National Real Estate Exam (PSI)Practice of Real EstateMedium
A broker's trust account ledger shows more money than the total of all clients' individual balances combined. This discrepancy most likely indicates:
- AThe broker has commingled personal funds with client funds
- BThe broker has committed conversion
- CThe broker has properly reconciled the account
- DThe account has too little in reserve
Show answer & explanationAnswer & explanation
Correct answer: A. The broker has commingled personal funds with client funds
When the trust account balance exceeds the sum of individual client ledgers, it typically indicates that non-client funds, such as the broker's own money, have been improperly mixed into the account, which is commingling.
Why the other options are wrong
- B. Conversion involves misappropriating funds for personal use, which would show a shortage, not an excess.
- C. Proper reconciliation would show the trust account balance matching the sum of client ledgers.
- D. A reserve shortage would show the account balance is too low, not too high.
Trust Account Reconciliation
The process of verifying that the trust account balance matches the sum of all individual client ledger balances.
- Balance higher than ledgers suggests commingling of outside funds
- Balance lower than ledgers suggests conversion or shortage
- Regular reconciliation is required to detect discrepancies
Memory trick: Too much money in the pot means something outside got poured in.