Solicitors' Accounts - Dealing with Receipts, Payments, Bills and Bounced Cheques

Question 1

Client Money

Answer 1

• Must be paid into client account promptly
• No definition of promptly in the current rules - under old rules the money had to be paid in that working day or next working day
• Must be available on demand
• Must be returned promptly to the client as soon as there is no longer any proper reason to hold the funds
• Need not be paid into a separate client account if the only money held is in relation to unpaid fees or disbursements and any money held for disbursements relates to costs or expenses incurred on behalf of the client for which the solicitor/firm are liable

Question 2

Cash Account/Cash Sheet

Answer 2

Records money entering or leaving the firm’s bank account (either client or business accounts)

Question 3

Payment from cash account

Answer 3

Credit

Question 4

Receipt into cash account

Answer 4

Debit

Question 5

Withdrawals from Client Bank Account

Answer 5

• Cannot withdraw more money from client account than is held for that client
• Amount of money held would be recorded on client ledger

Question 6

Recording entries on client ledger

Answer 6

• Money received to be paid into client account promptly
• Shown as a credit on client ledger
• Corresponding entry shown on cash sheet client account
• Payment using client money (e.g. court fees) shown as debit on client ledger and credit on client account cash sheet

Question 7

Issuing a bill for professional charges

Answer 7

• Fees and VAT
• Do not use cash account as no money is entering or leaving bank account
• Make entries on profit costs account for charges client owes firm and on HMRC account for VAT owed to HMRC
• Entries made in business account records even if there is money in client account
• Professional charges: DR client ledger and CR on profit costs business account (money owed to the firm)
• VAT: DR client ledger account and CR HMRC business account
• When client pays bill this will be paid into business account: CR on client ledger in business account and DR on cash account/cash sheet in business account record

Question 8

Reducing a Bill

Answer 8

Reverse entries to extent of reduction

Professional costs:

CR client ledger in business account record with reduction in professional costs

DR on profit costs account

VAT

CR client ledger in business account record

DR HMRC account

Question 9

Dishonoured (‘Bounced’) Cheques

Answer 9

• Reverse entries made on receipt of cheque
• When client money received it is a CR in client ledger in client account records and DR in cash account
• Reversal would also be made in client account records and is a CR in cash account