Common Solicitors Accounting entries Flashcards
What are the two sets of accounting records that law firms are required to keep?
Law firms are required to keep two sets of accounting records: one for client money and one for the firm’s own money (business money).12 This is because client money must be kept separate from the firm’s own money.
What is the purpose of the dual cash account?
The dual cash account system simplifies the accounting process by allowing law firms to track their business and client funds in one place.
Law firms are required by Rule 8.1(c) to keep a cash account for dealings with the client bank account. Although they are not required to have a cash account for their business money, it’s necessary for the firm’s operations.
These two accounts are typically presented side-by-side.
How are receipts of money recorded in a law firm’s accounting records?
To record receipts of money, you first need to determine whether it’s business or client money.
This determines which section of the account it’s recorded in.
The entry in the cash account for a receipt is a debit (DR) entry.
The corresponding credit (CR) entry is in the ledger account of the client from whom, or on whose behalf, the money is received.
Receipts of client money will be held for the relevant client in the client bank account.
Receipts of business money will reduce the indebtedness of the relevant client to the firm.
How are payments of money recorded in a law firm’s accounting records?
To record payments, determine whether the payment will come from the firm’s business bank account or the client bank account.
The payment is then recorded in the appropriate cash account.
The entry for a payment on the cash account is a credit (CR) entry.
The corresponding double entry is a debit (DR) in the ledger account of the client on whose behalf the payment is made.
If the payment comes from the business bank account, the resulting debit (DR) balance in the client ledger account indicates that the client owes the firm money.
If the payment is made from the client bank account, it reduces the amount held for the client.
A firm issues a bill to a client. What entries should be made in the accounting records?
When a firm issues a bill, there is no movement of cash at this point, so no entry is made in the cash account.
On the client ledger account, there should be debit (DR) entries for professional charges and VAT in the business section.
This is to show that the client owes money to the firm.
The corresponding credit (CR) entries are made on an income ledger account (profit costs) and an account in the name of His Majesty’s Revenue and Customs (HMRC), respectively.
No entries are made for disbursements when the bill is sent.
Disbursements are recorded as and when they are paid
