Units 1 & 2 - Solicitor's Accounts

Question 1

What is “client money”?

Answer 1

Money which relates to:
- regulated services delivered by a solicitor
- money held as an agent or stakeholder
- money held as a trustee
- unpaid disbursements prior to delivery

Question 2

How should client money be used?

Answer 2

Only for its intended purpose and not as a banking facility.

Question 3

What bookkeeping entries fall under “DR”?

Answer 3

Expenses incurred
Assets acquired
Liability reduced
Cash gained

Question 4

What bookkeeping entries fall under “CR”?

Answer 4

Income earned
Asset disposed of
Liability incurred
Cash paid

Question 5

What are the DR and CR entries for issuing bills?

Answer 5

DR bill and VAT to client ledger - business side
CR bill to profit costs ledger - business side
CR VAT to VAT ledger - business side

Question 6

What are the DR and CR entries for the payment of a bill?

Answer 6

To record the payment of money:
CR cash account - client side
DR client ledger - client side

THEN

To record receipt of money into the business bank account:
CR client account - business side
DR cash account - business side

Question 7

What are the DR and CR entries for the reduction of a bill?

Answer 7

DR profit costs account with reduction
DR HMRC account with reduction
CR client ledger with reduction - business side

Question 8

What are the DR and CR entries for an inter-client transfer?

Answer 8

DR client ledger of the first client - client side
CR client ledger of the second client - client side

Question 9

What are the DR and CR entries for a dishonoured cheque?

Answer 9

When the cheque was received:
DR client ledger account - client side
CR cash account - client side

To resolve the dishonoured cheque:
DR client ledger account - business side
CR cash account - business side

Question 10

Is a joint account with a client a client account?

Answer 10

No, but the money held in the account is client money.

Question 11

What method applies when an invoice is addressed to the client?

Answer 11

The agency method.

Question 12

What method applies when the invoice is addressed to the firm?

Answer 12

The principal method.

Question 13

What is the agency method in respect of disbursements?

Answer 13

The firm acts as an agent and hands over the money on behalf of the client.

Question 14

What is the principal method in respect of disbursements?

Answer 14

The firm’s own money must be used and then resupply the item to the client at the same price.

Question 15

What is a separate designated deposit bank account?

Answer 15

A separate bank account for client to ensure interest due from a client’s money can be identified.

Question 16

What interest can a solicitor retain on client money?

Answer 16

The solicitor must account to the client for a fair sum as interest in accordance with the firm’s own policy.

Question 17

How do you determine how much VAT a firm needs to pay at the end of an accounting period?

Answer 17

Deduct input tax on the supply of goods from the output tax which it accounts for to HMRC.