Deposit Accounting Entries for Property Transactions Flashcards
Under the SRA Accounts Rules, which bookkeeping method must be used for recording deposit transactions?
A. Single-entry bookkeeping
B. Cash basis accounting
C. Double-entry bookkeeping
D. Accrual accounting
C. Double-entry bookkeeping
Explanation:
The SRA Accounts Rules require double-entry bookkeeping, where each transaction has two entries: one debit and one credit.
Where should a solicitor record the receipt of client money from a buyer for a deposit?
A. Office account ledger
B. Client ledger (buyer) and cash sheet (client account)
C. Cash sheet (business account)
D. Seller’s solicitor ledger
B. Client ledger (buyer) and cash sheet (client account)
Explanation:
When a buyer sends a deposit to their solicitor, it is client money and must be recorded in both the buyer’s client ledger and the client account cash sheet.
What is the correct double-entry for a solicitor paying a deposit from the buyer’s client account to the seller’s solicitor?
A. Debit client ledger (buyer), credit cash sheet (client account)
B. Credit client ledger (buyer), debit cash sheet (client account)
C. Debit office ledger, credit client ledger (buyer)
D. Credit cash sheet (client account), debit business ledger
A. Debit client ledger (buyer), credit cash sheet (client account)
Explanation:
When the buyer’s solicitor sends the deposit to the seller’s solicitor, the client ledger (buyer) is debited (reducing funds), and the cash sheet (client account) is credited (money leaving the client account).
Under the SRA Accounts Rules, what must all law firms maintain to track client money?
A. A client account cash book and individual client ledgers
B. A profit and loss account
C. A balance sheet
D. A financial statement signed by the seller
A. A client account cash book and individual client ledgers
Explanation:
Rule 8.1 of the SRA Accounts Rules requires law firms to keep a client account cash book and a client ledger for each client to record all client money transactions.
A buyer sends a deposit to their solicitor before exchange. How should the solicitor record this?
A. Debit the cash sheet (client account), credit the buyer’s client ledger
B. Credit the cash sheet (client account), debit the buyer’s client ledger
C. Debit the business account, credit the client ledger
D. Credit the seller’s solicitor ledger, debit the business account
B. Credit the cash sheet (client account), debit the buyer’s client ledger
Explanation:
When the buyer’s solicitor receives a deposit, it is client money, so it must be credited to the cash sheet (client account) and debited to the buyer’s client ledger.
A seller’s solicitor receives a deposit to be held as stakeholder. Where should the deposit be recorded?
A. Seller’s office account
B. Seller’s client ledger
C. Stakeholder ledger
D. Business account ledger
C. Stakeholder ledger
Explanation:
If the seller’s solicitor is holding the deposit as a stakeholder, it must be credited to the stakeholder ledger rather than the seller’s client ledger because it is held on trust for both parties until completion.
What happens to the deposit held by a seller’s solicitor as stakeholder when the sale completes?
A. It is transferred to the seller’s client ledger
B. It is refunded to the buyer
C. It remains in the stakeholder ledger permanently
D. It is moved to the office account
A. It is transferred to the seller’s client ledger
Explanation:
At completion, the deposit now belongs to the seller, so it is debited from the stakeholder ledger and credited to the seller’s client ledger.
A buyer sends a deposit, but the solicitor accidentally records it in the business account instead of the client account. What is the correct action?
A. Do nothing as long as the funds remain available
B. Immediately transfer the funds to the client account and make a correcting journal entry
C. Notify the SRA but leave the funds in the business account
D. Refund the deposit to the buyer and ask them to resend it
B. Immediately transfer the funds to the client account and make a correcting journal entry
Explanation:
If client money is mistakenly recorded in the business account, it must be transferred immediately to the correct client account, and a correction must be recorded in the books.
A buyer and seller agree that the seller’s solicitor will hold the deposit as an agent for the seller. What is the correct accounting treatment?
A. The deposit is credited to the seller’s client ledger at exchange
B. The deposit is credited to the stakeholder ledger at exchange
C. The deposit is refunded to the buyer at completion
D. The deposit is credited to the seller’s business account at exchange
A. The deposit is credited to the seller’s client ledger at exchange
Explanation:
When the seller’s solicitor holds the deposit as an agent, the seller has immediate access to the funds, so the deposit is credited to the seller’s client ledger at exchange.
A law firm is acting for a seller and receives a deposit at exchange. When should the deposit be transferred from the stakeholder ledger to the seller’s client ledger?
A. At the time of exchange
B. At completion
C. When the buyer requests a refund
D. When the solicitor gives an undertaking
B. At completion
Explanation:
If the seller’s solicitor holds the deposit as a stakeholder, it remains in the stakeholder ledger until completion. Once the sale completes, the funds are transferred to the seller’s client ledger.
