Double Entry Book Keeping MCQs Flashcards
You are a solicitor at a firm of solicitors and the firm’s bank has notified you that your general/main client account has earned interest. The interest has already been paid into the firm’s business account and the firm decides to pay £120 of it to one of their clients which is a fair sum of interest on the client money held by the firm for the client.
Which one of the following pairs of double entries should be included in the entries that record the payment of the fair sum of interest to the client?
Credit interest payable ledger
Debit cash sheet client account
Credit cash sheet client account
Debit interest receivable ledger
Credit cash sheet client account
Debit client ledger client account
Credit interest receivable ledger
Debit cash sheet client account
Credit client ledger client account
Debit cash sheet client account
Credit client ledger client account
Debit cash sheet client account
Correct. Payment of a sum of interest (earned by the general/main client account) to a client is a two step process once the interest earned (non-client money) has been recorded in the firm’s business account. The first step is to withdraw the interest amount from the firm’s business account and the second is to pay the interest amount into the client account and credit it to the relevant client.
These entries record the second step – the receipt of the fair sum of interest in the client’s client ledger and the client account.
A firm of solicitors is acting on behalf of a client who are selling their property and purchasing a new property. A deposit of £14,000 has been received in respect of the sale and is held as agent.
Which one of the following pairs of double entries shows how the receipt of the deposit cheque should be recorded?
Credit client ledger client account
Debit cash sheet client account
Credit cash sheet client account
Debit client ledger client account
Credit stakeholder ledger
Debit cash sheet client account
Credit cash sheet business account
Debit client ledger client account
Credit client ledger client account
Debit stakeholder ledger
Credit client ledger client account
Debit cash sheet client account
Correct. The deposit is being held by the seller’s solicitor as agent. The deposit is client money (Rule 2.1(b)) and will be paid into the seller’s solicitor’s client account and it will be credited to the seller’s client ledger (client side as it is client money). The stakeholder ledger is only used by the seller’s solicitor to record receipt of a deposit when they are holding the deposit as stakeholder (not the case on these facts).
Your firm is acting in the administration of the estate of Arjun Patel (deceased). The deceased held an account with New Birmingham Building Society (‘NBBS’), which you closed. NBBS has sent your firm a cheque (made payable to your firm) in respect of the closing balance of that account.
Which pair of double entries shows how the receipt of the cheque from NBBS should be recorded in your firm’s accounts?
Credit client ledger client account: Arjun Patel (deceased)
Debit cash sheet client account
Debit client ledger client account: Arjun Patel (deceased)
Credit cash sheet client account
Credit client ledger business account: Arjun Patel (deceased)
Debit cash sheet business account
Credit client ledger client account: Arjun Patel (deceased)
Debit client ledger business account: Arjun Patel (deceased)
Debit client ledger business account: Arjun Patel (deceased)
Credit cash sheet business account
Credit client ledger client account: Arjun Patel (deceased)
Debit cash sheet client account
Correct. The cheque is client money under SRA Accounts Rule 2.1(a). It must be paid into the client bank account under Rule 2.3. The entries needed to record this are a credit in the client side of the client ledger and a debit in the cash sheet for the client account.
You are a solicitor at a firm of solicitors and the firm’s bank has notified you that your general/main client account has earned interest. The interest has already been paid into the firm’s business account and the firm decides to pay £120 of it to one of their clients which is a fair sum of interest on the client money held by the firm for the client.
Which one of the following pairs of double entries should be included in the entries that record the payment of the fair sum of interest to the client?
Credit interest receivable ledger
Debit cash sheet client account
Credit client ledger client account
Debit cash sheet client account
Credit interest payable ledger
Debit cash sheet client account
Credit cash sheet client account
Debit interest receivable ledger
Credit cash sheet client account
Debit client ledger client account
Credit client ledger client account
Debit cash sheet client account
You are a solicitor in a form of solicitors who act for Kent limited. Your firm has been holding the proceeds of sale of a property in Nottingham (the ‘Net Proceeds of Sale’) pending the purchase of alternative premises by Kent Limited. Your firm has been holding the Net Proceeds of Sale in the firm’s general client account. In relation to the Net Proceeds of Sale, how should any interest to be paid to the client, Kent Limited, be calculated?
As a fair sum of interest on any client money held on the client’s behalf.
At the Bank of England’s base rate on client money held for every day the money is held.
At a reasonable rate of interest not exceeding the rate of interest payable on a separate designated client account at the bank where the money is held.
By reference to the most recent interest rate published by the Law Society.
As a proportion of the total amount of interest paid to your firm by the bank for money held on deposit in the general client account.
As a fair sum of interest on any client money held on the client’s behalf.
Correct. This is stated in SRA Accounts Rule 7.1.
You are a solicitor at a firm of solicitors acting for the buyer of a property. The buyer has already sent you the deposit monies prior to exchange. At exchange of contracts, you send the deposit monies to the seller’s solicitor. The contract states that the deposit is to be held as stakeholder.
Which one of the following pairs of double entries shows how the payment of the deposit at exchange should be recorded by you?
Credit client ledger stakeholder
Debit cash sheet client account
Credit client ledger client account
Debit cash sheet client account
Credit cash sheet client account
Debit client ledger stakeholder
Credit client ledger client account
Debit client ledger stakeholder
Credit cash sheet client account
Debit client ledger client account
Credit cash sheet client account
Debit client ledger client account
Correct. Whether the deposit is to be held as stakeholder or agent is only relevant to the seller’s solicitor. As you are the buyer’s solicitor, the accounting entries needed to send the deposit monies to the seller’s solicitor are those recording the payment out of client money from the client account. The buyer has already sent you the money to pay the deposit and it is client money under Rule 2.1(a) and will be in your client account.
You are a solicitor in a firm of solicitors. Your firm issued a bill of costs for £2,500 plus VAT to one of its clients. The client disputed the amount of costs and your firm agreed to an abatement of costs of £500 plus VAT.
Which one of the following should be included in the entries made to record this abatement in your firm’s accounts?
Debit client ledger business account £100
Credit profit costs £100
Credit profit costs £600
Debit client ledger business account £600
Debit client ledger business account £100
Credit VAT account £100
Credit client ledger business account £500
Debit profit costs £500
Debit client ledger business account £500
Credit bad and doubtful debts account £500
Credit client ledger business account £500
Debit profit costs £500
Correct. These are the pair of entries needed to record the reduction in the profit costs. There would also be another pair of entries (made in the client ledger business account and the VAT account) to record the consequent reduction (of £100) in VAT.
You are a solicitor in a firm of solicitors. Your firm issued a bill of costs to a client for fees of £20,000 plus VAT. It subsequently reduces its fees by £1,000.
Which one of the following correctly sets out the double entry/entries needed to record this abatement in your firm’s accounts?
Debit profit costs £1,000
Credit client ledger business account £1,000
Debit profit costs £200
Credit VAT account £200
Debit client ledger business account £1,000
Credit profit costs £1,000
Debit client ledger business account £200
Credit VAT account £200
Debit profit costs £1,200
Credit client ledger business account £1,200
Debit profit costs £1,000
Credit client ledger business account £1,000
Debit VAT account £200
Credit client ledger business account £200
Debit client ledger business account £1,200
Credit profit costs £1,200
Debit profit costs £1,000
Credit client ledger business account £1,000
Debit VAT account £200
Credit client ledger business account £200
Correct. These are the entries required. The entries for abating a bill are made in the same records as the entries for issuing the bill plus VAT ie the profit costs [account] and the VAT account [ledger] (or however these accounts are known at your firm). As VAT was charged on the bill of costs at 20%, if the profit costs are reduced, there is a consequent reduction in VAT as well which also needs to be recorded. The debits and credits made when the bill plus VAT was issued are reversed to abate a bill plus VAT.
You are a solicitor in a firm of solicitors. Your firm submitted a bill of costs to a client 9 months ago for fees of £2,000 plus VAT of £400. The client has moved abroad without paying their bill and your firm has decided to write off the amount owed as a bad debt.
Which one of the following correctly sets out the double entry/ entries needed to record the write-off of the bad debt in your firm’s accounts?
Debit client ledger client account £2,000
Credit bad and doubtful debts account £2,000
Debit client ledger business account £2,000
Credit bad and doubtful debts account £2,000
Debit client ledger business account £400
Credit VAT account £400
Debit profit costs £2,400
Credit client ledger client account £2,400
Debit bad and doubtful debts account £2,000
Credit client ledger business account £2,000
Debit VAT account £400
Credit client ledger business account £400
Debit bad and doubtful debts account £2,400
Credit client ledger business account £2,400
Debit bad and doubtful debts account £2,000
Credit client ledger business account £2,000
Debit VAT account £400
Credit client ledger business account £400
You are a solicitor in a firm of solicitors. Your firm issued a bill of costs for £2,500 plus VAT to one of its clients. The client disputed the amount of costs and your firm agreed to an abatement of costs of £500 plus VAT.
Which one of the following should be included in the entries made to record this abatement in your firm’s accounts?
Debit client ledger business account £500
Credit bad and doubtful debts account £500
Debit client ledger business account £100
Credit VAT account £100
Credit client ledger business account £500
Debit profit costs £500
Debit client ledger business account £100
Credit profit costs £100
Credit profit costs £600
Debit client ledger business account £600
Credit client ledger business account £500
Debit profit costs £500
Correct. These are the pair of entries needed to record the reduction in the profit costs. There would also be another pair of entries (made in the client ledger business account and the VAT account) to record the consequent reduction (of £100) in VAT.
A client of a firm of solicitors (the ‘firm’) has recently sold a flat for £350,000. The firm have received an invoice from the estate agent addressed to the client. The client has asked the firm to pay the estate agent’s fees out of the client account as the firm are holding sufficient client money for the client to cover this disbursement. The estate agent’s fees amount to £5,000 plus VAT of £1,000.
Which one of the following correctly shows how the payment of the estate agent’s fees should be recorded in the firm’s accounts?
Debit client ledger client account £5,000
Credit cash sheet client account £5,000
Debit VAT account £1,000
Credit client ledger business account £1,000
Debit client ledger client account £6,000
Credit cash sheet client account £6,000
Debit client ledger business account £5,000
Credit cash sheet business account £5,000
Debit client ledger business account £1,000
Credit VAT account £1,000
Debit client ledger business account £6,000
Credit cash sheet business account £6,000
Debit client ledger client account £5,000
Credit cash sheet client account £5,000
Debit client ledger client account £1,000
Credit VAT account £1,000
Debit client ledger client account £6,000
Credit cash sheet client account £6,000
Correct. Here the firm is acting as agent when paying the estate agent’s fees plus VAT. The estate agent made the supply of their services to the client (not to the firm) and the client has asked the firm to pay the estate agent on their behalf. When paying a disbursement plus VAT as agent, as here, the VAT element must not be separated from the estate agent’s fees and there are no separate VAT related accounting entries for the firm to make. On these facts, there is sufficient client money held in the client account for this client to make the payment of the total of the estate agent’s fees plus VAT ie £6,000. Therefore, the client ledger client account (which shows how much client money the firm holds for that client) is debited (because client money is being taken out of the client account to make the payment so the firm now holds less client money for the client) and the cash sheet client account is credited. Both of these entries are for the amount of the estate agent’s fees plus VAT as an inclusive figure.
A client of a firm of solicitors (the ‘firm’) owes the firm £7,500 which represents an unpaid bill of costs for £6,250 plus VAT of £1,250 dating back over a year. The client is insolvent and the firm learns that it is unlikely they will receive any money from the liquidation of the company’s assets. The client has no client money in the client account. The firm therefore decides to write off the full amount of the debt as irrecoverable.
Which one of the following should be included in the entries made to record writing off the debt in the firm’s accounts?
Credit client ledger client account £7,500
Debit bad and doubtful debts account £7,500
Credit client ledger business account £7,500
Debit bad and doubtful debts account £7,500
Credit client ledger client account £6,250
Debit bad and doubtful debts account £6,250
Credit bad and doubtful debts account £7,500
Debit client ledger business account £7,500
Credit client ledger business account £6,250
Debit bad and doubtful debts account £6,250
Credit client ledger business account £6,250
Debit bad and doubtful debts account £6,250
Correct. These are the pair of entries needed to record the writing off of the net amount of the bad debt (excluding VAT). There would also be another pair of entries (made in the client ledger business account and the VAT account) to record the write off of the VAT on the bad debt (£1,250) which can be recovered as the debt is at least six months old.
A firm of solicitors is acting on behalf of a client who is selling his property and purchasing a new property. On exchange of contracts for the sale, the firm receives a deposit of £25,000 which is to be held as stakeholder.
Which pair of double entries best shows how the receipt of the deposit should be recorded in the firm’s accounting records?
A. Credit cash sheet client account
Debit joint stakeholder ledger
B. Credit cash sheet business account
Debit joint stakeholder ledger
C. Credit client ledger client account
Debit joint stakeholder ledger
D. Credit joint stakeholder ledger
Debit cash sheet client account
E. Credit cash sheet client account
Debit client ledger client account
D. Credit joint stakeholder ledger
Debit cash sheet client account
Your firm is acting in the administration of the estate of Arjun Patel (deceased). The deceased held an account with New Birmingham Building Society (‘NBBS’), which you closed. NBBS has sent your firm a cheque (made payable to your firm) in respect of the closing balance of that account.
Which pair of double entries shows how the receipt of the cheque from NBBS should be recorded in your firm’s accounts?
Debit client ledger client account: Arjun Patel (deceased)
Credit cash sheet client account
Credit client ledger client account: Arjun Patel (deceased)
Debit client ledger business account: Arjun Patel (deceased)
Credit client ledger business account: Arjun Patel (deceased)
Debit cash sheet business account
Debit client ledger business account: Arjun Patel (deceased)
Credit cash sheet business account
Credit client ledger client account: Arjun Patel (deceased)
Debit cash sheet client account
Credit client ledger client account: Arjun Patel (deceased)
Debit cash sheet client account
Correct. The cheque is client money under SRA Accounts Rule 2.1(a). It must be paid into the client bank account under Rule 2.3. The entries needed to record this are a credit in the client side of the client ledger and a debit in the cash sheet for the client account.
You are a solicitor in a firm of solicitors. Your firm issued a bill of costs to a client for fees of £20,000 plus VAT. It subsequently reduces its fees by £1,000.
Which one of the following correctly sets out the double entry/entries needed to record this abatement in your firm’s accounts?
Debit profit costs £1,000
Credit client ledger business account £1,000
Debit VAT account £200
Credit client ledger business account £200
Debit client ledger business account £1,200
Credit profit costs £1,200
Debit profit costs £1,000
Credit client ledger business account £1,000
Debit profit costs £200
Credit VAT account £200
Debit profit costs £1,200
Credit client ledger business account £1,200
Debit client ledger business account £1,000
Credit profit costs £1,000
Debit client ledger business account £200
Credit VAT account £200
Debit profit costs £1,000
Credit client ledger business account £1,000
Debit VAT account £200
Credit client ledger business account £200
