Solicitors' Accounts Flashcards
Can a firm pay in a cheque made out to the client or a third party?
No - if cheque not made out to firm, can’t be paid into firm’s bank account
→ Should forward cheque to payee immediately (no accounting records needed)
What should the firm do if any money is improperly withdrawn from a client account?
Must be immediately replaced (firm will have to transfer its own money to the client bank account)
Can the firm draw against a cheque which has been paid into the client bank account but not yet cleared?
Yes - but if the cheque is then dishonoured, money will have been improperly withdrawn & must be immediately replaced
What are the accounting entries for a bad debt?
Firm must write off amount owing for its professional charges, VAT & any disbursements:
Bad debts account - DR (with whole amount)
Client ledger - CR (with whole amount) (business section)
VAT relief available once debt outstanding for at least 6 months → refund from HMRC:
Bad debts account - CR (amount of VAT)
HMRC account - DR (amount of VAT)
What kind of entry will money coming in always be in the cash account?
DR entry!
MoneyInDRCAsh
MoneyInCRLedge
What entry are the following in a cash account:
- Expense incurred
- Asset acquired/increased
- Liability reduced/extinguished
- Cash gained
DR
What entry are the following in a cash account:
- Income earned
- Asset disposed of/reduced
- Liability incurred/increased
- Cash paid
CR
What is ‘client money’?
Money held or received by a firm
a) Relating to regulated services delivered by you to a client
b) On behalf of a third party in relation to regulated services delivered by you (eg. as agent)
c) As a trustee or holder of a specified office or appointment
d) In respect of fees & any unpaid disbursements pre-bill
What are the rules about the name of a client account?
The client bank account must be at a bank or building soc in England & Wales + include the word ‘client’ in its title
When should client money be paid into the client bank account?
‘Promptly’
4 exceptions:
- Where money held as trustee & paying into client account would conflict with obligations
- If money received from LAA
- If agree alternative with client in writing
- Where firm only receives fees & unpaid disbursements pre-bill & does not have a client account
What are the 4 exceptions to the rule that client money must be paid ‘promptly’ into a client bank account?
- Where money held as trustee & paying into client account would conflict with obligations
- If money received from LAA
- If agree alternative with client in writing
- Where firm only receives fees & unpaid disbursements pre-bill & does not have a client account nb. must inform client in advance where & how held
When a firm is holding client money & some of that money will be used to pay the firm’s costs, what must be done?
Must give a bill of costs to the client / paying party
- Must be done before you transfer any client money to make the payment
- Any such payment must be for the specific sum in the bill
Does the firm have to issue a bill if they want to transfer money from the client bank account to reimburse for disbursements already paid on behalf of the client?
No, so long as have made it clear to the client that the client money may be used to reimburse the firm for payments made
What are the 3 circumstances in which client money can be withdrawn?
(a) For the purposes for which it is being held; or
(b) Following receipt of instructions from client / TP for whom the money is held; or
(c) On the SRA’s prior written authorisation
What should a firm do if a withdrawal should be made from the client bank account but there are not sufficient funds in the account for that client?
(Should not make the payment in the first place)
Either make the payment from the firm’s business bank account or advance its own money to the client
What is a residual client account balance and can it be withdrawn?
Money not returned to the client at the end of the retainer which is now difficult to return (eg. can’t trace client)
Can be withdrawn if less than £500 on any one client matter & money then paid to charity
For balance of more than £500, must apply to SRA for authorisation
Can a client bank account be used to provide banking facilities for clients or third parties?
Absolutely not (r3.3)
Payments into & transfers or withdrawals from, a client account must relate to the provision of regulated services
ie. can hold money for purpose of facilitating legal transactions, not for client’s convenience
What 3 things must the client ledge account for each client show?
i. All receipts & payments of client money
ii. Any payments made on behalf of the client from the firm’s own money
iii. Bills issued to the client
How often should firms obtain bank statements for all accounts?
At least every 5 weeks
What accounts should firms prepare reconciliation statements for?
Client accounts
Any discrepancies revealed by the reconciliation must be investigated promptly
How is the receipt of money recorded?
(Is it business money or client money?)
Cash: DR
Ledger: CR
Client money held in client bank account; business money reduces indebtedness of relevant client to the firm
How is the payment of money recorded?
Is it from the business account or the client account - must record in appropriate cash account
Cash - CR
Ledger - DR
What accounting entries are made when a firm issues a bill?
No entry in the cash account
Client ledger - DR (2 separate entries for professional charges & VAT in business section)
Profit costs - CR
HMRC account - CR
How is a cash transfer recorded?
Cash transfer: money withdrawn from client account & paid into business account
1 Record payment from client bank account
Cash - CR client section
Ledger - DR client section
2 Record receipt into business bank account
Cash - DR business section
Ledger - CR business section
