Solicitors Account Flashcards
Important rules for cash sheet
Any money received by the firm from or for a client will be treated as a debit entry. As this is money owed to the client. Any money that is paid for or on behalf of the client will be treated as a credit entry.
What accounts are held for the a ledger?
Client
Business
example of simple transaction of money paid in by client for costs
Credit client ledger client account
Debit client cash sheet client account
example of simple transaction of money paid in by client in settlement of what is owed
Credit client ledger business account
Debit client cash sheet business account
example of when issuing a bill where there is amount plus VAT
Debit client ledger business account
Credit client cash sheet business account
Debit client ledger business account (VAT amount)
Credit HMRC ledger (VAT amount)
If funds are already on account, you do not need a HMRC ledger entry.
example of entry when deducting part of an invoice
Debit profit costs - amount deducted
Debit HMRC - VAT amount deducted
Credit client ledger - amount deducted
Credit client ledger - VAT amount deducted
what must firms do if a cheque contains mixed payments
they may be dealt with in more than one way
examples of how cheque can be split
If being split into two accounts:
Credit client ledger client account - amount owed
Debit client cash sheet client account - amount owed
Credit client ledger business account - amount owed
Debit client cash sheet business account - amount owed
If going straight into one account then transferred:
Credit client ledger client account - full amount
Debit client cash sheet client account - full amount
Debit client ledger client account - amount owed to business
Credit client cash sheet client account - amount owed to business
Credit client ledger business account - amount owed
Debit client cash sheet business account - amount owed
costs that are not consider disbursements
telephone call charges
travel expenses incurred by firm whilst on client matters
postage fees the firms occurs sending to clients
photocopying charges or bank transfer fees when transferring from client to business account
property search fees
These will be subject to VAT
Protocol with 3rd party invoices address to the client
This is the agency method, where the firm will pay the full invoice and any VAT that is subject to the invoice. The full amount paid will then be recorded as follows:
Debit client ledger client account - amount paid
Credit client cash client account - amount paid
No entry to HMRC needed
Protocol with 3rd party invoices address to the firm
Known as the principal method, the firm will pay the invoice ONLY from business funds. The costs will then sent on to the client at the same price including the VAT. It will be recorded as follows:
Debit client ledger business account - amount (excluding VAT) paid
Credit client cash sheet business account - amount (excluding VAT) paid
Credit client cash sheet business account - VAT Paid
Debit HMRC ledger business account - VAT paid
What must firms do when holding deposits ?
They must open a stakeholder account for both the buyer and seller. when completing the deposit can just be transferred to the clients ledger under client account. The cash sheet does not need to be used. Transaction will be as follows:
Credit Stakeholder ledger client account - deposit paid
Debit stakeholder cash sheet client account - deposit paid
What must firms do in respect of petty cash?
If the use of petty cash is paid on behalf of the client this MUST be used out of business account.
How must income be paid to the client?
The firm must pay a ‘fair’ sum of interest on account. However, a firm may adopt a ‘de minimis’ policy i.e the firm will not pay interest on client’s funds if their account is below a certain amount.
Wording such as ‘may,should, or must’ these circumstances would indicate ‘fair’ amount of interest payment being zero.
