Solicitor's Accounts Flashcards
Receipt of funds is what on the ledger?
Debit in cash account
Credit in client ledger
Payment of funds is what on the ledger?
Credit in the cash account
Debit in the client ledger
How do you deal with paying an invoice addressed to a client?
- agency method
- pay out of business or client account if there is enough in there
- send invoice to client
If a client gives you cash to pay fees in a week or so what should you do?
Record the payment of cash in the client ledger and promptly pay into the client bank account.
When looking at solicitors accounts SBAQ questions, what word must you look out for in order to avoid being tripped up?
‘Must’ e.g. a split cheque ‘must’ be paid in full into client account and then into biz account promptly - this would be wrong as this is one option but it is not a ‘must’
When are profit costs credited/debited?
Debit Profit Costs: Profit Costs represent the solicitor’s fees that are due but unpaid. When the solicitor receives payment from the client, they are not directly debiting or reducing the Profit Costs. Instead, they are increasing the business’s cash balance.
Profit Costs are credited when the bill is issued (to recognize revenue), but they are not debited when cash is received.
A firm of solicitors acts for a client in relation to a probate matter. On behalf of the client, the firm pays a bill from a valuation expert of £600 plus £120 VAT. The invoice is addressed to the firm.
What entry should the firm make with regard to the payment?
Debit £600 - Business side of Client x’s ledger.
The principal method of payment should be used, as the invoice is addressed to the firm. Therefore, the expense is the firm’s expense and business money must be used. £600 will be debited from the business side of the client’s ledger when the payment is made. The corresponding entries will be recorded on the firm’s cash ledger and VAT ledger. The VAT of £120 will be added to total VAT charged by the firm when it issues its bill of costs to the client.
A firm of solicitors is acting for a client in the purchase of a property for £400,000 in Essex. The client is putting £200,000 towards the cost of the purchase but requires a mortgage for the remaining £200,000. The institutional lender has agreed to advance the sum of £200,000 to the firm for the client.
How should the firm deal with this money (mortgage money)?
Upon receipt of the mortgage advance, the firm must open a separate ledger account for the lender.
A solicitor must record client money and show for which client they are holding the money. Here the solicitor can either record it on the borrower’s ledger and note in the details column that it is held for the lender until completion or they can open a separate ledger account for the lender and transfer the mortgage monies to the borrower’s ledger on completion.
What entries are made when an invoice to pay a bill for profit costs is issued to a client?
When a client pays a bill for profit costs, the entire sum is credited to the business side of the client ledger and debited to the business side of the cash account ledger.
when a client pays an invoice, no entries are made on the HMRC (VAT) ledger.
A firm has completed the administration of an estate for the personal representatives of a deceased person. The firm must now transfer the residuary estate to the sole beneficiary, who is also a current client of the firm.
How should this transaction be reflected in the respective client ledgers?
Debit the deceased client’s ledger - client side; Credit the beneficiary client’s ledger - client side
The deceased client’s ledger should be debited, and the beneficiary client’s ledger should be credited, as the funds (residuary estate) must be taken out of the deceased client’s ledger and transferred across and credited to the beneficiary client’s ledger.
A solicitor receives an invoice from legal counsel for work it has done on a client’s property dispute for £1500, plus £300 VAT, addressed to the firm.
How should the invoice be treated for accounting purposes?
The supply is treated as having been made to the client, so the firm will pay the invoice, including the VAT, using client money if available, and if not, business money, on behalf of the client.
As this disbursement is from legal counsel, the agency method of payment applies: the firm may cross out its own name and replace it with the client’s name. The firm will pay the entire amount of the expense, including VAT, from client money.
