Double-Entry Bookkeeping - Other Issues

Question 1

What interest must be paid to clients for sums held on their behalf?

Answer 1

A fair sum of interest must be paid to them

Question 2

What is a ‘fair sum’ of interest?

Answer 2

No definition of fair sum. Previous guidance suggests firms need to take into account:

• amount held
• length of time held for
• need for instant access to fund
• rate of interest payable on amount held in instant access account
• practice of bank in paying interest

Question 3

Do firms have to pay client’s interest?

Answer 3

Not if by written agreement with client it is agreed otherwise. Client must have sufficient information to give informed consent

Question 4

What entries are required for receipt of interest earnt by client account into the authorised body’s business account?

Answer 4

• credit interest receivable ledger
• debit cash sheet business account

Question 5

What entries are required for paying interest to a client (ie transfer from business account to client account)?

Answer 5

• debit interest payable ledger
• credit cash sheet business account

Then

• credit client ledger client account (for the client being paid the interest)
• debit cash sheet client account

Question 6

What entries are required for a separate designated client account receiving money?

Answer 6

• credit client ledger separate designated client account for that client
• debit cash sheet separate designated client account for that client

Question 7

What entries are required for withdrawing money from a separate designated client account?

Answer 7

• debit client ledger separate designated client account for that client
• credit cash sheet separate designated client account for that client

Question 8

What entries are required for transferring client money from the main client account into a separate designated client account?

Answer 8

• debit client ledger client account for the client
• credit cash sheet client account
• credit client ledger separate designated client account for the client
• debit cash sheet separate designated client account for the client

Question 9

What entries are required for the transfer of client money out of a separate designated client account and into the main account?

Answer 9

• debit client ledger separate designated client account for the client
• credit cash sheet separate designated client account for the client
• credit client ledger client account
• debit cash sheet client account

Question 10

What entries are required for payment of interest by a separate designated client account?

Answer 10

• credit client ledger separate designated client account for the client
• debit cash sheet separate designated client account for the client

Question 11

When a bill is raised for a client, where will it be recorded?

Answer 11

It will be recorded on the client side of the client ledger account and on central register of bills (profit costs record)

Question 12

Is VAT charged on bills? What rate?

Answer 12

Yes if firm is VAT registered.

Charged at 20%.

Question 13

When a client pays a bill is it client or non-client money?

Answer 13

It is non-client money.

Question 14

What entries are required for issuing a bill plus VAT?

Answer 14

• Debit client ledger business account for that client with the amount of the bill of costs (less VAT)
• Credit profit costs with the amount of the bill of costs (less VAT)
• Debit client ledger business account for that client with the amount of the VAT on the bill of costs
• Credit VAT account with the amount of the VAT on the bill of costs

Question 15

What entries are required for receipt of payment of bill and VAT ie non-client money received?

Answer 15

• Credit client ledger business account for that client
• Debit cash sheet business account

Question 16

What entries are required to pay a bill by transferring money from client account to business account?

Answer 16

First, withdraw money from client account:

• Debit client ledger client account for that client
• Credit cash sheet client account

Then, money paid into business account:

• Credit client ledger business account for that client
• Debit cash sheet business account

Question 17

What entries are required when issuing a bill plus VAT to a lender who does not have a separate client ledger?

Answer 17

• Debit client ledger business account for the borrower with the amount of the bill of costs (less VAT)
• Credit profit costs with the amount of the bill of costs (less VAT)

AND

• Debit client ledger business account for the borrower with the amount of the VAT on the bill of costs
• Credit VAT account with the amount of the VAT on the bill of costs

Question 18

What entries are required when issuing a bill plus VAT to a lender who does have a separate client ledger?

Answer 18

• Debit client ledger business account for the lender with the amount of the bill of costs (less VAT)
• Credit profit costs with the amount of the bill of costs (less VAT)

AND

• Debit client ledger business account for the lender with the amount
  of the VAT on the bill of costs
• Credit VAT account with the amount of the VAT on the bill of costs

Question 19

What entries are required when abating a bill plus VAT?

Answer 19

• Credit client ledger business account for that client with the amount the bill of costs (less VAT) is being reduced by
• Debit profit costs with the amount the bill of costs (less VAT) is being
  reduced by

AND

• Credit client ledger business account for that client with the reduction in VAT on the bill of costs
• Debit VAT account with the reduction in VAT on the bill of costs

Question 20

What entries are required for writing off a bad debt plus VAT?

Answer 20

• Credit client ledger business account for that client with the amount of the debt being written off (excluding VAT)
• Debit bad and doubtful debts with the amount of the debt being written off (excluding VAT)

AND

• Credit client ledger business account for that client with the amount of VAT in respect of the unpaid debt
• Debit VAT account with the amount of VAT in respect of the unpaid debt

Question 21

What entries are required for paying a disbursement plus VAT as agent? (There is sufficient money held by the client)

Answer 21

• Debit client ledger client account for that client for the cost plus VAT (as one figure)
• Credit cash sheet client account for the cost plus VAT (as one figure)

Question 22

What entries are required for paying a disbursement plus VAT as agent? (There is insufficient money held by the client)

Answer 22

• Debit client ledger business account for that client for the cost plus VAT (as one figure)
• Credit cash sheet business account for the cost plus VAT (as one figure)

Question 23

What entries are required for paying a disbursement plus VAT as principal?

Answer 23

Step one

• Debit client ledger business account for that client with the amount of the cost (excluding VAT)
• Credit cash sheet business account with the amount of the cost (excluding VAT)

AND

• Debit VAT account with the amount of VAT in respect of the cost
• Credit cash sheet business account with the amount of VAT in respect of the cost

Step two

• Debit client ledger business account for that client with the amount of VAT in respect of the cost
• Credit VAT account with the amount of VAT in respect of the cost