CPPREP4005 - Prepare to work with real estate trust accounts

2900 words

CPPREP4005 - Prepare to work with real estate trust accounts (Release 1)
Assessment Questions
CPPREP4005 - Prepare to work with real estate trust accounts (Release 1)

What you need to do:
Answer the questions below by writing in the space provided.
You are required to answer all questions correctly. If incorrect answers are provided, you will
receive feedback in your ‘grades’ section and you will be requiring to resubmit your work
What you will need:
Research materials such as books, internet, magazines, workplace documentation etc. Access
to legislative and regulatory documentation.
What you need to submit:
Your answers to these questions.
CPPREP4005 - Prepare to work with real estate trust accounts (Release 1)

Assessment Questions
Question 1
What is the name of the relevant legislation (including sections if applicable) in your state/territory
that outlines the requirements for operating a real estate trust account?
The Real Estate and Business Agents Act 1978 is the relevant legislation that outlines the
requirements for operating a real estate trust account in Australia. The legislation allows
individuals to not only open a real estate trust account, but also manage it. It outlines the various
rules and regulations that are associated with the same (Aalbers, 2019). The licensing device
administered with the aid of Consumer Protection ensures simplest certainly certified people are
allowed to operate in the actual property industry. It requires applicants to have positive
qualifications, enjoy, and be a person of desirable man or woman and fame.
Question 2
List 5 examples of transactions that would NOT be entered into a trust account accounting
system. (e.g. payment of wages to office staff).
Transactions that would not be entered into a trust account accounting system include payment
of wages to office staff, any deficiency that was accidental or caused mainly by an error by an
authorized financial institution, any old transactions etc. also, if there is any transaction that is
undertaken for the trustee is also not entered in to a trust account (Boyd, 2020). Therefore, these
are some transactions that should not be include as they can affect the overall system of
accounting.
Question 3
Complete the following table.
Give (2) reasons that inaccuracies/discrepancies can occur in trust accounts and a treatment to
address these.
Source of Discrepancy Treatment Strategy to Address the Discrepancy
E.g. Dishonoured cheque  Ensure that a reversal is completed in the cashbook
 Do not accept cheques as method of payment
Misallocating Trust Funds One should never withdraw cash from their trust fund as it
can result into either a loss of license or heavy penalties. A
CPPREP4005 - Prepare to work with real estate trust accounts (Release 1)

legal action can also be taken for treating the discrepancy.
Lack of Full use of trust
accounting software
Make full use of the software in order to stay competitive
within the real estate industry. Training sessions as well as
online webinars can also be conducted (Davidson, 2017). This
will help in eliminating the respective discrepancy and ensure
a smooth function. It will also help in gaining a competitive
advantage.
Question 4
List (4) transactions you are likely to be handling on behalf of your clients / Principals and
group the transactions according to whether they are a receipt or a payment.
Receipts Payments
e.g. Rent e.g. Rent Settlement
Cash received from debtors Purchase fixed assets from a supplier
Commission received Investment in other business
Income from interest Paying an employee
Income from dividend Purchasing shares
Question 5
What is the purpose of trust accounts in real estate?
The main purpose of trust accounts is to help individuals avoid the costly probate process.
This is because a trust account is basically a legal arrangement via which funds are held by
a trustee for the primary benefit of the beneficiary (Duska, Duska and Kury, 2018). The main
purpose of trust accounts in real estate is to protect all individuals that are involved in a
real estate transaction. The accounts are governed heavily by different legislations and a
failure can lead to heavy penalties. Therefore, a trust account helps in ensuring that best
trust accounting is practiced. This is because it helps in ensuring smooth transactions.
Question 6
What are the requirements under the legislation in relation to being able to operate a real
estate trust account?
In order to operate a real estate trust account, under the PSAA Regulations 2003, the
CPPREP4005 - Prepare to work with real estate trust accounts (Release 1)

licensee should ensure that the entries match with each other before a new transaction
entry is made in the ledger. It is also required to ensure that the program does bot have
the capability to accept a transaction that could result in a debit balance. Each page in the
report should be numbered in a sequential manner (Ebisike, 2019). Also, whenever money
is received from a client, a receipt is required to be issued. Lastly, every transaction that
takes place should be recorded immediately in a sequence.
Question 7
What is the difference between a trust account and a general account?
A trust account is a financial account that is opened by a person and operated by a
trustee primarily for the benefit of a third party. On the other hand, a general account is
where an insurer deposits premium that are earned from policies. In a general account,
the assets held are owned by the general account. The beneficiary in case of a trust
account can either be an individual or a group of people. There are different types of trust
accounts, like an escrow account and revocable living trust (Friedman, Harris and Lindeman,
2017). Whereas, types of general account are debit purchase and credit purchase account,
debit expenses account etc. A agree with account is a felony association thru which funds
or assets are held through a 3rd birthday celebration (the trustee) for the gain of another
birthday party (the beneficiary). The beneficiary may be an character or a set. The writer
of the trust is called a grantor or settler.
Question 8
Explain the roles and responsibilities of the following real estate personnel regarding trust
account activities.
Trust Account Activity Personnel Responsible
Receipting rent from tenant Landlord or owner is responsible for receipting
rent from the tenant.
End of month disbursement of funds to the
landlord
The tenant is responsible for the end of month
disbursement of funds to the landlord.
Receipting deposit from purchaser The agent has the responsibility of receipting
deposit from the purchaser.
Problem with trust account If there is any problem with the trust account,
the trustee or the person who puts assets into
CPPREP4005 - Prepare to work with real estate trust accounts (Release 1)

the account should be contacted.
Issue cheque for balance deposit at
settlement
A drawer is responsible for issuing a cheque
for balance deposit at settlement.
Question 9
Refer to the relevant legislation and outline the responsibilities of the licensee relating to
account transactions and audits. Refer to the correct section of legislation as part of your
answer.
The licensee is responsible for monitoring and supervising their staff and making sure that
they make effective use of the office procedures as well as systems. As stated by PSAA Act
2004, the licensee has the responsibility of informing the financial institution in writing
that the business will be opening a Trust Account (McIntosh, Fitzgerald and Kirk, 2017). It is
important to use the words. ‘Trust Account’ on all trust books as well as records. While
opening a trust account, the licensee is also required to advise the concerned financial
institution that the account has to be established following the right legislation for the
state.
The licensee ought to tell the financial group in writing that the enterprise is
commencing a Trust Account. The phrases “Trust Account’ should be protected as part of
the account name and on all related believe books and data. Some agents, at the same
time as seemingly buying and selling below one banner, might also have several
trading and business names –in such instances each separate felony entity is needed to
function their very own accept as true with account. In all cases, the name of the account
MUST consist of the phrases “Trust Account”, as properly as the registered enterprise
name of the enterprise. And, all documents relating to the trust account MUST include
the words “Trust Account”.
Question 10
Read the following case and explain the impacts of trust inaccuracies on clients and agency.
Trust inaccuracies can have a negative impact on the clients as well as agency. Building a
trust relationship is important. Agencies and marketers usually do a good task of handling
CPPREP4005 - Prepare to work with real estate trust accounts (Release 1)
The OFT received a complaint in March 2018 alleging irregularities in the agency’s
corporate trust account. The OFT undertook a compliance check at the agency’s
business address in March 2018, which revealed the agency’s then Principal
Licensee had withdrawn a total of $121,000 on eleven separate occasions without
authorisation.
The then Principal Licensee of the agency cooperated with the OFT and admitted
the funds transferred from the trust account were never intended for personal gain,
but were used as a ‘short term loan’ to cover business expenses until money could
be returned to the trust account.

what is quantifiable (price range, hours, marketing campaign results, ROI, etc.) however
commonly overlook the most vital issue of a relationship: qualifying, in a radical fashion,
the extent of consider among the events (Minnaar and et. al., 2017). Trust creates speed
and efficiency, even as distrust is a “burdensome tax”. Trust ought to be formally
measured and controlled by both parties.
Question 11
In 200 – 300 words, outline the monthly trust accounting processes required to be
undertaken by the real estate agency (including the applicable timeframes) in line with
legislation requirements in your state or territory.
The different trust accounting processes that are required to be undertaken by the real estate
agency include tracking all deposits as well as disbursements that are made through the account,
an account journal for each of the accounts and tracking transaction through each of the. The
processes also include a monthly reconciliation of the account and maintaining a detailed ledger
wherein every monetary transaction is noted for each client. These processes are undertaken
each month by the real estate agency. It is important to make sure that the different processes
are in accordance with the legislation requirements. This is because it helps in practising each of
the processes in an effective manner. Account reconciliation refers to the process of comparing
the internal financial records to the monthly statements from different external sources. These
can include banks, credit card companies or any other institute of finance. A monthly conciliation
helps in identifying any unnecessary transactions that might have been done due to fraud or any
errors of accounting. Also, any kind of inefficiencies can also be identified with the help of this
process. On the other hand, tracking all disbursements as well as deposits can assist in identifying
any mistakes in the account.
Question 12
List the name(s) and explain the different types trust account(s) that can be used in real
estate in your state/territory?
Revocable Trust Account – It is a trust that has a clause that gives a right to the settler to change
the agreement or terminate the entire trust. A revocable agree with account is a deposit account
owned via one or greater people that designates one or greater beneficiaries who will acquire the
deposits upon the loss of life of the owner(s). A revocable trust may be revoked, terminated or
CPPREP4005 - Prepare to work with real estate trust accounts (Release 1)
The agency’s clients suffered no loss as a result of the trust account

changed at any time, on the discretion of the proprietor(s).
Living Trust Account – This type of account is a trust that is enforceable during the lifetime of the
settler, who is the creator of the trust. It is a written criminal file through which assets are located
into a accept as true with in your benefit in the course of your lifetime and then transferred to
designated beneficiaries at your demise by means of your chosen consultant, known as a
"successor trustee."
Irrevocable Trust Account – Under this type of trust account, there is a restriction to make any
changes to the agreement on the settler. He/she can also not terminate the agreement if they
want. An irrevocable consider account is a deposit account titled in the name of an irrevocable
agree with, for which the proprietor (grantor/settlor/trustor) contributes deposits or different
belongings to the agree with, but gives up all energy to cancel or trade the agree with.
Testamentary Trust Account – This type of trust is enforceable after the death of the settler.
Major blessings of a testamentary accept as true with encompass the capacity to shield property
and to likely reduce tax paid by the beneficiaries from earnings earned from their
inheritance – supplying an extra level of flexibleness and manipulate over the distribution
of assets to beneficiaries.
Question 13
What processes need to be implemented and authorities notified of discrepancies in trust
accounting?
Auditing should be implemented in case of discrepancies in trust accounting. This is because it
helps in identifying any mistakes during the transactions that may take place. This can affect the
overall process of accounting, so it is important to carry out the process of auditing (Appelbaum
and Smith, 2018). The relevant authorities that need to be notified of discrepancies in trust
accounting can include agency principal, office manager, the licensed real estate agent as well as
the regulation authorities.
Question 14
What security arrangements need to be in place for trust accounts?
There are certain security arrangements that need to be in place for trust accounts. They can
include backup as well as physical and electronic storage of trust account records. This is
important as it helps in keeping all the records related of transaction safe and secure from any
kind of misuse or theft. Keeping a trust account safe includes good business practices within the
CPPREP4005 - Prepare to work with real estate trust accounts (Release 1)

agency as well as understanding the associated risks.
Question 15
What are (3) examples of trust records?
Trust records as well as documents that are maintained include a record of the amount of
money that is either received for or on behalf of another person. Trust receipt books
register and trust account journals can also be cited as examples of trust records. It is
usually recommended to keep a physical backup copy of these records (Berry and Guinan,
2019). This is because it enables the agent to have access to them when there is a
requirement. The records can be retained for a minimum of six years starting from the
day the money was received.
Question 16
What are the requirements under the legislation relating to the electronic/computer based
accounting systems. As part of your answer identify the section of the legislation and the
specific requirements. Any information direction for the legislation can be copy and pasted
as part of your answer.
Under the legislation relating to electronic or computer-based accounting systems,
software should be used as they allow a better management of the trust accounts as well
as their records (Bright, Connors and Grice, 2019). Also, a copy of the records can be kept in
order to make sure that they are always accessible and that there is no chance of misuse
or theft of the same.
Question 17
In 25-100 words, explain what role will you be going into and what are the legislative
requirements/limitation regarding your involvement in trust account activities.
I will be going into the role of a licensee and will have certain responsibilities to my
disposal. Before opening a trust account, I will have to ensure that the financial institution
is authorized by the Office of Fair Trading. I will also have the responsibility of advising the
financial institution that the trust account has to be established being in accordance with
the appropriate legislation that is meant for the state (Cortesão, 2017). As a licensee, it is
CPPREP4005 - Prepare to work with real estate trust accounts (Release 1)

important for me to hold a clients’ funds in a trust account.
Question 18
What are the legislative requirements pertaining to;
a) Issuing receipts
The client agent must issue a receipt from the Trust receipt book once the money is received.
Also, is important for each of the receipt to be issues in a numerical way and information that
should be included on the receipt includes date of issue, the name of the licensee, receipt
number, the words “Trust Account” and the reason it was received.
b) Banking of trust money.
As far as banking of trust money is concerned, all of the payments that are made from a trust
account should only be made by electronic transfer or cheque. Cash payments are not allowed
under any circumstances.
Question 19
What is the name of a software package that can be utilised for trust accounting and what is
its function/purpose?
Clio is a software package that can be used for trust accounting as it helps in managing
the law firm from anywhere and at any time (Johed and Catasús, 2018). The software is
basically for banks because it allows billing, invoicing as well as time tracking. The main
function of the software is to create operating as well as trust accounts as per the
requirement of legal industry regulators. The software package, Clio also ensures if all
transactions are related to booth these accounts or not. It is not only easy-to-use, but
secure as well and thus, allows managing the accounts easily.
Question 20
In 50-100 words explain the reason behind conducting internal and external trust account
audits.
It is very important to conduct both internal as well as external trust account audits for
trust accounts. This is because they prevent any kind of misuse of the money or theft.
CPPREP4005 - Prepare to work with real estate trust accounts (Release 1)

Internal and external audits are conducted in order to identify any fraud issues that might
take place and also, learn how to improve the various policies and procedures. Not only
this, an internal audit can allow a company to identify opportunities that can be utilized.
On the other hand, an external audit is conducted to provide transparency to the firm’s
shareholders that all of the company’s processes are run smoothly.
Question 21
What are at least (2) methods in which trust moneys can be provided/deposited into the trust
account?
There are many ways of depositing the trust money into the trust account, like all of the deposits
that are made in to the trust account of a licensee, have to be made using the trust deposit book
which shows the details of the deposit. The trust money can also be deposited with the help of a
cheque, details of which must be entered in a cashbook.
Question 22
What are the (2) ways that trust monies can be disbursed out of the trust account?
In order to disburse trust monies from the trust account, the owners should first be
selected and then removed from the list (Lowerre-Barbieri and et. al., 2019). Disbursement is
needed whenever funds are to be paid from a trust account. Another way through which
trust monies can be disbursed is processing the disbursement in Re-Leased and after this,
completing the payment of funds from one’s trust account. Therefore, these are the two
ways through which disbursement can be done effectively.
Question 23
a) Explain in 50-100 words what is a Cashbook Receipts Journal.
A Cashbook Receipts Journal is a type of journal that manages all the cash inflow transactions of
an organization. In simple words, a cashbook receipts journal is used to make records of all the
cash coming in the company. In order to make an entry in the cash receipts journal, the cash
receipt is usually divided into three categories, namely – receipt of cash from cash sales, receipt of
cash from other sources and receipt of cash from credit receivables and customers. The main
purpose of the journal is to record all the cash receipts of the business. Thus, it is referred to as
the main entry book within the organization.
CPPREP4005 - Prepare to work with real estate trust accounts (Release 1)

b) In the table below write (2) examples of standard transactions into the cashbook
receipts journal that you would expect to see in your day to day real estate activity.
Date
money
receive
d
Date
Receipt
Issued
Name
of
perso
n
(Paye
e)
Code or
client
Description of
the matter
Amou
nt
recei
ved
Accou
nt
Recei
pt
Numb
er
Date
Banked
02/08/2013 02/08/2013 Ted Johnson Ted Johnson Advertising
payment – 2
Second St, Byron
Bay
$ 350.00 1206 02/08/2013
03/08/2013 03/08/201
3
Jason Henry Jason Henry Sales $400.00 1502 03/08/2013
04/08/2013 04/08/201
3
Paul Moore Paul Moore Rent $550.00 1705 04/08/2013
Question 24
a) Explain in 50-100 words what is a Cashbook Payments Journal.
A Cashbook Payments Journal is journal that is primarily used to record the transactions that are
paid through cash. Paying through cash can include paying a commission fee, making an interest
etc. It can also involve withdrawing cash (Mikes and Morhart, 2017). While the cashbook receipts
journal involves the cash inflows in the organization, a cashbook payments journal includes the
payments that are made using cash. The different columns in a cashbook payments journal
include a date column, a payee column and at least two credit columns. Therefore, it allows all the
payment related transactions to be recorded in an effective and orderly manner.
b) In the table below write (2) examples of standard transactions into the cashbook
payments journal that you would expect to see in your day to day real estate activity.
Date
Payment
made
Amount Cheque
number
or
EFT
number
Payment made
to
Identifier or name of
payer
Description of
matter
Ledger
identifier
debited
paid
28/04/2013 $1900.00 1434 Aircold
Airconditioning
John Jones Airconditioning Repair
at 47 Robert St, Byron
Bay
JJ47
02/06/2013 $1500.00 1565 Super Cola Peter Harry Purchased
equipment
JJ85
CPPREP4005 - Prepare to work with real estate trust accounts (Release 1)

03/06/2013 $1300.00 1234 Jones Farm John Smith Paid for Invoice JJ90
Question 25
a) Explain in 25-50 words what are trust account ledgers.
A trust account ledger is a record that contains a specific transaction tenant or owner and
shows all the money that comes into as well as goes out of the trust account (Ransome,
2019). There are different types of trust ledgers like property management trust account
ledgers, broker trust account ledgers, personal funds ledger etc. Property managers are
required to compulsorily have owner and tenant ledgers whereas brokers who have trust
accounts should have transaction ledgers.
b) What are the standard trust account transactions you would expect to see in a ledger in
your day to day real estate activity?
The standard trust account transactions that can be seen in a ledger in a day to day real
estate activity include the actual date of the transaction, the date on which the
transaction was recorded in the software, the type of trust account etc.
Question 26
In 25-100 words explain what is a trust account;
a) Trial balance
A trial balance can be referred to as a worksheet that includes balance of all ledgers compiled
together in debit as well as credit columns that are equal (Aalbers, 2019). Trial balances are
prepared periodically in an organization at the end of each reporting year. There are three types
of trial balances like the adjusted, unadjusted and the post-closing trial balance.
b) Bank reconciliation
A bank reconciliation can be referred to as a summary of the banking as well as business activities
that bring together the bank account of an entity along with its financial records. It also outlines
the withdrawals, deposits and other activities that can affect a bank account.
CPPREP4005 - Prepare to work with real estate trust accounts (Release 1)

Question 27
Provide (1) example for each of the following which is generated using standard trust
account transactions in day to day real estate operations and outline the types of
information these contain.
a) Report
There are different types of trust accounting reports that are generated in day to day operations
within the real estate. These an include three-way reconciliation report, detailed reconciliation
report, client activity report, trust ledger report etc. for example, a detailed reconciliation report
provides details supporting the reconciliation between the bank as well as bank ledger (Boyd,
2020). The report is important because it ensures that all accounting records are accurate and
complete.
b) Statement
The bank statement is an example of the statement that is generated using the standard
trust account transactions in real estate. As per Regulation 60, it is important to furnish a
trust account statement to the person on behalf of whom trust money is held (Bright,
Connors and Grice, 2019). Also, there should be separate statements for trust edger
account, record of all dealings etc.
Question 28
What are source documents?
A source document refers to an original record that contains the details of a particular
transaction. It describes the main features of the transaction like the date when the
transaction was carried out, amount as well as its purpose (Cortesão, 2017). Cash receipt
can be cited as an example of a source document.
Question 29
What is a transfer journal and give 1 example of its use?
A transfer journal is a type of entry in a journal that is used to move funds from the account of
one project to another. Transfer journal entries are used when operating accounts fund cost share
expenses on contracts as well as grants. For example, a transfer journal is used to move funds
CPPREP4005 - Prepare to work with real estate trust accounts (Release 1)

between two accounts.
CPPREP4005 - Prepare to work with real estate trust accounts (Release 1)

REFERENCES
Books & Journals
Aalbers, M. B., 2019. Financial geography II: Financial geographies of housing and real estate.
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toward implementation and adoption. The CPA Journal. 88(6). pp.28-37.
Berry, C. and Guinan, J., 2019. People Get Ready!: Preparing for a Corbyn Government. OR Books.
Boyd, B., 2020. Real Estate Financing. Law Journal Press.
Bright, G., Connors, E. and Grice, J., 2019. Measuring natural capital: towards accounts for the UK
and a basis for improved decision-making. Oxford Review of Economic Policy. 35(1). pp.88-
108.
Cortesão, A., 2017. The Suma Oriental of Tomé Pires: An Account of the East, from the Red Sea to
Japan (Vol. 2). Routledge.
Davidson, C. N., 2017. The new education: How to revolutionize the university to prepare students for
a world in flux. Hachette UK.
Duska, R. F., Duska, B. S. and Kury, K. W., 2018. Accounting ethics. John Wiley & Sons.
Ebisike, O. A., 2019. Real estate accounting made easy. John Wiley & Sons.
Friedman, J.P., Harris, J.C. and Lindeman, J.B., 2017. Dictionary of real estate terms. Simon and
Schuster.
Johed, G. and Catasús, B., 2018. Auditor face work at the annual general meeting.‐ Contemporary
Accounting Research. 35(1). pp.365-393.
Lowerre-Barbieri, S. K. and et. al., 2019. Preparing for the future: Integrating spatial ecology into
ecosystem-based management. ICES Journal of Marine Science. 76(2). pp.467-476.
McIntosh, W., Fitzgerald, M. and Kirk, J., 2017. Non-traditional property types: part of a diversified
real estate portfolio?. The Journal of Portfolio Management. 43(6). pp.62-72.
Mikes, A. and Morhart, F., 2017. Bringing back Charlie Chaplin: Accounting as catalyst in the creation
of an authentic product of popular culture. Management Accounting Research. 35. pp.66-82.
Minnaar, R. A. and et. al., 2017. A relational perspective on the contract-control-trust nexus in an
interfirm relationship. Management Accounting Research. 34. pp.30-41.
Ransome, P., 2019. Sociology and the future of work: contemporary discourses and debates.
Routledge.
CPPREP4005 - Prepare to work with real estate trust accounts (Release 1)

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