Chapter 4: Deposits Held as Agent or Stakeholder; Petty Cash; Interest

Question 1

If a firm is holding a deposit as a stakeholder, how can this be held / recorded?

Answer 1

1. The firm can operate a separate stakeholder ledger in the names of both the buyer and seller. On completion, the deposit is transferred to the seller’s client ledger.
2. The firm can record receipt of the stakeholder deposit in the seller’s client ledger. However, it MUST be clearly labelled as stakeholder money

Question 2

What would be the accounting entries for stakeholder deposits in a separate stakeholder ledger?

Answer 2

STEP 1: Receipt of deposit
Credit stakeholder client ledger, client account
Debit cash sheet, client account

STEP 2: Completion
Debit stakeholder account, client ledger
Credit seller’s client ledger account

Question 3

If a firm is acting for both the lender and the buyer, the mortgage advance is usually held on behalf of the lender until completion. What are the two ways in which the mortgage advance can be receipted?

Answer 3

1. Hold two separate client ledgers - one for the borrower and one for the lender.
2. Hold one client ledger for the borrower, but include the relevant details of the lender and any mortgage transactions in the details section of the ledger

Question 4

A solicitor pays £50 from petty cash on behalf of a client. How would this be recorded?

Answer 4

Debit client ledger £50, business account
Credit petty cash ledger £50, business account

Question 5

How much interest must a firm pay to clients and third parties?

Answer 5

A fair sum (provided no alternative written agreement reached)

Question 6

Do firms need a written policy regarding interest?

Answer 6

• Yes, each firm must have a written policy on the payment of interest which seeks to provide a fair outcome
• The policy should be presented at the outset of the transaction

Question 7

What are the three ways in which interest may be paid?

Answer 7

1. Offset any interest owed from bills owed to firm
2. Transfer interest from business account to client account
3. Send interest payment directly to client

Question 8

If interest is paid directly to the client, how would this be recorded?

Answer 8

Debit interest payable ledger, business account
Credit client ledger, business account
Debit client ledger, business account
Credit cash sheet, business account