All law firms operate on two bank accounts; a general account and a trust account. The general account is where all of the firm’s operating expenses come out of. The trust account is where client’s retainers are paid to. When an account is processed on your matter, your account is paid from the trust account. If you do not have enough in the trust account to cover your outstanding balance, the balance that is not paid to trust is noted as an “A/R” and when you pay off this balance it is paid directly to the general account.
For example:
On April 25, John Doe’s account was processed. On that day, his total amount owing came to $542.08. John Doe had $350.60 remaining in trust. John’s trust was applied to his outstanding balance and there remained an A/R of $191.48.
On April 26, John Doe paid $500.00 to the firm. In this circumstance, $191.48 would first be paid to the general account to pay off John’s outstanding balance and $308.52 would be paid to the firm’s trust account to support future work.
On May 8, John Doe received another statement. On this day, he would note a payment of $308.52 on his trust ledger and a payment of $191.48 would be noted under “prior balance” and “payment and adjustments”.
