Accounts

Question 1

When should a law firm record an invoice as principal and what will the entries be?

Answer 1

When? Law firm instructs 3rd party and 3rd party invoices the firm (invoice is NOT addressed to client)

Entries?
- ALWAYS non client money (so buisness account)
- VAT must be accounted for separately

DR client ledger business account (amount = disbursement)
CR cash sheet business account
DR VAT account (amount = VAT)
CR cash sheet business account

Bill client:
DR client ledger businesss account (amount = VAT)
CR VAT account (amount = VAT)
Accounting entries for issuing bill

Question 2

Does Seller hold deposit as stakeholder or agent

Answer 2

GR stakeholder:

(receiving client money: CR client ledger stakeholder and DR cash sheet client account) then transfer over client side on completion.

EXC Agent if using deposit in related transaction

(receiving client money: CR client ledger client account DR cash sheet client account)

Question 3

What to do with mixed payments?

Answer 3

Pay entire amount into client account and transfer non-client money into business account

Question 4

Accountant’s report

Answer 4

EVERYONE must obtain an accountant’s report within 6 months of end of accounting period (+ submit to SRA if report is qualified (sig breach of rules)).

UNLESS

1. All client money is from Legal Aid; or
2. Holding no more than £250k (not exceeding average of £10k)

Question 5

3rd party invoices and VAT

Answer 5

Agency: VAT inclusive (paying on behalf of client)
Stakeholder: VAT exclusive (firm is paying)