Special Accounting Entries Flashcards
What obligation is there on a firm with regards to receipt of a cheque to which the payee is a third party or the client?
This cannot be paid into any of the firm’s bank accounts.
The firm must forward the cheque to the payee without delay.
Does receipt of a cheque by the firm where the payee is a third party need to be recorded on the client ledger account or cash account?
- No, as the firm itself has not received any money.
- However they will keep a record of this on their file.
- Firm’s often have a precautionary social control account where all cheques received by the firm will be recorded irrespective of the payee.
Can a firm draw against a cheque which has been paid into the client bank account?
- Yes.
- However if that cheque is then dishonoured the firm will be in breach of rule 5.3 due to taking more money from the bank account than is actually held for that particular client.
Where money has been improperly withdrawn from a client account, what is the firm supposed to do in accordance with rule 6.1?
The firm must resolve this promptly upon discovery.
Firm will therefore have to replace the money, using its own funds.
What is abatement?
Where a client companies fees are too high, firm may choose to reduce (abate) the costs. HMRC allows the output VAT charged on the bill to be reduced proportionately to the reduction of the bill.
How is an abatement entry recorded in the accounts?
The entries made on the profit costs and HMRC accounts when the bill was sent are reversed to reflect the extent of the abatement.
the firm must also send the client a VAT credit note.
The entries will be recorded as follows:
1) DR profit costs account and DR to the HMRC account with the reduction;
2) CR Client ledger account (business section) with the reduction in professional charges and VAT.
Can a firm debit abatements to a separate abatements account
- Yes.
- However, at the end of the accounting period, the debit balance on the abatements account must be transferred to the debit side of the profit costs account.
How is the write off of a debt which is not going to be paid by the client entered into the accounts by the firm?
The firm must write off amount owing for services and VAT for any disbursements paid from the business bank account.
How long does the debt have to have been outstanding in order to obtain a refund from HMRC for the VAT element?
At least 6 months since the date the payment was due.
How is petty cash recorded in the accounts?
1) CR Cash - business section; and
2) DR Petty cash account
When a payment is made out of petty cash:
1) CR Petty cash account; and
2) DR entry in the appropriate ledger account
How is a payment out of petty cash recorded in the accounts when the payment is made on behalf of a client?
- CR entry made in petty cash account (not main cash account).
- DR entry is entered into client ledger on the business section as petty cash is business money.
Where commission is retained as a result of acting for a client, which 3 ways are likely to be deemed as properly accounting to the client for such commission?
1) Paying it to the client; or
2) Offsetting it against fees; or
3) Keeping it where it is justified in accordance with relevant regulations and professional conduct. In such situations it will need to have told the client of the amount of the benefit (or approximate figure if exact count is not known) and client has agreed to the firm keeping it.
Define an agency relationship between two firms where one is instructing the other.
law firm may choose to use another as an agent (commonly in litigation).
Agent firm treats instructing firm like any other client for fees (ie there will be a client ledger account in the name of instructing firm, and normal entries will be made to deal with ant client money and delivery of the bill).
Explain how the agent’s fees are treated by the instructing firm.
Professional fees charged by agent are not disbursement paid by interacting firm on behalf of the client. Instructing firm is providing legal services to the client using the agent. Professional fees of the agent are an expense of the instructing firm. the firm will charge more for its legal services in order to cover the expense of using the agent.
True or False: When the instructing firm sends its own bill to the client, it adds the agent’s professional charges to its own professional charges and passes on the agent’s disbursements to the client.
True.
