; Accrual basis reporting will show the invoice as revenue when the invoice is created. In either situation the credit is to the income account, but will only be visible on the P&L in accordance with how you view your reports)

In this example, there is available money in their trust account so the "Pay from Trust" option is used to pay this invoice. Paying the invoice through LL via a trust payment triggers the following entries in Quickbooks:

Debit: Funds Held in Trust: ABC company 323.67 (because it is a sub acct it will auto decrease the main liability) (decreased)

Credit: Bank trust account: 323.67 (decreased)

If you have the LL account set to put funds into “undeposited funds” then the following also happens:

Debit: Undeposited Funds 323.67 (increased)

Credit: Accounts Receivable 323.67 (a/r for that client is now zero) (decreased)

When you make the deposit from undeposited funds the following accounts are affected

Debit: Operating/main bank account 323.67 (increased)

Credit: Undeposited funds: 323.67 (undep funds now cleared) (decreased)

If you do not use Undeposited Funds then the payment will reflect as follows:

Debit: Operating Account 323.67 (increased

Credit: Accounts Receivable 323.67 (a/r for that client is now zero) (decreased)

For more information on trust accounting click here:

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