2. Bills Flashcards
What is ‘Submitting a Bill’?
This is when the firm issues a bill to their clients.
This may be a final bill at the end of the matter, or an interim bill at intervals during longer or more complex legal matters.
What must a firm charge clients for when submitting a bill?
- Profit Costs (Professional Service Fees)
- VAT
Thus, there will always be 2 pairs of double journal entries when dealing with a bill.
(It may also include disbursements)
What does the VAT ledger Record?
The VAT ledger records all:
- Output VAT, VAT it has charged when providing legal services
- Input VAT, VAT it has paid when buying goods and services needed for the business.
What is the significance of the VAT Ledger record?
Every 3 months, the firm will use the HMRC VAT Ledger to complete a VAT return:
If the output VAT exceeds the input VAT, the firm will be liable to pay the difference to HMRC
If the Input VAT exceeds the output VAT, HMRC will pay the firm a VAT refund.
What happens if the output VAT exceeds the input VAT?
The firm will be liable to pay the difference to HMRC
What happens if the input VAT exceeds the output VAT?
HMRC will issue the firm a VAT refund
What are the 2 journal entries for submitting a bill?
(VERY IMPORTANT, MUST MEMORISE)
- Profit Costs (for the legal fees)
Debit Entry - Client Ledger, business account collum
Credit Entry - Profit Costs - VAT Ledger (for the VAT on those fees)
Debit Entry - Client Ledger, business account collum
Credit Entry - VAT Ledger
(For abatement, same ledgers just opposite debit / credit entries)
What is the VAT Rate charged on legal services? (the standard rate)
20%
What is Abatement?
When a firm wishes to reduce a bill already issued
What are the 2 pairs of Journal Entries for Abatement (reducing a bill already issued)?
2 pairs of double entries:
- Profit Costs
Credit Entry - Client Ledger, Business account collum
Debit Entry - Profit Costs - VAT Ledger
Credit Entry - Client Ledger, Business account collum
Debit Entry - VAT Ledger
(For issuing a bill, its the same journal entries but opposite debit / credit entries)
What are the 2 ways a client can pay a firms legal fee bill?
- Using Money on Client account
- Direct Payment from client to business account
(it is business money if bill has been issued)
If there is client money on account, but that money is not for costs and disumbursements, can the firm use it to cover their legal fees bill?
It depends what the money on account was for.
In some cases, it can be used with the clients permission. Such as where there is proceeds from a sale.
However, if it held for a mortgage advancement, the firm could not.
How can a client pay a bill directly?
What are the Accounting Journal Entries?
This may be by bank transfer or cheque, and will go directly into the business account (As it is business money as the bill has already been submitted.)
Accounting Entries - Direct to Business Account
Credit entry - Client Ledger, Business account collum
Debit Entry - Cash Sheet, Business account collum
What is the accounting entrys to transfer money from the client account to pay a bill?
Transferring the Sum out of the client account
Debit Entry - Client Ledger, Client Collum
Credit Entry - Cash Sheet Ledger, Client Collum
Transferring the sum into the business account
Credit Entry - Client Ledger, Business Collum
Debit Entry - Cash Sheet Ledger, Business Account
