How to Record Interest on a Client-Specific (Non-IOLTA) Trust Account
Accounting for interest earned on a large, dedicated trust account where the interest belongs to the client, not the State Bar.
| Account Name | Type | Debit ($) | Credit ($) |
|---|---|---|---|
| Restricted Cash - Client Trust Account | Asset (+) | 250.00 | - |
| Client Trust Liability | Liability (+) | - | 250.00 |
💡 Accountant's Note
For very large settlements or long-running cases, a firm may open a 'Separate Interest-Bearing Account' for a specific client. Unlike IOLTA (where interest goes to the bar), this interest belongs to the client. It increases the cash held in trust and increases the amount the firm is obligated to eventually return or bill to that client.
Practitioner & Systems Framework
💻 ERP Architecture
This interest must be credited to that specific client's matter ledger. At year-end, the firm must ensure the bank issues a 1099-INT to the client, not the firm, for this interest.
⚠️ Audit Flags
Commingling interest. If this interest is accidentally swept into the firm's operating income, it is a misappropriation of client funds.
📄 Required Documentation
Bank statement for the dedicated account and the written agreement specifying an interest-bearing account for the client.
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Expert Analysis by Qusai Ahmad
General Accountant Supervisor & IFRS Specialist
Specialized in SAP GUI automation and Middle Eastern tax compliance. Building digital tools for the next generation of finance leaders.
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