SA Flashcards
A client sends you £6000 in payment of a bill for your legal services of £5000
plus VAT. Is that client money?
O Yes
O NO
No. The client has sent the money to you to pay their bill. The client does not expect to have the money used for their benefit and they know they have no rights to it.
You act for a client in a property matter. The client sends you a cheque for £300 on account of costs. What are the appropriate entries to note receipt of these funds?
DR £300
CR £300
* (A) Debit client account, client account record; Credit cash account, client account record.
O (B) Debit cash account, client account record;
Credit client account, client account record.
O (C) Debit cash account, business account
record; Credit client account, business account record.
(B) is correct. This is a receipt of client money because the client will expect to have the £300 used for their benefit for costs arising in relation to their matter. On receipt, this cheque must be put into the client bank account promptly. We must then show that the cash account owes the client this money. To do so, we will debit the cash account (which reflects dealings with the client bank account) and credit the client account (which reflects dealings with respect to a particular client). Both entries must be made on the client account record because remember, this is client money.
The client bank account holds £5000. You hold £300 for Client
X. You need to make a disbursement of £350 for Client X. Can you pay £350 for Client X out of the client bank account?
O Yes
O NO
No
Match the events in the left of the table with the associated entries you should make based on these events in the right of the table, using the corresponding letter (for example, Event 8 matches with H).
Event 1 matches with
Event 2 matches with
Event 3 matches with
Event 4 matches with
Event 5 matches with
Event 6 matches with
Event 7 matches with
Events Associated Entries
1. On 2 May, you receive £500 from Client X on account of costs. A. Debit Client X, client account record and credit cash account, client account record.
2. On 5 May, you pay £300 on behalf of Client X for a search fee. B. Debit Client X, business account record and credit HMRC, business account record.
3. On 7 May, you pay another £300 on behalf of Client X for a further search fee. C. Debit Client X, business account record and credit profit costs, business account record.
4. On 15 May, you send Client X a bill for £600 professional charges. D. Credit Client X, client account record and debit cash account, client account record.
5. The 15 May bill also includes £120 VAT. E. Credit Client X, business account record and debit HMRC, business account record.
6. On 16 May, Client X complains your bill is too high and you agree to reduce it by £100 for professional charges. F. Credit Client X, business account record and debit profit costs, business account record.
7. You also agree to a reduction to the bill of £20 VAT. G. Debit Client X, business account record and credit cash account, business account record.
1 D
2 A
3 G
4 C
5 B
6 F
7 E
What money from this cheque would be client money?
CLIENT SENDS £183,395
* £180,000 purchase price
* £1500 Stamp Duty Land Tax
* £95 Land Registry Fee
* £1500 professional charges
* £300 VAT
From the cheque of £183,395, the amounts that would be considered client money are the £180,000 for the purchase price, £1500 for Stamp Duty Land Tax, and £95 for the Land Registry Fee, totaling £181,595. The professional charges and VAT are fees owed to the solicitor and not held on behalf of the client for other purposes.
Two weeks ago, you sent your client, Lubco Ltd, a bill for £2350. This was made up of £1800 Professional Charges (Profit Costs) plus £360 VAT, and a disbursement of £190 that the firm has already paid. Today, you receive a cheque from Lubco Ltd for £2350.
Which of the following entries could correctly record the receipt?
* (A) DR Client ledger, business account record- CR Client ledger, client account record.
* (B) CR Client ledger, business account record - DR Cash Account ledger, business account record.
* (C) CR HMRC ledger and Profit Costs ledger - DR Client ledger, client account record.
O (D) DR Client ledger, client account record - DR Profit Costs
ledger.
B
Fill in the blanks by typing either of the below choices:
Principal
Agency
- If the third party’s invoice is addressed to the client, use the method.
- If the third party’s invoice is addressed to the law firm, use the method.
1 Agency
2 Principle
Your firm is acting for Mrs Jackson in relation to a property dispute. The firm holds £3,000 in the client account for Mrs Jackson on account of costs.
Write down the appropriate entries you should make for each event, taking into account the previous events.
1. The firm pays an environmental expert’s fee of £1,100 plus £220 VAT on behalf of its client Mrs Jackson. The invoice is addressed to Mrs Jackson.
2. The firm pays a surveyor’s fee of £1,100 plus VAT on behalf of its client Mrs Jackson. This time, the invoice is addressed to the firm.
3. The firm pays counsel’s fees of £1,100 plus VAT on behalf of its client Mrs Jackson. Again, the invoice is addressed to the firm.
4. You send the client your bill for £10,000 plus VAT.
For the environmental expert’s fee: Debit Mrs. Jackson’s ledger in the client account for £1,320 (£1,100 fee + £220 VAT) and credit the environmental expert’s ledger, reflecting the payment made on behalf of Mrs. Jackson.
For the surveyor’s fee addressed to the firm: Debit the office account for £1,320 (£1,100 fee + £220 VAT) to reflect the firm’s payment for services addressed to it, affecting the firm’s ledger, not the client’s account directly.
For counsel’s fees with the invoice addressed to the firm: Similarly to event 2, debit the office account for £1,320 to cover the counsel’s fees and VAT, since the invoice is addressed to the firm.
Upon sending Mrs. Jackson’s bill: Credit Mrs. Jackson’s ledger in the client account for £10,000 + VAT (£12,000 total) and debit the firm’s income ledger to account for the professional charges earned.
On which accounts should you make the following entries to complete the inter-client transfer and show that you no longer hold the money jointly for the buyer and the seller, but now hold the money just for the seller?
Fill in the blanks with one of the below options:
A - Joint Stakeholder
B - Seller Client
C - Buyer Client
- DR Account, Client account
- CR Account, Client account
1 A
2 B
Stakeholder money belongs to both the buyer and the seller, not either individually. On receipt, the deposit (stakeholder) money was therefore credited to the stakeholder account and held jointly in the names of both buyer and seller. On completion, we need to show that the deposit money which was previously held as stakeholder now belongs solely to the seller. To do so, we must complete an inter-client transfer from the stakeholder account to the seller’s client account. The corresponding entries are thus debit joint stakeholder account, client account, and credit seller’s client account, client account.
