The three balances
The journal is the chronological record of every deposit and disbursement in the account. The ledgers break that same money down by who it belongs to — one ledger per transaction or beneficiary. The bank statement is the outside world's view.
In a healthy escrow account all three agree, and the ledger detail explains exactly whose money makes up the balance. A shortage means someone's funds paid for someone else's disbursement; an overage means money is sitting in the account that is not accounted for. Both are findings.
- Bank statement balance, adjusted for deposits and items in transit
- Journal running balance for the account
- Sum of all open beneficiary ledgers
A monthly routine that holds up
Do it on a fixed date each month, on the statement, by someone who writes their name on the result. Record the month, statement date, bank balance, journal balance, ledger total, the variance, who reconciled it, when, and any notes explaining reconciling items.
Keep the reconciliation itself as a record. The history of reconciliations is evidence of diligent self-regulation, and it makes an unreconciled month visible immediately rather than a year later.
What causes variances
Most variances are boring: a deposit in transit at month end, a check that has not cleared, a bank fee charged to the wrong account, or a disbursement recorded on the wrong ledger. Chase each one to a specific cause and write the cause down.
The ones that are not boring — a disbursement without a ledger, a deposit that never made it, an unexplained shortage — need immediate attention from the qualifying broker, who is ultimately responsible for the account.
Documentation that supports the ledger
Every deposit should have a bank-validated receipt or a copy of the check or wire confirmation attached to the record. Every disbursement should record its basis — closing, mutual written agreement, or court order — and its date, so a seven-business-day disbursement window can be verified without reconstructing the file.
Never let operating funds and trust funds mix, in either direction. Paying a company expense out of escrow and 'putting it back' is not a bookkeeping error, it is a violation.