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FLK2 > Solicitors Accounts > Flashcards

Solicitors Accounts Flashcards

1
Q

Solicitor’s accounts rules

A

Control how solicitors handle and record money

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2
Q

Rules apply to

A
  1. Authorised bodies
    - Authorised by SRA
    - Licensed body
    - Recognised body
    - Sole practitioner
  2. Managers
  3. Employees
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3
Q

Distinction between business money and client money

A

Client money:
- Held or received
- Relating to regulated services
- On behalf of a third party
- As trustee or by appointment
- Fees and unpaid disbursements

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4
Q

‘Client’ includes current, prospective and former

A
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5
Q

Client bank account

A
  • Bank or building society in England and Wales
  • Firm’s name and client intitle
  • For legal services only
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6
Q

Client account ledger

A
  • Record by client name
  • Receipts and payment
  • Client money and not client money
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7
Q

Double entry bookkeeping

A
  • 2 entries for each transaction
  • Debit (DR) and
  • Credit (CR)
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8
Q

Cash account/cash sheet

A
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9
Q

A receipt = debit on cash account and credit client’s ledger

A payment (out) = credit on cash account and debit client’s ledger

A
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10
Q

Client money must be paid into client account promptly (that day or next working day) EXCEPT if an alternative arrangement agreed in writing BUT must record receipt in ledger

A
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11
Q

Cannot withdraw more than held for a client

A
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12
Q

Profit-cost business account

A

Reflects the firms professional charges

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13
Q

HMRC account

A

Reflects the VAT tha tmust be accounted

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14
Q

You do not use the cash account when money is not entering or leaving a bank account

A
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15
Q

Abatement of professional charges

A

Reverse original entries to extent of reduction

Professional costs:
- Credit client ledger in business account
- Debit on profit-cost account

VAT:
- Credit client ledger in business account
- Debit HMRC account

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16
Q

Dishonoured (bounced) cheques

A

Reverse entries made on receipt of cheque

  1. Debit client ledger, client account record
  2. Credit cash account, client account record
  3. Debit client ledger in business account
  4. Credit cash account in business account
  5. Pay money into client account
17
Q

Credit = money in

Debit = money out

A
18
Q

Cheque to third-party

A

Cannot be paid into firm’s bank account

Cheque must be forwarded to third-party and no entries are made in the ledger

19
Q

Mixed receipt

A

Client money + business money

20
Q

Dealing with mixed receipts

A

Option 1 - split the cheque:
1. Client money > client account
- Credit client ledger, client account record
- Debit cash account, client account record
2. Business money > business account
- Credit client ledger, business account
- Debit cash account, business account

Option 2 - deposit and transfer:
- Pay into client or business account
- Transfer promptly

21
Q

A firm can move money from the client account to the business account if money is owed for costs BUT only after a bill has been sent to the client

A
22
Q

Dealing with inter-client transfers

A

Debit client A, client account record

Credit client B, client account record

23
Q

Principles of VAT

A

Output tax: charged by business to customers e.g. legal services and some disbursements

Input tax: charged to business by suppliers

24
Q

Output tax - input tax = VAT payable to HMRC

A
25
Q

VAT is charged at 20% on the supply of legal services

A
26
Q

HMRC does not regard disbursements as part of supply of legal services

A
27
Q

Determining if an expense is a disbursement

A
  • Firm acted as agent for client when paying supplier
  • Client received and used goods received by third-party
  • Client responsible for payment to third-party
  • Client authorised firm to pay third-party
  • Client aware goods are from another supplier
28
Q

Things not classed as disbursements

A

Travelling expenses

Phone calls

Postage

Photocopying charges

General overheads of firm and so must charge VAT on these amounts

29
Q

Disbursements - no VAT charged

A
  • Court fees
  • Company search fees
  • Compan registration fees
  • Witness fees
  • Oath fees paid to another solicitor
30
Q

Treatment of invoices

A

If a firm pays an invoice on behalf of a client it passes on the whole amount of the invoice including the VAT to the client but it does not add additional VAT on top

31
Q

Invoice addressed to client - agency method

A

Agency method
- Pay amount to third party
- Use client account (if enough money)
- Or use business account
- Send invoice to client

Recording
- Debit client ledger
- Credit cash sheet
- In client account (if enough money) or business account
- No entry on HMRC ledger

32
Q

Invoice addressed to firm - principle method

A

Principle method
- Use business account
- Send own invoice to client
- Increase VAT amount on bill by the VAT paid to third party

Recording
- Debit client ledger, business account
- Credit cash sheet, business account
- Debit HMRC account with VAT amount
- Credit cash sheet with VAT amount, business account

33
Q

Professional charges recording

A

Debit client ledger, business account for profit cost

Credit profit costs, business account,

Debit client ledger with VAT amount

34
Q

Exception to principle method relating to counsel’s fees

A

Addressed to law firm

Firm does not need to use principal method which allows firm to cross out their name and replace with client’s name on the invoice and then treat payment as agency payment

35
Q

Deposits held as agent

A

On receipt - paid into client account

On exchange credited to seller’s account:
- Debit client ledger, client account
- Credit cash sheet, client account

36
Q

Deposits held as stakeholder

A

Open new client ledger in joint names of buyer and seller called a stakeholder account

On receipt - paid into stakeholder’s account
- Credit stakeholder ledger, client account
- Debit cash sheet, client account

On completion - paid into seller’s account (inter account transfer)
- Debit stakeholder ledger, client account
- Credit seller’s ledger, client account

37
Q

Mortgage advance

A

On receipt - paid into lender’s account
- Credit lender’s ledger, client account
- Debit cash sheet, client account

On completion - paid into buyer’s account

38
Q

Petty cash

A

Always business money

If petty cash is paid on behalf of a client it must always be recorded in the business account even if you hold money in the client account for that client

Recording petty cash:
- Debit client ledger, business account
- Credit petty cash ledger, business account

39
Q

Accounting for interest

A

Fair sum on client money held

Unless agreed otherwise

Provide policy to client

FLK2 (8 decks)

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