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How To Account for Interest in IOLTA

Introduction

IOLTA accounts typically earn interest, which is then withdrawn and passed on to the state’s IOLTA program. Though the interest comes in and out and therefore does not accumulate, it is important to track these transactions so that you can account for all transactions and properly reconcile your bank account.

Before Getting Started

You will want to make sure that you’ve allowed interest for your IOLTA account(s) in CosmoLex. To do this, follow the steps below:

1. Click the Accounting Tab

2. From the Bank tab, select the desired bank and click  Edit (you can change these settings while adding a new bank as well)

3. In the Edit (or Add) Bank pop-up screen, under Advanced Settings, check the box for “Interest Allowed”

4. When ready, click Save.

Setting up an “Interest” Matter

All funds within your trust account, need to be attributed to a matter. However, interest should never be received/withdrawn from a client’s ledger. For that reason, you want to set up an administrative matter to track these transactions. 

To do so, first add a new matter for this purpose, and name it as you wish. We recommend naming it  “IOLTA Interest” to make its purpose clear. If you have more than one trust bank, we recommend that you create a matter to be associated with each trust account. In this case, you can add the bank name to the matter name as well, i.e. “IOLTA Interest – TD Bank.”

Don’t know how to add a matter? Learn more here.

Receiving IOLTA Interest

When you receive interest in your IOLTA account, you will want to add that entry under the “IOLTA Interest” matter that you created. To do so, follow these instructions:

1. From the Matters Tab, click once to select the matter (remember, use your administrative matter(s) for IOLTA interest tracking)

2. Click Trust Transaction Deposit

3. Complete the “Matter’s Trust Deposit” Screen

  • Select the date interest was posted
  • Enter the Amount
  • Select Transaction Type as “Interest”
  • Choose “Bank Operation” as the Method
  • Enter bank’s name under Payor
  • Enter any memo notes that are needed

4. When ready, click Save

You have successfully recorded your interest deposits and the matter’s ledger balance will be updated.

Withdrawing IOLTA Interest

When you’re ready to withdraw the interest, you’ll want to add that entry to the administrative interest matter you created. To do so, follow these instructions:

1. From the Matters Tab, click once to select the matter (remember, use your administrative matter(s) for IOLTA interest tracking)

2. Click Trust Transaction Withdrawal

3. Complete the “Matter’s Trust Withdrawal” screen

  • Select date of interest withdrawal
  • Enter the total amount
  • Select Transaction Type as “Adjustment Out”
  • Select “Internal Operation” as Method
  • Enter the correct payee under From
  • Enter any memo notes that are needed

By default, our system does not allow overdrafts of a ledger so you will be blocked from withdrawing more interest than what was received.

All set! The ledger for your administrative matter will be updated. 

By following these steps, you’ve appropriately tracked your interest and now your reconciliations will include these transactions, making reconciliation that much easier for you!

Updated on August 24, 2018

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