Chapter 2: Placement of Client / Business Funds

Question 1

Generally, client funds must be promptly paid into the client account. What are the three exceptions?

Answer 1

1. Solicitor holding funds as trustee and paying money into client bank account would conflict with obligation relating to appointment
2. The client money is payment received from the Legal Aid Agency
3. Alternative arrangement agreed in writing with client or third party for whom money is being held

Question 2

If a firm receives a cheque containing both business and client funds, what are their two options?

Answer 2

Option 1: Split the cheque
Option 2: Deposit the funds in either the client or business account and transfer

Question 3

A firm receives a cheque from a client for £200.

£50 of the cheque is to reimburse the firm and £150 of the cheque is to be held on account for future costs.

How would this be recorded if the firm chose to split the cheque?

Answer 3

Credit £150 client ledger client account
Debit £150 cash sheet client account
Credit £50 client ledger business account
Debit £50 cash sheet business account

Question 4

A firm receives a cheque from a client for £200.

£50 of the cheque is to reimburse the firm and £150 of the cheque is to be held on account for future costs.

The firm deposits the funds into the client bank account and transfer £50 from the client account to the business bank account. How would this be recorded?

Answer 4

STEP 1: Show funds received
Credit £200 client ledger client account
Debit £200 cash sheet client account

STEP 2: Show £50 transferred out of client account
Debit £50 client ledger client account
Credit £50 cash sheet client account

STEP 3: Transfer £50 to business account
Credit £50 client ledger business account
Debit £50 cash sheet business account

Question 5

If money is received to cover unpaid disbursements, should funds be paid to the business account?

Answer 5

No, funds should be placed in the client account. This is because money could disappear, if for example the firm went dissolvent.

Question 6

How are inter-client transfers recorded?

Answer 6

Debit client ledger of client x (client account)
Credit client ledger of client y (client account)