Overview of Assets & Liabilities
The assets and liabilities ledger in Connectworks is a suite of features for recording financial transactions performed by a trust. This article gives a general overview of the Assets & Liabilities ledger, including key terminology.
Detailed user guides for the Assets & Liabilities Ledger can be found in our knowledgebase here.
How to access the assets and liabilities ledger
1. Navigate to the relevant trust in your Clients>Trusts tab and click on the trust name to enter the trust's main workspace.
2. On the left-hand column click on the Ledger tab.
Account - repository which funds may move into or out of.
Account movement - movement of funds from one Account to another.
Transaction - records an activity, involving two or more balancing Account movements.
Journal - a collection of records.
An Account is a repository that funds may move into or out of. In this sense, an Account may be:
A bank Account out of which the trust makes payments, or into which the trust receives income.
A loan Account, recording a loan the trust has received from a bank or other party.
A distribution Account, recording the distributions that have been made to a particular beneficiary.
A non-current asset, like a house, boat, or other trust property. These are treated as accounts into which funds of the trust have been moved.
An income or expense category, allowing all income or expenses relating to a particular source to be tracked.
A suspense Account, for recording any movement of funds that has not been allocated to another Account.
The Accounts>Chart of Accounts tab displays all Accounts that have been created for the trust. Accounts are grouped into categories, which you can then use as filters to review specific Account types (eg. expenses or distributions).
The suspense Account
A general ledger Journal is required to be balanced, meaning that all the Account movements declared must sum to zero. eg. When recording an expense, one debits an Account representing where the money came from (such as a bank Account or loan Account) while crediting an expense Account.
A challenge Connectworks faces is that some systems are not balanced, and simply record that the Trust has acquired an asset without recognition of how it came about acquiring that asset. Without this traceability, formulating a set of accounts or tracing gifting can be challenging. The traditional approach is to balance these movements against a suspense Account for later reconciliation. The suspense Account acts as a placeholder for movements in funds that can be dealt with at a later date (and at the very least, remain identifiable).
An Account movement is a movement of funds into or out of an Account e.g. when purchasing a property, funds are moved out of one Account (a bank Account, suspense Account, or other Account containing funds) into an Account representing the property.
The Accounts>Account Movements tab provides a full overview of all movements between the accounts you have set up. Again these movements can have filters applied to view the list by either Account categories, specific accounts or dates.
Account movements can be viewed in two ways:
1. Via the Accounts>Account movements tab (which lists all movements chronologically)
2. via locating the Transaction that the movement was a part of:
A movement into or out of one Account is balanced by a corresponding and opposite movement into or out of another Account. In this sense, all movements sum to zero. The Transaction gallery shows every movement that has been recorded.
Transactions record the financial activities that trusts engage in. Connectworks supports the below types of common trust Transaction, just click the links if you would like more details on how to record these Transaction types.
The most common method by which a Trust comes to acquire an asset is via the asset being gifted into the Trust during the settlement of the trust. This involves some party (usually the settlors of the trust) lending money to the trust, which the trust acknowledges by completing a deed of acknowledgement of debt.
After receiving the loan, the trust uses the funds to purchase an asset. Often, the asset will be owned by the settlors (for example, the settlor’s home). The settlors then periodically forgive the debt owed to them by the trust. In this way, ownership of the asset comes to be transferred from the settlors to the trust.
Trusts may also purchase assets via traditional methods. In reality, this involves moving funds from an Account owned the by trust (as the buyer) to an Account owned by the seller. This movement is balanced by transferring ownership of the asset from the seller to the buyer. Often, however, a professional trust manager may not wish to specify the accounts involved in the purchase but simply wishes to record that the purchase occurred. Here the movements can be recorded against the trust’s suspense Account.
Trusts can dispose of assets via traditional sale. Sales can be in whole or in part. The same principles as described regarding transfers of funds apply in cases of asset disposals.
Asset capital additions
Capital additions include things such as renovations or improvements to a property or other asset, purchasing additional shares in a company, or contributions to a PIE fund investment.
The value of any asset may change over time.
Debt, gifting and loan transactions
Loans to the trust (Acknowledge debt)
A trust may receive loans of funds from a bank or non-bank debt facilities. Bank loans are generally received in order to allow some asset to be acquired (e.g. a mortgage to purchase a house). A non-bank debt facility is any third-party that is not a bank. The most common third party is the settlors of the trust, though in principle it can be anyone. These loans are also received in order to facilitate the purchasing of assets.
Bank loans must be repaid, and (depending on the terms of the loan) loans from non-bank debt facilities may require to be repaid. However, as described above (and again subject to the terms of the loan), loans made by non-bank debt facilities can be forgiven.
Loans from the trust (Advance loan)
A trust may loan money to any party it chooses.
Loan repayments to the trust (Recover loan)
Where a trust has extended a loan, the party receiving the loan may be required to repay it. Repayment can be made in whole or in part.
Loan repayments from the trust (Repay loan)
As described above, bank loans must be repaid, and (depending on the terms of the loan) loans from non-bank debt facilities may require to be repaid. However, as described above (and again subject to the terms of the loan), loans made by non-bank debt facilities can be forgiven.
Forgive debt (gifting)
Where a third-party has extended a loan to a trust, the third party may choose from time to time to forgive the loan, in whole or in part. This forgiveness is performed via the third party completing a deed of forgiveness of debt. Connectworks has various precedents available to generate the required documents for gifting.
Capital & asset distributions
A trust may distribute assets to any beneficiary of the trust. This involves a simple movement from an Account representing an asset of the trust, to an Account representing the particular beneficiary. The beneficiary Account accumulates the total distributions made to that beneficiary over time. Capital distributions follow the same principles as per asset distributions, it simply that a capital distribution stipulates that the asset being distributed is capital (cash).
Income distributions follow the same principles as per capital distributions, it simply being that an income distribution stipulates that the capital being distributed was acquired as income of the trust. (There is also an additional difference in how tax is treated. Where income is distributed, all income tax requirements ‘look through’ the trust, and fall instead on the beneficiary.)
Income & expenses
A trust may own an income-generating asset (for example, a rental property). When recording income, one debits an income category Account representing where the money came from (the income source) while crediting a bank Account. The income category Account accumulates the total payments made against the income category.
Any Transaction may involve additional expenses being incurred, beyond the drawdown of funds involved in the core activity described by the Transaction. When recording an expense, one debits an Account representing where the money came from (such as a bank Account or loan Account) while crediting an expense Account (that accumulates the total payments made against the expense category represented by that Account).
Transfers between accounts
Funds may be transferred between accounts, outside of any specific activity or Transaction (e.g. as a bank transfer between the trust’s bank accounts).
Account opening balances
Because all transactions must be balanced, the opening of a new Account (where that Account has an opening balance) must be balanced by a corresponding Account movement. In Connectworks, the opening balance of an Account is balanced via a debit to the trust’s suspense Account.
A variety of reports are available to download from the Reports tab.
Place a tick on the type of report you would like to download on the left-hand side of the page
Click on the "I would like to..." and select the Export results button to download a .csv (excel) file.