Trust Accounting Procedures

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Trust accounting procedures help bookkeepers record transactions accurately.
Trust accounting procedures help bookkeepers record transactions accurately. (Image: Accounting and finance image by MAXFX from <a href='http://www.fotolia.com'>Fotolia.com</a>)

A trust is a legal arrangement in which one person, the trustee, agrees to manage financial assets on behalf of another person, the beneficiary. Trust accounting procedures help trustees accurately record operating transactions in accordance with generally accepted accounting principles (GAAP) and generally accepted government auditing standards (GAGAS).

Asset Recording

An asset is an economic resource that a trust owns. Trust assets are usually investment-related, such as property, stocks and bonds. A short-term asset is a resource that a trustee intends to use in 12 months or less and it may be considered accounts receivable or cash.

A long-tern asset is a resource that a trustee intends to use for more than a year, such as land and long-term investments. A trust accountant debits an asset account to increase its amount and debits it to reduce the account balance.

Liability Recording

A trust accounting manager records liabilities at current values. A liability is a debt that a trust must repay when it is due. A trust's debt also can be a financial promise, other than a loan, that a trustee must honor on time.

Examples of trust liabilities include short-term debts, such as accounts payable, taxes due and long-term debts, such as notes payable and deferred tax liabilities. A trust bookkeeper credits a liability account to increase its amount and debits it to reduce the account balance.

Expense Recording

An expense is a cost or loss that a trustee incurs in managing investment assets. Examples of trust expense items include salaries, taxes, rent, utilities and office supplies. Proper recording of trust expenses is important to prevent significant operating losses resulting from fraud, error and technological malfunction.

A trust accountant debits an expense account to increase its amount and credits it to reduce the account balance.

Revenue Recording

United States GAGAS and GAAP require a trust accounting manager to record a revenue item at market value. Revenue is income the trust assets generate in the short term and long term. Examples of revenue items include interest income, short-term investment gains, long-term trading profits and commissions earned. A trust bookkeeper credits a revenue account to increase its amount and debits it to reduce the account balance.

Trust Ledger Reporting

A trust accountant prepares periodic ledger reports, or financial statements, to help beneficiaries and regulators evaluate trust asset performance in the short term and the long term. U.S. GAAP, GAGAS and international financial reporting standards require a trust accountant to prepare accurate and complete ledger reports.

These statements include a balance sheet, otherwise known as statement of financial position, statement of profit and loss, also called P and L or statement of income, statement of cash flows and statement of trust beneficiary equity.

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