diff --git a/LocalTransaction.cpp b/LocalTransaction.cpp
index 7f51b188c9..195f750c88 100644
--- a/LocalTransaction.cpp
+++ b/LocalTransaction.cpp
@@ -32,7 +32,7 @@ bool LocalTransaction::makeTransaction()
 	return true;
 }
 
-void LocalTransaction::applyTransaction()
+void LocalTransaction::performTransaction()
 {
 	mTransaction=theApp->getOPs().processTransaction(mTransaction);
 }
diff --git a/LocalTransaction.h b/LocalTransaction.h
index ce16c0fe7f..1d5eb7c927 100644
--- a/LocalTransaction.h
+++ b/LocalTransaction.h
@@ -22,23 +22,30 @@ protected:
 	uint64 mAmount;
 	uint32 mTag;
 	std::string mComment;
+	bool mPaid;
 
 	Transaction::pointer mTransaction;
 
 public:
 
 	LocalTransaction(const uint160 &dest, uint64 amount, uint32 tag) :
-		mDestAcctID(dest), mAmount(amount), mTag(tag) { ; }
+		mDestAcctID(dest), mAmount(amount), mTag(tag), mPaid(false) { ; }
 	void setComment(const std::string& comment) { mComment=comment; }
 
 	const uint160& getDestinationAccount() const { return mDestAcctID; }
 	uint64 getAmount() const { return mAmount; }
 	uint32 getTag() const { return mTag; }
 	const std::string& getComment() const { return mComment; }
-	Transaction::pointer getTransaction() { return mTransaction; }
-	void applyTransaction();
 
-	bool makeTransaction();
+	Transaction::pointer getTransaction() { return mTransaction; }
+	void setTransaction(Transaction::pointer t) { mTransaction=t; }
+
+	bool isPaid() const { return mPaid; }
+	void setPaid() { mPaid=true; }
+	void setUnpaid() { mPaid=false; }
+
+	void performTransaction();	// perform this transaction as if we received it from the network
+	bool makeTransaction();		// create a transaction object according to these rules
 };
 
 #endif
diff --git a/NetworkOPs.cpp b/NetworkOPs.cpp
index 332ed511a4..2e22b70213 100644
--- a/NetworkOPs.cpp
+++ b/NetworkOPs.cpp
@@ -56,8 +56,9 @@ Transaction::pointer NetworkOPs::processTransaction(Transaction::pointer trans)
 
 	if(r==Ledger::TR_SUCCESS)
 	{
-		// WRITEME: send to others
 		trans->setStatus(INCLUDED);
+		// WRITEME: send to others
+		theApp->getWallet().applyTransaction(trans);
 		return trans;
 	}
 
diff --git a/RPCServer.cpp b/RPCServer.cpp
index 25b68a129f..1beadb7854 100644
--- a/RPCServer.cpp
+++ b/RPCServer.cpp
@@ -365,7 +365,7 @@ Json::Value RPCServer::doSendTo(Json::Value& params)
 	LocalTransaction::pointer lt(new LocalTransaction(destAccount, iAmount, iTag));
 	if(!lt->makeTransaction())
 		return JSONRPCError(500, "Insufficient funds in unlocked accounts");
-	lt->applyTransaction();
+	lt->performTransaction();
 	return lt->getTransaction()->getJson(true);
 }
 
diff --git a/Wallet.cpp b/Wallet.cpp
index 620110e77d..85b274c7cf 100644
--- a/Wallet.cpp
+++ b/Wallet.cpp
@@ -812,3 +812,53 @@ void Wallet::syncToLedger(bool force, Ledger* ledger)
 	}
 	if(mLedger<ledger->getLedgerSeq()) mLedger=ledger->getLedgerSeq();
 }
+
+void Wallet::applyTransaction(Transaction::pointer txn)
+{
+	TransStatus st=txn->getStatus();
+	bool shouldBePaid=(st==INCLUDED) || (st==HELD) || (st==NEW);
+	
+	boost::recursive_mutex::scoped_lock sl(mLock);
+
+	std::map<uint160, LocalAccount::pointer>::iterator lac=mAccounts.find(txn->getFromAccount());
+	if(lac==mAccounts.end()) return;
+	
+	if ( (st!=INVALID) && (lac->second->getTxnSeq()==txn->getFromAccountSeq()) )
+		lac->second->incTxnSeq();
+
+	std::map<uint256, LocalTransaction::pointer>::iterator ltx=mTransactions.find(txn->getID());
+	if(ltx==mTransactions.end())
+	{ // we don't have this transactions
+		if(shouldBePaid)
+		{ // we need it
+			LocalTransaction::pointer nlt(new
+				LocalTransaction(txn->getToAccount(), txn->getAmount(), txn->getIdent()));
+			nlt->setTransaction(txn);
+			mTransactions.insert(std::make_pair<uint256, LocalTransaction::pointer>(txn->getID(), nlt));
+			lac->second->debit(txn->getAmount());
+			ltx->second->setPaid();
+		}
+	}
+	else
+	{ // we have this transaction in some form (ltx->second)
+		if( (st==COMMITTED) || (st==INVALID) )
+		{ // we need to remove it
+			if(ltx->second->isPaid())
+			{
+				lac->second->credit(txn->getAmount());
+				ltx->second->setUnpaid();
+			}
+			mTransactions.erase(txn->getID());
+		}
+		else if(ltx->second->isPaid() && !shouldBePaid)
+		{ // we paid for this transaction and it didn't happen
+			lac->second->credit(txn->getAmount());
+			ltx->second->setUnpaid();
+		}
+		else if(!ltx->second->isPaid() && shouldBePaid)
+		{ // this transaction happened, and we haven't paid locally
+			lac->second->debit(txn->getAmount());
+			ltx->second->setPaid();
+		}
+	}
+}
diff --git a/Wallet.h b/Wallet.h
index 7423231e7e..6866d05d08 100644
--- a/Wallet.h
+++ b/Wallet.h
@@ -80,6 +80,7 @@ public:
 	static uint256 textToPrivKey(const std::string&);
 
 	void syncToLedger(bool force, Ledger* ledger);
+	void applyTransaction(Transaction::pointer);
 
 	static bool unitTest();
 };