Fwd: Re: Newbie question - Trust Account

[Benjamin]

----------  Forwarded Message  ----------

Subject: Re: Newbie question - Trust Account
Date: Fri, 27 Feb 2004 09:13 pm
From: Benjamin <benjamincarlyle at optusnet.com.au>
To: gnucash-user at lists.gnucash.org

On Fri, 27 Feb 2004 04:44 am, cwchia at hotpop.com wrote:
> The laws here requires us to keep accounts for money received from client
> and be placed in client's accouts. I believe that is referred to as 'trust
> accounts' by the American. I've tried to look for any tutorial, template of
> chart of accounts or help file pertaining to this type of accounts but to
> na avail. Please enlighten me on how to set up this type of account.

I am not an accountant, and I'm definitely not an accountant in your legal
jurisdiction. That said, I don't even understand your question :)  ... so
I'll try to help.

The first question is "what are you trying to do?". Who are your clients? Are
you a lawyer? Are you being payed for services you are yet to render, or are
you just keeping the money on behalf of your clients?

If my understanding of what you're doing is correct, you're setting up a
 trust account for your clients where they give you a bunch of money and you
 have to give it back to them sometime later. In the mean-time you might
 invest it, and I guess you would have to give them the money back at the
 end.

The first answer I would give you is "go talk to your accountant". The second
answer I would give is that if its not your money you might be safest
creating a whole new gnucash account for them.. but I'm not an accountant.
The third answer I would give is that at the very least you must account for
them giving you the money. It's not your money, but it's in your possession:
1) Create a liability account for your client
2) Record the deposit into your bank account as a transfer from this
 liability account.

e.g. record a deposit of $10000 to Current Assets:Cash at Bank from
Liabilities:Trusts:Big Bird

As to what you do then, it probably depends on whether you're keeping your
customer's accounts in with your own or not. No doubt if you're a lawyer
you'll be reasonably aware of your legal obligations in the matter as to what
you invest in and who bears the cost of a bad investment vs who bears the
benefit of a good one. In fact, I'd be pretty sure that a trust needs to keep
its own taxation records so I'd be pretty sure you need a separate gnucash
file for them. If that's the case you probably don't want it showing up in
your file at all. Just deposit their money directly into an account in the
trust's name, not into your account.

So... here's my second attempt, assuming that the trust has completely
separate accounting records to your own records:

1) Create a new gnucash file
2) Create an Owner's equity account that shows the initial deposit (this
 isn't income, just Owner's equity) as a transfer to whatever asset the money
 is put into.
3) Whenever the owner draws money from the trust, record it under a separate
Owner's equity account. Whenever units of investment are bought or sold do
whatever's appropriate... and for that matter, just hire a damn accountant
who knows about this! :) Investments attract tax, and wherever there's tax
you need to either really know what you're doing or you need to hire a damn
accountant. If you don't you're probably not fulfilling your legal
obligations as manager of the trust.

You see... it's not an easy question to answer :)
Bite the bullet and hire someone in your legal jurisdiction to tell you how
 to set the whole thing up. Every year, at tax time, hire them again to do
 the taxes.

Benjamin

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