Trust Accounting: General Journal Entries for expenses using accrual accounting?
For trust accounting (IOLTA or otherwise), what are the General Journal Entries to recognize an expense, create an accounts payable for the expense, and pay for the expense?
My customer has a Client Trust Account (asset) and a Client Trust Liability Account (other current liability). When I record a cash disbursement to a third party, I debit (decrease) the Client Trust Liability Account and credit (decrease) the Trust Account. But before the cash disbursement, I must first recognize the liability for the expense. I want to debit (increase) the Messenger Fee Expense account for example, and credit (increase) an accounts payable account. But now I'm stuck because my first entries do not affect my Accounts Payable account that recognizes the expense (matching principle). Where am I going wrong here? Am I supposed to have three journal entries? What are they?
1. ENTER THE BILL
Debit: Expense $100
Credit: Client’s A/P $100
2. PAY THE BILL
Debit: Client Trust Liability $100
Credit: Client Trust Balance $100
3. ENTER A CREDIT FOR EACH PAID BILL (USING THE A/P OFFSET ACCOUNT) AND APPLY THE CREDIT TO THE BILL
Debit: Client's A/P $100
Credit: A/P Offset $100
Is this right? And if so, does this comply with GAAP or any official statement from FASB?
Anyone know how to get LauraD's take on this? Thanks.