Solicitor's Accounts Flashcards
A solicitor acts for the executors of an estate. Whilst administering the estate, the executors have found £300 in the house of the deceased and send it to the solicitor.
What entries should record the receipt of the £300?
Credit cash account - client side; Debit client ledger - business side.
The executors are the firm’s client, therefore any money sent to the firm is client money. It must, therefore, be shown as a credit entry on the client side of the client ledger, and the corresponding entry would be a debit on the cash account - client side, as it is money that the firm now owes to the client.
A firm of solicitors acts for a client in relation to a property conveyancing matter. On behalf of the client, the firm pays a bill from a surveyor of £300 plus £60 VAT. The invoice is addressed to the firm.
What entries should the firm make with regard to the payment?
Debit £300 - Business side of Client x’s ledger.
The principal method of payment should be used, as the invoice is addressed to the firm.
- The expense is the firm’s expense and £300 of business money must be used, 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 £60 will be added to total VAT charged by the firm when it issues its bill of costs to the client.
A law firm represents a young couple and a bank in the purchase of the couple’s first house. After receiving a clear certificate of title from the firm, the bank releases the mortgage funds by sending the firm a cheque for £250,000.
What accounting entries should be made upon deposit of the cheque?
Credit £250,000 Bank ledger client account
Debit cash sheet £250,000 client account
This is a receipt of client money and belongs to the bank until completion, so the money must be paid into the client bank account and recorded as being held for the bank.
After having her solicitor on a long-term retainer to help her set up a shoe company, a client now wants to terminate the retainer. The client had initially given the solicitor a cheque of £10,000 to use against costs. Now, all that remains is £156. Therefore, the solicitor writes a cheque in that amount to the client.
Which entries would be the most appropriate to record this payment?
Credit cash sheet client account
Debit client ledger client account
The firm would need to debit the client account to send her the money. The corresponding entry would be a credit entry in the cash sheet, as the firm no longer owes this money to the client.
What entries need to be made for an inter-client transfer?
A debit entry on the client account of the transferring client’s ledger
A credit entry on the recipient client’s ledger.
A law firm represented a doctor in ethics proceedings and sent the doctor a bill for £10,000 in profit costs and £2,000 VAT. In response, the doctor transfers £12,000 to the firm.
What entries need to be made?
Credit client ledger business account
Debit cash sheet business account
Because the law firm has sent the client a bill for this amount, the money belongs to the law firm and can be deposited into the firm’s business account. Therefore, we credit the client ledger on the business account. And the corresponding entry is a debit entry on the business account cash sheet. It would be possible to pay the money into the client account and transfer it to the business account promptly, but it is simpler to pay directly into the business account.
A firm issues a bill to the client for £25,000 plus VAT of £5,000. The client gets angry and refuses to pay, saying that this bill is much higher than had been agreed. To avoid a legal dispute, the firm agrees to reduce the bill to £20,000 and a VAT of £4,000.
What entries would the firm make to record the appropriate abatement of fees?
Debit profit costs and HMRC ledgers
Credit client ledger business account
The firm must reduce the entries on the business account in the profit costs ledger, the HMRC ledger, and the client ledger by the amount of the reduction.
Here, this would be shown as a credit entry on the client ledger of £5,000 relating to the profit costs and £1,000 for the VAT. In addition to this, the corresponding profit costs and VAT ledgers must also be reduced. This would be shown as a debit entry of £5,000 on the profit costs ledger and £1,000 on the HMRC (VAT) ledgers.
A firm helps a young computer programmer in setting up a video game company. After the company is incorporated, the firm sends the programmer a bill for profit costs of £4,000 and VAT of £800. The programmer sends the firm the £4,800 as payment.
On receipt of the £4,800, what entries should the firm record in their accounts?
Credit £4,800 on the client ledger on the business account
Debit the cash sheet on the business account.
When a client pays a bill for profit costs, the entire sum is credited to the client ledger on business account (as this is business money) and debited to the cash sheet.
For any receipt of client money, what will the entry be?
Debit cash sheet, client account
Credit client ledger, client account
For payments out of the client bank account, what will the entry be
Credit cash account, debit client ledger
A solicitor was instructed by a professional chess player regarding an immigration matter. The firm receives an invoice from an accounting company which provided services for the client’s matter. The invoice is addressed to the firm and is for £3,000 plus £600 VAT. The firm pays the invoice.
What entries need to be made?
Debit client ledger £3,000 business account.
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. £3,000 will be debited from the client’s ledger on the business account when the payment is made.
The VAT of £600 will be added to total VAT charged by the firm when it issues its bill of costs to the client. The corresponding double entries will be recorded on the firm’s cash sheet, and the firm will also make entries on the VAT and cash ledger in respect of the VAT amount.
