Basic Client Ledger Entries

Question 1

What does the double entry system of accounting principle mean?

Answer 1

For every transaction, 2 entries are made. One will be a credit (CR) and one will be debit (DR)

Question 2

Where are entries for transactions involving client money recorded?

Answer 2

• Cash Sheet Client Account
• Client Ledger Client Account

Question 3

What does the cash sheet client account show?

Answer 3

money in and out of the client account (a bank account which holds client money only)

Question 4

What does the client ledger client account show?

Answer 4

Receipts in of client money and payments out of client money for a particular client.

Question 5

What does the balance on the client ledger client account show?

Answer 5

how much client money the firm holds on behalf of the particular client

Question 6

Where will entries for transactions involving non-client money be recorded?

Answer 6

• cash sheet buinsess account
• client ledger business account

Question 7

What does the cash sheet business account show?

Answer 7

money belonging to the firm (not clients)

Question 8

What does the client ledger business account show?

Answer 8

• receipt of non-client money
• payments out of non-client money
• issuing bills of costs

Question 9

What does the balance on the client ledger business account show?

Answer 9

How much money the client owes the firm

Question 10

What is the entry when the firm receives client money?

e.g. Cl sends a cheque on account of costs

Answer 10

• Cash sheet client account: DEBIT (DR)
• Client ledger client account: CREDIT (CR)

Question 11

What is the entry when the firm pays out / withdraws client money?

e.g. Firm makes a payment on Cl’s behalf

Answer 11

• Cash sheet client account: CREDIT (CR)
• Client ledger client account: DEBIT (DR)

Question 12

What is the entry when the firm receives non-client money?

e.g. Client pays invoice

Answer 12

• Cash sheet Business account: DEBIT
• Client ledger business account: CREDIT

Question 13

What is the entry when the firm pays out / withdraws non-client money

e,g, Firm makes payment on Cl’s behalf but Cl has no money on account

Answer 13

• Cash sheet Business account: CREDIT
• Client ledger business account: DEBIT

Question 14

What should you do if you receive a cheque made payable to the client (i.e. in the client’s name)?

Answer 14

Forward the cheque onto the client (good practice but not mandatory to make a note on client’s ledger client side recording receipt and handing over of cheque)

NOTE: The money does not have to be paid into firm’s client acccount. It is not client money as it does not relate to regulated services delivered by the firm of solicitors to the client

Question 15

What does the cash sheet petty cash account / petty cash cash book show?

Answer 15

• Initial payment into petty cash (from business account) and
• Any payments out of petty cash

Question 16

What is the entry for withdrawing money from petty cash on behalf of client?

E.g. Firm makes payment on Cl’s behalf from petty cash tin

Answer 16

• Cash sheet petty cash account: CREDIT
• Client ledger business account: DEBIT

Question 17

What is the entry when a client reimburses the firm for petty cash spent on their behalf?

Answer 17

The money is non-client money and is paid into the business account (not back into petty cash sheet)

• Cash sheet business account: DEBIT
• Client ledger business account: CREDIT

Question 18

What are the only circumstance in which a DEBIT will be made on cash sheet petty cash account?

(i.e. money is received / paid into petty cash)

Answer 18

Money is taken out of business account
(to set up or top up the petty cash)

Question 19

You have acted for a client whose transaction has now finished. You are not currently acting on any other matters for them although they are a long-standing client. There is some client money belonging to them in the client account. What should you do with the money?

Answer 19

You must ensure that client money is returned promptly to the client for whom it’s held, as soon as there is no longer any proper reason to hold those funds (RULE 2.1)

The relevant accounting entries are as follows:
* Debit client ledger
* Credit cash sheet client account.

Question 20

A client has no money in the client account. Their solicitor pays a Land Registry fee on their behalf. What are the accounting entries to record this?

Answer 20

• Debit client ledger business account
• Credit cash sheet business account

Non-client money will be used to make the payment because the client does not have any client money in the client account and Rule 5.3 states that you only withdraw client money from a client account if sufficient funds are held on behalf of that client to make the payment.

Question 21

You act for a client who has no money in the client account. You use cash from petty cash to pay a taxi fare to attend a meeting with your client. Your client later sends you a cheque to reimburse you for the taxi fare. Which one of the following correctly sets out the accounting entries to record the receipt of the cheque?

Answer 21

• Credit client ledger business account
• Debit cash sheet business account.

When the cheque reimbursing you is received, the entries needed are these ones to record the receipt of non-client money into the business account (because the cheque cannot be paid into petty cash as it is not an actual bank account).