Client money and client accounts

Question 1

When can client money be withdrawn from the client account?

Answer 1

Client money can be withdrawn from the client account:
-for the purposes for which it is being held;
-following instructions from the client (or relevant 3rd party for whom it is being held);
-following SRA authorisation.

Question 2

If a firm is holding money for disbursements, and a disbursement exceeds the amount of client money held, the firm cannot make payment from the client bank account.

What 2 options does the firm have?

Answer 2

1. Make payment from the firm’s business account.
2. The firm can advance its own money to the client. The advance then becomes client money and subject to rules for client money.

Question 3

A solicitor is acting in a probate matter and needs to pay several legacies to beneficiaries in accordance with the terms of the will. How should the solicitor pay these legacies?

Answer 3

The solicitor should pay these legacies from the client account, providing there is sufficient credit balance to do so, making accounting entries in the cash sheet and client ledger.

Question 4

What are the accounting entries for a receipt of money on account of costs and unpaid disbursements?

Answer 4

CR client ledger client account, DR cash sheet client account

Question 5

Once a bill has been delivered, the firm can transfer the relevant sum from the client account to the business account to clear the bill. This is recorded as a client to business cash transfer:

Answer 5

1. DR client ledger client account, CR cash sheet client account (to transfer the sum out of the client account); and
2. CR client ledger business account and DR cash sheet business account (to transfer the sum into the business account).