Solicitors Accounts Entries

Question 1

Where in a ledger does a debt vs credit go?

Answer 1

Debit = Left

Credit = right

Question 2

When to use a debit vs credit for receipt of client vs business/cash account. For increase vs decrease.

Answer 2

1. Client Account
   - Debit = decrease
   - Credit = increase
2. Cash/Business Account
   - Debit = increase
   - Credit = decrease

Question 3

What entries to make for money paid to firm for account on costs (not yet paid)?

Answer 3

Cash Account (client side)
- Debit

Client Ledger (client side)
- Credit

Question 4

What entries to make for money paid by client for money owed to firm?

Answer 4

Cash Account (business side)
- Debit

Client Ledger (business side)
- Credit

Question 5

What should a firm do if they need to pay a disbursement on a client matter but have insufficient funds on account from that client? (AND entries)

Answer 5

Must pay from business money and cannot use funds from other clients in the client account

Cash Account (business side)
- Credit

Client Ledger (business side)
- debit

Question 6

What ledger will be relevant for when you issue a bill to a client (before it is paid)?

Answer 6

1. Client Ledger (business side)
2. Profit cost ledger
   - simply keeps track of firms revenue and expenses
3. HMRC Ledger
   - simply keeps track of VAT

Question 7

What entries to make when issuing bill to client (before paid)?

Answer 7

Client Ledger (business side)
- Debit for profit cost (no VAT)
- Debit for VAT only

Profit Cost Ledger
- Credit profit cost (not VAT)

HMRC Ledger
- Credit (VAT only)

Question 8

What entries when client pays a bill you have issued?

Answer 8

Client Ledger (business side)
- Credit total amount (profit cost & VAT together)
- client ledger now balanced

Cash Ledger (business side)
- Debit full amount

NOTE
- nothing changes in Profit Cost or HMRC Ledger as these just record the revenue (which has not changed)

Question 9

What entries to make if you pay clients bill from money they already have on account?

Answer 9

Each ledger would have a debit and credit on same line as it is an internal transfer

Client Ledger
- Debit full amount (client side)
- Credit full amount (business side)

Cash Ledger (business side)
- Credit full amount (client side)
- debit full amount (business side)

Question 10

What must be entered for an abatement (reduction) of bill to client? Ie. if they dispute it and you reduce it?

Answer 10

Client Ledger (Business side)
- Credit profit cost reduction
- Credit VAT reduction

Profit Cost Ledger
- Debit profit cost amount

HMRA Ledger
- Debit VAT amount

Movement in the Profit Cost and HMRA as these record the total revenue/VAT and this has been reduced by the rebate

Question 11

What to do if a cheque bounces and you have already dissipated the money?

Answer 11

You are in breach as you have used other clients money by accident. Must:

1. reverse the entries made for receiving the cheque (for amount that cheque was for)
   - Debit client ledger (client side)
   - Credit cash ledger (client side)
2. you will still be overdrawn so will have to transfer money from cash account for amount you are overdrawn

Question 12

How to Transfer money between business and client account (from business to client)

Answer 12

Basically reducing money from business side of cash ledger (credit) and adding it to client side (debit) then taking from client ledger business side (debit) and moving to client side (credit)

Cash Ledger
- Credit full amount (business side)
- debit full amount (client side)

Client Ledger
- Debit full amount (business side)
- Credit full amount (client side side)

Question 13

What are the ways to deal with mixed receipts?

Answer 13

Choose from 3 options:

1. split cheque
2. Deposit entire amount if cash/business account and transfer
   - transfer promptly (same/next working day)
3. Deposit entire amount in client account and transfer
   - transfer promptly (14 days)
4. rule 4.3

Question 14

Entries for splitting £200 cheque (£50 to repay firm / £150 on account of future costs)?

Answer 14

Repayment of £50
1. Client Ledger (business side)
- Credit £50

2. Cash Ledger (business side)
   - Debit £50

Money on account of costs £150
1. Client Ledger (client side)
- Credit £150

2. Cash Ledger (client side)
   - Debit £150

Question 15

Entries for mixed cheque (£50 business/£150 client) put entirely in client account and transfer over?

Answer 15

Step 1: deposit in client account

1. Client Account (client side)
   - credit £200
2. Cash Account (client side)
   - debit £200

Step 2: transfer the £50 business money

1. Client account (same line)
   - debit £50 (client side)
   - credit £50 (business side)
2. Cash account (same line)
   - credit £50 (client side)
   - debit £50 (business side)

Question 16

Entries for transfers between clients?

Answer 16

No movement in cash account or client account as no money is really moving

Only entries in client ledgers

1. Client Ledger of Client A (client side)
   - Debit
2. Client Ledger of Client B (client side)
   - Credit