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Solicitor's Accounts > Accounting entries > Flashcards

Accounting entries Flashcards

1
Q

True or false? The Solicitors Regulation Authority (‘SRA’) Accounts Rules 2019 apply only to sole practitioners?

A

False, they apply to any body that has been authorised by the SRA to practice as a licensed body, a recognised body, or as a sole practitioner.

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2
Q

What are the requirements for a firm’s client bank account?

A

Must be at a bank in E&W and contain the firm’s name and the word ‘client’

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3
Q

What is client money?

A

Client money is money held or received for a client or as a trustee plus all other money which is not business money

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4
Q

When does client money have to be paid into client account?

A

Promptly, unless an alternative arrangement has been agreed in writing with the client or third party for whom money is held

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5
Q

What is business money?

A

Business money is money which belongs to the solicitor or the practice.

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6
Q

When is the accounting report due?

How long do records have to be maintained?

A

6 months from the end of the accounting period

Records must be retained for at least 6 years

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7
Q

Is money received by a solicitor to be

held as stakeholder considered client money?

A

Yes

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8
Q

Before a bill has been issued, money received from the client as payment for fees is client money?

A

True

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9
Q

If a disbursement has not yet been paid by the firm, is money received by the firm on account of costs client money?

A

Yes - a receipt remains client money until the disbursement is paid by the firm

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10
Q

Is a firm required to maintain a separate bank account for each client?

A

No, it just has to have a client bank account separate from its bank account

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11
Q

How often must client accounts be reconciled against bank statements?

A

Every 5 weeks

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12
Q

Can any amount be withdrawn from client account?

A

No, payments made from the client account must NOT exceed the total held for that client in the client bank account

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13
Q

What happens if money is improperly withheld or withdrawn from the client account?

A

Partners have to use their own personal funds to make up the difference

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14
Q

How is money received by the firm from or for the client recorded?

A

Indira Ghandi

DR Cash account

CR Client account

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15
Q

How is money paid out on behalf of a client recorded?

A

Kraut -

CR Cash ledger; client side

DR Client ledger; client side

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16
Q

How is issuing a bill to the client recorded?

A

Drill the bill (into the client); take issue with the Cash account

DR Client ledger; business side
DR Client ledger; business side (VAT)
CR Profit Costs ledger; business side
CR HMRC; business side

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17
Q

A client pays a bill for £1,000 profit costs and £500 VAT, how will the entries be recorded?

A

When a client pays a bill for profit costs, the entire sum is credited to the business side of the client ledger and debited to the business side of the cash account ledger. There is no movement on the HMRC or profit costs ledger

CR Client account; business side £1500
DR Cash account; business side £1500

OR

If there are sufficient funds in the client account you can use in-house transfer method:

DR Client account; client side £1500
CR Cash account; client side £1500

CR Client account; business side £1500
DR Cash account; business side £1500

18
Q

How is an abatement of professional charges and VAT recorded?

A

No cash account; money owed to client; CR client ledger - in-house transfer method used

DR Profit Costs; business side

DR HMRC; business side

CR Client ledger; business side

CR Client ledger; business side

19
Q

What happens when there is a bounced check?

A

The firm must immediately transfer the amount by which the client account is overdrawn from the business account to the client account

20
Q

How is the bounced cheque rectified (if payment has been made and a cheque is dishonoured)?

A
  1. Cheque sent:
    CR Client ledger; client side
    DR Cash account; client side
  2. Disbursement paid

DR Client ledger; client side
CR Cash account; client side

  1. Cheque dishonoured; reverse the cheque sent entries (the amount of the cheque not amount overdrawn)

DR Client ledger; client side
CR Cash account; client side

  1. Rectify the breach (in-house transfer method)

DR Client ledger; business side
CR Cash account; business side

CR Client ledger; client side
DR Cash account; client side

21
Q

When must mixed receipts be placed?

A

They must be placed promptly in either the client account or business account

22
Q

How are mixed receipts recorded?

A
  1. Split the cheque
    (£150 client money (on account of costs) + £50 to reimburse the firm for funds it paid out)

CR £150 Client ledger; client side
DR £150 Cash account; client side

CR £50 Client ledger; business side
DR £50 Cash ledger; business side

  1. Deposit and transfer

CR £200 Client ledger; client side
DR £200 Cash ledger; client side

DR £50 Client ledger; client side
CR £50 Cash ledger; client side

CR £50 Client ledger; business side
DR £50 Cash ledger; business side

23
Q

How may client funds be treated once a bill has been issued?

A

if a bill has been issued for professional fees and disbursements (whether paid or unpaid) the money received in payment of the bill is business money

if there are sufficient funds in the client account when the bill has been issued, the firm may transfer the whole amount billed to the business account

24
Q

Can a firm transfer money to the business account if a bill has not yet been issued?

A

No, if a bill has not yet been issued, money cannot be transferred from the client account to the business account

25
Q

How do we record inter-client transfers?

A

DR Client ledger of Client X

CR Client ledger of Client Y

26
Q

What is a disbursement?

A
  • Paid on client’s behalf
  • Client received or used the benefit
  • Client was responsible for paying the third party
  • Client authorised the firm to make a payment on its behalf
  • Client was aware the goods or services were from another firm
27
Q

Does the firm charge VAT to client on the cost of disbursements?

A

No, the cost of disbursements is passed onto client without any further VAT element

28
Q

What things are not disbursements and are rather overheads of the firm which must be charged to VAT?

A 
Telephone call charges
Travel expenses
Postage fees
Photocopying charges
Electronic property search fees

(all included in overall profit costs)

29
Q

What disbursements are not subject to VAT at all?

A 
Company search fees
company registration fees
Court fees
Witness fees
Oath fees
Stamp duty land tax
Land Registry fees
30
Q

How do we deal with invoices addressed to the client (agent method)?

A

Total amount paid from client account.

Bill addressed to client for surveyor’s fees of £1000 + £400 VAT

Entries:

DR £1400 Client ledger; client side
CR £1400 Cash account; client side

31
Q

What happens if the Invoice addressed to the firm (principal method)

A

Firm pays using business money and then bills client at the end of the matter for VAT on both the professional charges and VAT on disbursement

Entries:

DR £1,200 Client ledger; business side
CR £1,200 Cash ledger; business side

DR £240 HMRC ledger; business side
CR £240 Cash ledger; business side

32
Q

What is the one exception to using the principal method where a bill is addressed to a firm?

A

Counsel fees: firm can cross out its own name and replace it with client’s name

33
Q

Where should deposits be held if held as stakeholder?

A

Deposits should be held in a separate stakeholder account in the name of both buyer and seller

Once transaction complete, funds must be transferred to selling client’s ledger

34
Q

Where should money be held if there is a mortgage?

A

Mortgage funds should be credited to a separate ledger account in the name of the lender. On the day of completion, there should be an inter-client transfer to the borrower’s account

35
Q

Are petty cash payments made on behalf of a client recorded in the client account?

A

No, petty cash payments must be made from the business account. If payment is made on behalf of client using petty cash, entries are:

DR Client ledger, business side
CR Petty cash ledger, business side

36
Q

How much interest must the firm account to the client for?

A

Firms must account to the client or third parties for a fair sum of interest.

They can come to a different arrangement by written agreement

Firm MUST have a written policy on the payment of interest

37
Q

True or false - If a bill has been issued, all disbursements (whether paid or unpaid) are treated as business money?

A

True - any money paid by the client for this bill is business money whether or not the disbursement has been paid yet

38
Q

Who has responsibility for remedying a breach?

A

All of the principals in the firm and the person who caused the breach

39
Q

If the firm pays a bill for a disbursement and there is enough money in the client account, can the firm reimburse itself before issuing a bill?

A

Yes, as long as the firm has explained to the client how and when payments will be made and that reimbursement would be taken from the client account.

40
Q

When is the firm’s VAT ledger used?

A

If a firm uses business money to pay VAT on behalf of a client - Debit HMRC ledger
If a firm issues bill for VAT - Credit HMRC ledger
An abatement of VAT - DR HMRC ledger

Solicitor's Accounts (1 decks)

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