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SQE 1 - FLK 2 > Solicitors Accounts > Flashcards

Solicitors Accounts Flashcards

1
Q

Give examples when a Debit or Credit entry would be made

A

Credit:
1. Income earned
2. Asset disposed of/reduced
3. Liability incurred/increased
4. Cash paid

Debit:
1. Expense incurred
2. Asset acquired/increased
3. Liability reduced/extinguished
4. Cash gained

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2
Q

Define client money

A

Money held/received by solicitors
1. Relating to regulated services delivered by solicitors to clients
2. On behalf of a third party in relation to regulated services delivered by solicitors
3. As a trustee/holder of specified office/appointment
4. In respect of legal fees and any unpaid disbursements if held/received prior to delivery of a bill for the same

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3
Q

Client money must be paid promptly into a client bank account. What are the exceptions to this?

A
  1. Written agreement as to an alternative arrangement for holding the money
  2. Where monies are held as a trustee/specified office holder and payment of monies would conflict with the rules relating to their office/appointment
  3. Received from Legal Aid Agency for solicitor’s own costs
  4. Money is for:
    a) Disbursements not yet billed
    b) Firm is not required to hold a client account; and
    c) Clients have been given information about where and how the money will be held in advance
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4
Q

What are the accounting entries for money paid into client account?

A

DR Client Cash
CR Client Ledger

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5
Q

What are the accounting entries for money paid out of client account?

A

DR Client Ledger
CR Client Cash

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6
Q

What are the accounting entries for money paid into business account?

A

DR Business Cash
CR Business Ledger

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7
Q

What are the accounting entries for money paid out of business account?

A

DR Business Ledger
CR Business Cash

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8
Q

What are the accounting entries for money transferred from client account to business account?

A

Client account:
1. DR Client Ledger
2. CR Client Cash

Business account:
1. CR Business Ledger
2. DR Business Cash

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9
Q

What are the accounting entries for a mixed cheque immediately split?

A

Business account:
1. CR Business Ledger
2. DR Business Cash

Client account:
1. CR Client Ledger
2. DR Client Cash

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10
Q

What are the accounting entries for a mixed cheque split after payment into client account?

A
  1. Sum of money is paid into client account:
    a) CR Client Ledger
    b) DR Client Cash
  2. Portion of that sum is withdrawn from client account:
    a) DR Client Ledger
    b) CR Client Cash
  3. That portion is paid into the business account:
    a) CR Business Ledger
    b) DR Business Cash
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11
Q

What are the accounting entries for disbursement paid out of petty cash?

A

DR Business Ledger
CR Petty Cash

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12
Q

What are the accounting entries for when a bill of costs is issued?

A

DR Business Ledger
CR Profit Costs

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13
Q

What are the accounting entries when a relief is given by HMRC for a bad debt?

A

CR Bad debts account
DR HMRC account

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14
Q

What is the time of supply for goods and services?

A

Determines the quarter in which someone is liable for output tax on a particular supply

Goods = when goods are removed/made available to purchase

Services = when the services are completed

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15
Q

When must a tax form be submitted?

A

1 month after the end of each quarter

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15
Q

When issuing an invoice to a client for fees due and any VAT chargeable, what are the accounting entries?

A

Record bill being issued:
1. DR Business Ledger (excluding VAT)
2. CR Profits Costs (excluding VAT)

Record VAT charged on invoice:
1. DR Business Ledger (VAT only)
2. CR HMRC account (VAT figure)

16
Q

Define the agency and principal method for paying disbursements

A

Agency = when the invoice is addressed to client; pay using client money if there are sufficient funds

Principal = invoice is addressed to solicitor/firm; must pay costs of disbursements and VAT out of business money

17
Q

What accounting entries are made when paying for disbursements under:
1. Agency method
2. Principal method

A

Agency method:
- Figure is costs and VAT combined
a) DR Client Ledger
b) CR Client Cash

Principal method

  1. Payment of disbursement (excluding VAT):
    a) DR Business Ledger
    b) CR Business Cash
  2. Payment of VAT on disbursement:
    a) DR HMRC account
    b) CR Business Cash
  3. Charge VAT on disbursement:
    - When the bill has been issued
    a) DR Business Ledger
    b) CR HMRC account
18
Q

What are the accounting entries for interest earned on client money, which is held in the general client bank account?

A
  1. The bank will pay any interest earned on the client account into the solicitor’s business account
    a) CR Interest Payable Ledger
    b) DR Business Cash
  2. Client’s interest is transferred from business account to client account:

a) Payment out of business account
i) DR Interest Payable Ledger
ii) CR Business Cash

b) Payment into client account
i) CR Client Ledger
ii) DR Client Cash

19
Q

When deposit money is transferred to a solicitor to hold as a stakeholder, what are the 2 options for the accounting entries that need to be made?

A
  1. Record this in seller’s ledger as long as it is clearly labelled in the details column that the money is held for both parties
    a) DR Client Cash
    b) CR Seller’s Ledger Account
  2. Open a separate stakeholder account in joint names
    a) DR Client Cash
    b) CR Joint Stakeholder Ledger Account
20
Q

What are the accounting entries for completion?

A

If stakeholder account is used, first need to make an inter-client transfer:
1. DR Joint Stakeholder ledger account
2. CR Client’s ledger account

For both options as stakeholder, you then pay money into client bank account:
1. DR Client Cash
2. CR Client Ledger

21
Q

What accounting entries need to be made when professional charges are made on mortgage advance?

A

Usually agree for borrower to pay the costs charged to lender

  1. Record profit costs charged to lender-client in their business ledger:
    a) DR Business Ledger
    b) CR Profit Costs
  2. Transfer liability from lender’s cost to buyer:
    a) CR Business Ledger for lender
    b) DR Business Ledger for borrower
22
Q

Under what circumstances must a firm produce an accounting report? What is the time limit for obtaining this report?

A
  1. Held/received client money
  2. Operated a joint bank account
  3. Operated a client’s own account as a signatory

Must obtain this report within 6 months of the end of the accounting period

All reports should be stored and retained for at least 6 years

23
Q

What are the accounting entries for abatement on:
a) Client ledger account
b) Profit costs
c) HMRC/VAT account

A

Client ledger account:
1. CR: Profit Costs of reduction
2. CR: HMRC/VAT account of reduction

Profit costs:
DR entry of reduction

HMRC/VAT account:
DR entry of reduction

24
Q

What are the accounting entries when a client pays a bill?

A

CR Client ledger (business section)
DR Business cash

SQE 1 - FLK 2 (7 decks)

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