What is fiduciary accounting?

A trustee is someone who is in a position of trust. In trust accounting, a trusted person is required to maintain detailed financial records when managing a trust or acting as executor of a deceased person's estate. The administrator can also manage the assets of a minor child until he or she reaches the age of majority. Records can be presented in court as part of a legal process, and it is essential that they are accurate.

A trust is made up of principal, which is the original amount of cash or other assets placed therein, and income. Any capital gains are added to the principal, while capital expenditures and losses incurred are deducted from this amount. Any debt incurred by the trust is also subtracted from the principal.

The trust account statement lists the principal as well as any income received by the trust or estate. Income can be in the form of interest or dividends earned on investments. Income is listed separately on the financial statement as the beneficiaries of each form of income may be different depending on the terms of the trust or the will of the individual.

If any part of the assets held in the trust or forming part of the estate has been sold by the trustee or executor, the trust account statements must show the "book value" of the property as well as the sale price. The gain or loss is noted in the records. This value can be used to calculate capital gains or losses.

Any income made by the trust or estate is listed in order by date and type of receipt. This method of displaying records makes it easy for anyone to review fiduciary financial statements to see if any statements are missing. For this purpose rent receipts, interest payments or dividends received would be used.

All payments made from the trust or estate are listed on the trustee's financial statements. These may include expenses incurred in administering the trust or liquidating the estate. In the case of a trust, all income paid to beneficiaries is listed and documents end with the remaining balance.

Once the fiduciary financial statements have been prepared, copies are in some cases provided to interested parties as well as to the Court. Recipients of declarations have the possibility to object to any of the elements contained therein. If no objection is raised, the trustee can distribute the trust income and the money and assets that make up the estate.

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