In a formal probate process, accurate bookkeeping is crucial. As an executor, you must provide a final accounting of the estate and have it approved by all the beneficiaries. Since, in some states, the formal probate process can take up to a year to close an estate, sloppy bookkeeping can hold up the final accounting stage if a discrepancy occurs. Therefore, to avoid holdups, you must develop an accurate bookkeeping system.

The Components of an Accurate Bookkeeping System

Develop a bookkeeping system that makes sense to you, and use technology, if possible. There are no rules on how to set up a bookkeeping system, but make sure the bookkeeping system you create has the following components:

• Track the transactions by month. It’s much easier tracking transactions in smaller time intervals. If you wait until the final accounting to organize the transactions, you’re asking for trouble.

• Set up a reconciliation system where you can compare transactions for a given month. This way, if there is a discrepancy in a given month, you can solve it then, not a year later.

Setting Up a Reliable Bookkeeping System

The following are some suggestions in setting up a reliable bookkeeping system:

1. Keep a journal of all your activity for the estate. Note the date, time, and the task completed. If you have a problem to solve, this journal will serve as a reference.
2. Keep a manual record of all the transactions in the estate bank account. Buy an analysis pad to track transactions by the month. Each month should have its own page listing the income on the top half of the page and the expenses on the bottom half of the page. On the first day of the new month, calculate a total for the income and expenses of the previous month and use the totals as the beginning balance for the new month.
3. Keep an automated record of all the transactions in the estate bank account. If you have software such as Quicken or Excel, you can download transactions from the bank into these programs. On the first day of the new month, download transactions from the previous month. When the download is complete, you can print out a report by the month subtotaled by income and expenses. If you don’t have the above mentioned software, you can simply use the bank statements.
4. Reconcile the manual record with the automated record. If there is a discrepancy, it will be easy to track because the transaction happened in that month. Frequently, the discrepancy is a missing fee you forgot to enter into the manual record that appeared in the automated record. Once the balances match, staple each record together and you’re on to the next month.

This type of system should work for most transactions. However, keep an eye out for combined transactions.

Look Out for Combined Transactions

Here are a couple common transactions that could trip up any bookkeeping system:

• A sale of a home. Usually, the proceeds you receive from a sale of a home has the expenses of the sale deducted from the check. It’s perfectly normal to deposit that check into the estate account without recording the expenses. So, the income side of the transaction will be correct. However, you will be missing expenses that will cause a discrepancy in the final accounting. Make sure you enter the deducted expenses from the proceeds of the sale into the manual record and the automated record.

• Completing a deposit of multiple checks on one deposit slip. When you deposit multiple checks on one deposit slip you will receive a receipt for the total of all those checks. In the final accounting, each type of income is reported separately. So, if you deposit multiple checks consisting of a rent check, dividend check, and a check you received from closing an account, that’s three separate categories of income in the final accounting. You must record each check separately either in your journal or the manual record so you will have a reference as to what income type you received for each check. This will avoid confusion in the final accounting.

Conclusion

In the end, with a good record keeping system as described in the article Good Record Keeping: Crucial for an Executor, and an accurate bookkeeping system, you will be able to work efficiently to close the estate in a timely manner.

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