SAC 1

Question 1

What are the 3 basic steps for identifying how to record an entry?

Answer 1

1. Which combination of ledgers should be used
2. Client or business side
3. CR or DR

Question 2

What are the different combinations of ledger which can be used?

Answer 2

Client ledger and cash ledger = money moving

Client ledger and profit costs / client ledger and HMRC = bill issued

Client ledger and client ledger = client transfer

Question 3

On the CLIENT ledger, what do CR and DR signify?

Answer 3

CR = receipt, i.e. credit

DR = payment from the client / debt of the client

Question 4

Why must a client ledger never have a DR balance?

Answer 4

This would mean that another client’s money has been spent

Question 5

Why my a business account never have a DR balance?

Answer 5

This would be unearned money

Question 6

If cash is paid to acquire something, e.g. furniture, does this incur a liability?

Answer 6

No, however the furniture would be an asset

Question 7

What is the general rule regarding client money?

Answer 7

It must be paid promptly into a client bank account

Question 8

Is money received for fees and disbursements considered client money?

Answer 8

Yes, until billed

Question 9

Is money received as reimbursement for disbursements which has already been paid considered client money?

Answer 9

No

Question 10

What are 3 exceptions to the general rule requiring prompt payment of client money into a client account?

Answer 10

1. Where it is money received as trustee or holder of a specified office or appointment, and paying it into a client bank account would conflict with obligations relating to the specified office or appointment
2. The client money represents payments received from the Legal Aid Agency (LAA) for the firm’s costs
3. The firm agrees an alternative arrangement in writing with the client, or the third party, for whom the money is held

Question 11

What are the 3 circumstances in which money can be withdrawn from the client bank account?

Answer 11

1. For the purpose for which it is being held OR
2. Following receipt of instructions from the client or the third party for whom the money is held OR
3. On the SRA’s prior written authorisation or in prescribed circumstances

Question 12

What is the limit on the residual amount in a client account that the firm can withdraw, without the SRA’s authorisation?

Answer 12

£500

Question 13

When a bill is issued to a client, how is this recorded?

Answer 13

To record professional charges:

DR entry in the business section of the client ledger account
CR entry in the profit costs account

To record VAT:

DR entry in the business section of the client ledger account
CR entry in the HMRC account

Question 14

What are the options to deal with mixed receipts?

Answer 14

1. Split cheques, if bank allows if
2. Paying the money into one bank account and transferring money is more common, i.e. either: paying the cheque into the business bank account and then promptly transferring the required amount to the client bank account, or vice versa

Question 15

What steps should be taken on the records if a cheque is dishonoured? E.g. value of £1,000

Answer 15

CR entry on the Cash account client column for £1,000

DR entry on the Client account client column for £1,000

Question 16

If a bill is abated / reduced by the firm, what happens to the output tax paid?

Answer 16

Can be reduced accordingly

Question 17

If a firm has been paid commission, what is deemed as “properly accounting” for this profit?

Answer 17

1. Paying it to the client OR
2. Offsetting it against fees OR
3. Keeping it only where the firm can justify keeping it, has told the client the amount of the benefit and the client has agreed to the firm keeping it