Attorney Trust Accounts in California: Bookkeeping & IOLTA Basics

June 16, 2026 · 6 min read

For California attorneys, few things carry more risk than client trust account mistakes. Trust accounting errors are a leading source of State Bar discipline — and most of them come down to bookkeeping, not bad intent. Here's a plain-English look at how trust account bookkeeping works and where firms tend to slip.

What is a client trust account?

A client trust account holds money that belongs to clients, not to the firm — retainers, settlement funds, and advance costs. The defining rule is simple to state and easy to violate: those funds must be kept separate from the firm's own operating money, and the firm must always be able to show exactly how much belongs to each client.

The three-way reconciliation

The cornerstone of trust accounting is the three-way reconciliation, where three figures must agree at the end of each period:

• The bank statement balance,
• The trust account check register (your book balance), and
• The total of all individual client ledger balances.

If those three don't match to the penny, something is wrong — and finding out why is exactly what disciplined bookkeeping is for.

Common trust accounting mistakes

• Commingling — letting firm funds and client funds mix, even briefly.
• Paying operating expenses out of the trust account.
• Letting a client's ledger go negative (spending one client's funds on another).
• Skipping the monthly three-way reconciliation.
• Poor records for individual client balances.

How specialized bookkeeping helps

Trust accounting isn't ordinary bookkeeping. It requires per-client ledgers, careful handling of deposits and disbursements, and a reliable monthly three-way reconciliation that creates a clean audit trail. With that rhythm in place, you always know each client's balance and you can demonstrate compliance if you're ever asked.