Trust and Escrow Accounting, Settlement, and Recordkeeping
What this domain tests
This domain tests the fiduciary handling of other people's money: trust and escrow accounts, deposits and buyer premiums, settlement statements, disbursement, reconciliation, and record retention.
Core rules
- Auction proceeds, buyer deposits, and funds held for sellers are trust funds. They must be deposited in a separate trust or escrow account, not in the auctioneer's operating account.
- No commingling. Trust funds may not be used for business expenses, payroll, or personal bills, even temporarily. Earned commissions should be transferred only after settlement or as the agreement permits.
- Keep a ledger by sale and by seller. Record bidder number, lot, hammer price, buyer premium, sales tax, deposits, expenses, commission, and net due.
- Settle promptly under the auction agreement. Provide a written settlement statement showing gross proceeds, charges, and net to seller.
- Retain contracts, bid records, settlement statements, bank records, and reconciliations for the period required by board rules and tax law; make them available for audit.
- Reconcile the trust account regularly. An unreconciled shortage is a serious violation even if it is later covered.
Worked example
A lot hammers at $20,000. The buyer pays a 10% premium, so the buyer owes $22,000. The seller agreed to a 12% commission ($2,400) and $500 advertising. The auctioneer holds $22,000 in trust, retains the $2,000 premium if the contract says so, pays $500 expenses, retains $2,400 commission, and remits $17,100 to the seller. Every line must appear on the settlement statement and reconcile to the bank records.
Traps
Using deposits to fund the next auction; paying seller expenses before settlement without authorization; failing to account for the buyer premium; and keeping only a checkbook, not a lot-level ledger.