Solicitors Accounts (FLK2)

Question 1

What is abatement?

Answer 1

When a client complains that their bill is too high so the firm might choose to reduce or abate the

Question 2

HMRC and abatement…explain

Answer 2

HMRC allows the output tax charged on the bill to be reduced proportionately.

Question 3

How do you record the abatement?

Answer 3

Entries made on the profit costs and HMRC account when the bill was sent are reversed to the extent of the abatement

Question 4

What must firms send the client after abatement?

Answer 4

A VAT credit note

Question 5

Example of abatement

Answer 5

Client: Rana
Matter: Miscellaneous

Date: 4 May
Details: profit costs
DR: 600
VAT
DR: 120

Date: 6 May
Details: profit costs - abatement
CR: 100
VAT - abatement
CR: 20

Question 6

Example of abatement (profit costs account)

Answer 6

Date: 4 May
Details: Client
CR: 600
Date: 6 May
Details: Client - abatement
DR: 100

Question 7

Example of abatement (HMRC account)

Answer 7

Date: 4 May
Details: Client
CR: 120
Date: 6 May
Details: Client
DR: 20

Question 8

What is a profit costs account?

Answer 8

Charges for professional services which are recorded as a CR entry on an income account called “profit costs”.

In other words: the sale of a solicitor’s services

Question 9

When the client pays the cash due, is it recorded on the profit costs account?

Answer 9

No.

The profit costs account merely records the bill issued. It does not show wether or not clients have paid their bills

Question 10

What do you name the income ledger?

Answer 10

Traditionally and commonly: “profit costs”
Also named:
1. “Professional charges” or
2. “Professional fees”