Solicitors Accounts Revision

Question 1

If a client gives a solicitor money generally on account of costs, the money remains client money.

Question 2

Unless a cheque is addressed to the firm, it cannot do anything with it but pass it on to the addressee

Question 3

When a firm acts as an agent for sellers who are its client, money the firm holds as agent belongs to the sellers. Thus, these funds must be recorded on the client ledger for the partner and their spouse

Question 4

How often must client accounts be reconciled against bank statements?

Answer 4

At least once every 5 weeks

Question 5

In a client account record, money received by the solicitor from or for a client is recorded as a debit (DR) entry in the cash account, and money paid out for or on behalf of a client is recorded as a credit (CR) entry in the cash account.

Question 6

If a law firm is registered for VAT, it will charge an output VAT on its professional service bills

Question 7

If a law firm pays for expenses on behalf of a client, it generally need not charge the client VAT when it bills for the disbursement

Question 8

When the solicitor sends out their own bill for professional charges it will include the VAT of any invoice paid using the principle method

Question 9

A solicitor instructs a surveyor on behalf of a client. The surveyor sends an invoice of £1,000 plus £200 VAT to the solicitor. The invoice is addressed to the solicitor and the client has deposited sufficient funds with the solicitor to cover the invoice. The solicitor uses the principal method to pay the invoice. What entries will be required?

Answer 9

Debit the client ledger, business side £1,000

Credit the cash ledger, business side £1,000

Debit the HMRC (VAT) ledger, business side £200

Credit the cash ledger, business side £200

Question 10

If a solicitor holds a deposit for a conveyance of property as a stakeholder, how should the transaction be recorded in the solicitor’s accounts?

Answer 10

In the name of both parties

Question 11

Travel expenses cannot be treated as disbursements – they are treated as general overheads

Question 12

Court fees and Stamp Duty Land tax have historically been accepted as disbursements by HMRC

Question 13

There are no stipulations in the SRA Accounts Rules regarding payment of interest based on the time period over which the money is held or the amount of money held.

Question 14

When a client pays a bill for profit costs, the entire sum is credited to the client ledger on business account (as this is business money) and debited to the cash sheet

Question 15

When a client pays an invoice, no entries are made on the HMRC (VAT) ledger

Question 16

If a firm has sent their client a bill for £200 and the client transfers the funds for payment of the bill, the money belongs to the law firm and can be deposited into the firm’s business account.

Question 17

The SRA Accounts Rules provide that a solicitor should account for a fair sum of interest unless the client has agreed an alternative arrangement e.g. the firm does not have to account t the client for any interest accrued

Question 18

Entries are not made on the Profit Costs and HMRC (VAT) ledgers when cash is received in payment of a bill

Question 19

A firm must have a written policy on the payment of interest that accounts to clients for a fair sum of interest on any client money held by the firm. The terms of this policy should be brought to the attention of clients at the outset of the matter.

Question 20

There is no rule stating a specific time period or requiring a specific measure of appropriate interest; the solicitor need not pay the highest rate, or the prevailing rate, but it also is unlikely that the lowest rate of interest would be deemed as appropriate