How to Record IOLTA Interest (Remitted to State Bar)
Accounting for interest earned on Trust accounts, which is contractually required to be sent to the State Bar to fund legal aid.
| Account Name | Type | Debit ($) | Credit ($) |
|---|---|---|---|
| Restricted Cash - Client Trust Account | Asset (+) | 12.50 | - |
| Interest Payable to State Bar (IOLTA) | Liability (+) | - | 12.50 |
| Interest Payable to State Bar (IOLTA) | Liability (-) | 12.50 | - |
| Restricted Cash - Client Trust Account | Asset (-) | - | 12.50 |
💡 Accountant's Note
IOLTA (Interest on Lawyers' Trust Accounts) accounts are unique. The interest earned does not belong to the lawyer or the client; it belongs to the state's legal aid foundation. While the bank usually handles this automatically, the firm should record the 'In and Out' to ensure the Trust bank reconciliation matches the bank statement exactly.
Practitioner & Systems Framework
💻 ERP Architecture
Many firms treat this as a 'Non-Posting' or 'Clearing' event, but it is best practice to record it to ensure the book balance of the trust account matches the bank statement to the penny.
⚠️ Audit Flags
Recording IOLTA interest as 'Firm Income.' This is a violation of state bar rules and tax law.
📄 Required Documentation
Monthly bank statement showing the interest credit and the immediate debit/remittance to the Bar foundation.
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