Example of the mapping process for account line items in a trust:
Trust Accounting Principles
Getting an accurate trust tax return starts with the analogy, ‘junk in, junk out’. So your first step is to get your accounts in order.
You can do this by following some simple steps as laid out in our Help Guide for Trusts (See below) and our Best Practice Accounting Guide.
The guide will provide you with a helpful set of instructions for dealing with all manner of accounting complexities including handling depreciation to recording tax liabilities correctly.
Using LodgeiT, easily import accounts from any popular accounting software. (If you have Xero, QuickBooks Online or MYOB Account Right Live, we make this process fully automatic).
Once your accounts have been imported, you will be prompted to deal with any accounts that LodgeiT finds ambiguous. i.e. you might have a line item in the liabilities section of your source accounting system balance sheet named Loan.
You will be prompted to map the account to make it more meaningful to LodgeiT i.e. is it a loan to a company, a partnership or another individual? Then is the loan from a related party or not?
So you should pay attention to the names of the accounts that you create in your source accounting system i.e. instead of just Loan, add the name of who the loan is from, say Loan – XYZ Pty Ltd if it is a loan to a company of the name XYZ
Balance sheet perspective of equity of a trust:
In your source accounting system, you should create accounts for beneficiaries in the liability section.
You have two options
1
The first option is to simply have a single line item for each trust beneficiary i.e. Beneficiary loan – Andrew or Beneficiary loan: Andrew.
2
The second option is to create sub accounts for each beneficiary in order to segregate transactions by way of their nature, typically along the lines of beneficiary contributions (capital Introduced), beneficiary share of profits, and payments for the benefit of a beneficiary (drawings).
Representing the beneficiary loan account – Two different methods :
Bear in mind that most accounting software is not designed to roll the beneficiary loan account sub-ledgers and therefore you will be required to post an additional set of manual journal transactions to close out the balance sheet at the end of any given reporting period.
Representing the beneficiary loan account – Two different methods:
Bear in mind that most accounting software is not designed to roll the beneficiary loan account sub-ledgers and therefore you will be required to post an additional set of manual journal transactions to close out the balance sheet at the end of any given reporting period.
Understanding Equity in non-rolling balance sheets:
Now for our trust, we need to allocate profits to the respective beneficiaries in accordance with the trust distribution minutes using the following journal at the end of any given reporting period i.e. financial year.
Journal to properly reflect beneficiary loan balance adjustment new reporting period :
The alternative is quite simple. Don’t use sub-accounts. Just report all transactions through the single account for the beneficiary in order to avoid the requirement to handle closing period adjustments.
To gain a better perspective of trust accounting, you may wish to watch our trust accounting video series.
LodgeiT provides special purpose accounts that allow you to easily reflect the primary trust beneficiary accounts including profit, drawings / maintenance payments and capital / funds introduced.
Cloud-based accounting systems including Xero, MYOB Account Right Live & QuickBooks Online are designed for profits to accumulate and reflect in the equity section. The following views of trial balance & equity sections shows only the relevant parts.
Journal to properly reflect beneficiary loan balance adjustment new reporting period:
The alternative is quite simple. Don’t use sub-accounts. Just report all transactions through the single account for the beneficiary in order to avoid the requirement to handle closing period adjustments.
To gain a better perspective of trust accounting, you may wish to watch our trust accounting video series.
LodgeiT provides special purpose accounts that allow you to easily reflect the primary trust beneficiary accounts including profit, drawings / maintenance payments and capital / funds introduced.
Cloud-based accounting systems including Xero, MYOB Account Right Live & QuickBooks Online are designed for profits to accumulate and reflect in the equity section. The following views of trial balance & equity sections shows only the relevant parts.
Profit Attribution for trust :
