Common Accounting Entries and Transfers and Mixed Receipts Flashcards
List the points made by the SRA in their guidance for keeping double-entry books.
1) Books should be maintained on the double-entry principle;
2) Books should be legible;
3) Ledger accounts should include the name of the client or other person/ trust for which the money is held, and should include a description of the matter/transaction;
4) Business account entries and client account entries in relation to each client or trust matter should be kept up to date; and
5) A separate record should be kept of any inter-ledger transfers and this should be kept in chronological order.
What is a dual cash account?
A cash account which records dealings with each bank account.
Explain the need for a dual ledger account for each client.
- Rule 8.1 requires dealings with client money on behalf of client to be recorded, swell as a record of the issue of bills to a client, payments of the firm’s own money on behalf of clients and receipts in payment of bills recorded.
- Therefore, two separate ledger accounts are required to fulfil this.
- The two ledger accounts will usually be combined for ease of reference.
Are firms required to keep a cash account for dealing with the client bank account?
Yes, in accordance with rule 8.1(c).
Firms will also need a cash account to record deadlines with its own money.
The effect of this is a firm will need two separate cash accounts - these are usually recorded next to each other
How is the receipt of money into either the client cash account or business cash account recorded?
- As an entry in the relevant cash account as a DR entry.
- The corresponding CR entry will be added in the ledger account of the diet from whom or on whose behalf, the money is received.
How is the payment of money from either the client cash account or business cash account recorded?
- Entry for a payment (from the account) is a CR entry.
- The corresponding double entry is a DR in the ledger account of their client on whose behalf the payment is made.
- If the payment is made from a business account, relating DR balance on the business columns of the client ledger account will show the client owes the firm money.
- If the payment is made from client account, it will reduce the amount held for the client (ie it will reduce the CR balance on the client columns of the client ledger).
How is a firm’s professional charges plus VAT recorded and where?
- No entry is made on the cash account at this stage as there is no movement of cash .
- There will be an entry into on the client ledger account in the DR column for professional charges and VAT. These entries must be made in the business section. This is because the purpose of the DR entries is to show the client owes money to the firm.
- The corresponding CR entries will be made on an income ledger account (for the professional charges) and the HMRC account (in respect of the VAT) respectively.
Recording a transfer from the client bank account into the business bank account is done in two stages. Name and explain these two stages.
1) First the payment of money from the client bank account is recorded as follows:
a) CR Cash Account
b) DR Client’s Ledger Account
Both of which are fine in the client section of the accounts.
2) Second the receipt of money into the business account needs to be recorded as follows:
a) DR Cash Account;
b) CR Client’s Ledger Account.
Both of which are done in the business section of the accounts.
When dealing with bills, what important points must be considered?
1) When a bill has been issued for professional charges and paid and/or unpaid disbursements, money received in payment of the bill will be the firm’s own money and must be paid into the business bank account.
2) Where firm is holding client money in client bank account and issues bill for professional charges and disbursements, whole amount billed can be transferred to the business bank account.
3) where firm holds client money in client bank account, money due to the firm for disbursements paid with firm’s own money cannot be transferred unless a bill has been issued or the firm made clear when money was received this was the intention.
4) even if a bill (or written notification) has not been issued, money received for a paid disbursement is the firm’s own money NOT client money.
What is an inter-client transfer?
where firm holds money in client bank account for client 1, but then stops holding that money for client 1 ad starts holding it for client 2. this is common if for example, client 1 owes money to client 2 and asks the firm to hold the money for client 2.
How is an inter-client transfer recorded?
No entries are made on the cash account as no money is moving.
A DR entry is made in the client section of the ledger account of the client for whom the money was originally held.
A CR entry is then made in the client section of the ledger account of the client for whom the money is now held.
Give a typical situation where an inter-client transfer is made.
In the course of the administration of an estate by the firm.
