Solicitor's Accounts Flashcards
Where will entries for transactions involving client money be recorded?
A client account cash book referred to as the CASH SHEET CLIENT ACCOUNT and a client ledger account for each individual client this is the CLIENT LEDGER ACCOUNT.
What does the CASH SHEET CLIENT ACCOUNT record?
Payments in and out of the client account for all clients
What does the CLIENT LEDGER CLIENT ACCOUNT record?
Payments in and out of the client account for that particular client.
Where will the entries for transactions involving non-client money be recorded?
Business account cash book for the authorised body’s money, the CASH SHEET BUSINESS ACCOUNT, and The business side of the client ledger account for each individual - the CLIENT LEDGER BUSINESS ACCOUNT.
If firm receives client money from Mrs Allen, where will this be recorded?
Two entries - one in the client ledger client account for Mrs Allen, one in the cash sheet client account.
What if a client had more than one matter running at the same time?
Each client ledger should include the clients name and a description of the matter or transaction . Several different matters for the same client = separate client ledgers for that client for each matter.
Entries for client money received and paid into the client account?
Credit the client ledger client account for Mrs Allen.
Debit the cash sheet client account.
Entries for client money paid out or withdrawn from the client account?
Debit the client ledger client account for Mr Smith.
Credit the cash sheet client account.
Mrs Brown sends money to pay the firm. How will this be entered?
Credit the client ledger business account for Mrs Brown.
Debit the cash sheet business account.
Mr Chen has not yet sent the money to account for costs, and the firm is using non-client money to pay for something on behalf of him.
Debit the client ledger business account.
Credit the cash sheet business account.
A solicitor acts for a client in the sale of her commercial property (Client X). The solicitor also acts for her son on the purchase of his first flat (Client Y). Upon completion of the sale of the commercial property, Client X receives £500,000 which is credited to her account. Client X then asks her solicitor to transfer £200,000 to Client Y.
Which of the following entries should the solicitor use to record the transfer of £200,000?
a) DR £200,000—Client X’s ledger, client side and DR £200,000—Client Y’s ledger, client side.
b) DR £200,000—Cash account, business side and CR £200,000—Client Y’s ledger, client side.
c) DR £200,000—Client X’s ledger, business side and CR £200,000—Client Y’s ledger, business side.
d) CR £200,000—Cash account, client side and DR £200,000—Client X’s ledger, client side.
e) DR £200,000—Client X’s ledger, client side and CR £200,000—Client Y’s ledger, client side.
E. In order to carry out an inter-client transfer, money is debited from one client account (Client X) and credited to another client account (Client Y) and the solicitor would by-pass the Cash account in this instance.
A long-standing client has just passed away and the solicitor is administering the estate on behalf of the executrix. There is £5,000 held on account for the executrix and IHT of £30,000 must be paid. The bank is willing to pay the IHT directly to HMRC using funds from the deceased’s bank account and has sent a cheque to the firm for £30,000 addressed to HMRC.
What is the best course of action for the solicitor to take regarding the payment of IHT?
a) Destroy the cheque and request that the bank reissues it to the firm and then use business funds to pay the IHT bill. incorrect
b) Place the cheque in the client account and issue a cheque for £30,000 using client funds. incorrect
c) Send the cheque to the executrix and request that she pays the IHT bill. The solicitor does not record the entry on the client ledger. incorrect
d) Place cheque in the business account and issue a cheque for £30,000 using business funds. incorrect
e) Send the cheque directly to HMRC. The solicitor does not record an entry on the client ledger. correct
E - A solicitor can only deal with client funds when those funds are issued directly to the firm. As this cheque is addressed to HMRC and not the firm, the solicitor can only act as a postal service and send the cheque directly to HMRC. It is neither client nor business money and therefore cannot be recorded on the respective ledgers. (It would always be advisable for the solicitor to keep some sort of written record of the action taken, however.)
A solicitor represents a client who is selling his house for £500,000 and purchasing a house for £700,000. Upon exchange of contracts, the solicitor receives a deposit of £50,000.
How should the solicitor deal with the receipt of £50,000?
a) Place the £50,000 in the business account until completion then transfer it to the client account. incorrect
b) The £50,000 must be placed in the client account, then upon completion nothing further needs to be done. incorrect
c) The £50,000 is the seller’s money and must be dealt with in accordance with the client’s wishes. incorrect
d) The £50,000 can be placed in the client account, identified as a stakeholder deposit, held for both buyer and seller. correct
e) The £50,000 must be held in a separate account under the name of the seller and the purchaser. incorrect
D - The £50,000 deposit is held as a stakeholder deposit. This means it belongs to both the buyer and the seller. As it is defined as client money (rule 2.1(b) SRA Accounts Rules), it can be held in the client’s account but it must be clearly identified and as being held for both parties, and nothing further needs to be done at completion (rule 8.1).
A partner is acting for a client on a litigation matter. Documents must be lodged at court that afternoon. The partner draws a cheque for £80 and gives it to a trainee to take to court with the documents to cover the court fee. There is £50 in the client account.
Which of the following entries best describes how the partner should record this transaction?
a) DR £80—Client ledger, client side and CR £80—Cash account, client side.
b) DR £80—Client ledger, business side and CR £80—Cash account, business side.
c) DR £80—Client ledger, business side and CR £80—Costs ledger
d) DR £80—Client ledger, business side and DR £80—Cash account, client side.
e) CR £80—Cash account and DR £80—Cash account, client side.
B - As there is not enough money in the client account, the cheque would be drawn from the business account on the business side of the client ledger. As such, the corresponding entry would be a CR entry on the general Cash account.
An aunt wishes to sell her residential home and downsize by purchasing a smaller property, and her niece wishes to purchase her first property. They have instructed a local firm of solicitors to act. Upon completion of the aunt’s sale and purchase, she instructs the solicitor to transfer £50,000 to her niece to assist her with her property transaction.
Which of the following entries should the solicitor make to ensure this transfer of £50,000 is carried out?
a) CR £50,000—Aunt’s client ledger, client side and DR £50,000—Niece’s client ledger, client side.
b) DR £50,000—Cash Account, client side and CR £50,000—Niece’s client ledger, client side.
c) DR £50,000—Aunt’s client ledger, client side and CR £50,000—Niece’s client ledger, client side.
d) DR £50,000—Cash account, business side and CR £50,000—Niece’s client ledger, client side.
e) CR £50,000—Cash account, client side and DR £50,000—Aunt’s client ledger, client side.
C - In any inter-client transfer, the solicitor will take (DR) funds from the appropriate client ledger and credit (CR) it directly to the other client’s ledger. There is no movement on the Cash account as no money has left the general client account.
