Accounts

Question 1

What is double entry bookkeeping

Answer 1

Where every transaction has 2 aspects, both of which need to be recorded

Question 2

How are the two aspects in transactions recorded in a spread sheet?

Answer 2

One aspect appears in the left hand coloumn, and the other aspect on the right

Question 3

When are entries into the double entry book keeping method recorded?

Answer 3

As they occur

Question 4

True or false - the business account is regarded as seperate from owner or the proprietor

Answer 4

True

Question 5

What is liability to repay a business account referred as

Answer 5

capital

Question 6

What is debit notated as and what side of the sheet is it on

Answer 6

DR, left side

Question 7

What is credit notated as and what side of the sheet is it on

Answer 7

CR, right side

Question 8

If the DR entries exceed the CR entries, what is the balance described as

Answer 8

DR balance (and vice versa)

Question 9

When a bill is issued, what 2 aspects of the transactions are recorded

Answer 9

1- sale of solicitor services
2- gain of debt owed by client to firm

Question 10

What are professional charges services recorded as?

Answer 10

CR entries on income account

Question 11

What is client debt recorded as

Answer 11

DR on account in name of the client

Question 12

When charges paid for professional services are sorted, what happens?

Answer 12

Receipts are kept as loss of debt owed by c TO FIRM. No entry made on profit cash account when cash due - profit cost account merely records when bill is issues and not if paid

Question 13

What does cash account record

Answer 13

Records of receipts info and payments out of bank account

Question 14

What does petty cash record

Answer 14

Records periodic receipts of cash from bank and various payments via petty cash

Question 15

What are the main SRA account rules overseen by the SRA and who do they apply to

Answer 15

• Client money kept seperate from firms
• Client money returned promptly at end of matter
  -Client money only used for intended purpose
  -Proportionate reqs for firms to obtain annual accountants report

Only applies to authorised bodies, managers and employees. Jointly and severley liable.

Question 16

What is client money

Answer 16

Money held or received by firm relating to regulated services delivered to client, or on behalf of third party related to regulated services such as holding powers of attorney and in respect of any fees and unpaid disbursements.

Question 17

What are fees

Answer 17

Own charges or profit costs

Question 18

What are disbursements

Answer 18

Any costs or expenses paid or to be paid to a third party on behalf of client or trust (inc any VAT element) save for office expenses ie courier fees

Question 19

What does the definition of client money not include

Answer 19

Money received for disbursements which have been paid

Question 20

How can a firm avoid putting money for unbilled fees and disbursements into client acc

Answer 20

Sending a bill with anticipated future fees and disbursements with a view to paying into firms business account

Question 21

Who opens a client bank account and what is it used for ?

Answer 21

Opened by a firm but used for client money

Question 22

True or false - client money must be available on demand for the client unless an agreement has been signed otherwise in writing or with a 3rd party

Answer 22

true

Question 23

What is the rule with paying in client money

Answer 23

It must be paid promptly into client account

Question 24

What is the exception into paying client money into aclient account promptly

Answer 24

Where money is held as a trustee or holder/office and paying it in would conflict w specific arrangements

Payments received from L.A.A for firm costs

Firm agrees on an arrangement in writing w client or 3rd party w whom money is held

Question 25

What is the further exception regarding paying client money promptly if the money received is for unpaid disbursements received prior to bill delivery and no client acc

Answer 25

Money can be held outside a client bank acc as long as the client is informed in advance of where and how money will be held

Question 26

If a firm has no reason to hold funds, what happens to them

Answer 26

They are released promptly

Question 27

What happens on receipt of mixed funds

Answer 27

Funds must be allocated to right account promptly

Question 28

If money is sought in account of costs, and bill has not yet been issued, what is kept in the client bank

Answer 28

Bill of costs to paying party (before transferred to make payment)

Any payment for a specific sum must be identified in bill of costs covered by amount held

Question 29

What happens if money is held in account of costs and the bill has been issued

Answer 29

It is promptly moved. If it hasnt been issued it stays where it is

Question 30

What are some risks of keeping client money in business acc

Answer 30

If the retainer is terminated, transaction may fall through etc so hard to recoup funds

Question 31

When can money be withdrawn from client bank acc

Answer 31

For purposes for which it is held

On behalf of 3rd party/client instruction

SRA prior authorisation

Question 32

What should you do if the disbursement needing to be paid exceeds the money held in client?

Answer 32

Either dont pay it out or pay it from the business account (reimbursed when bill issued) or firm advances money to client to repay from client acc (useful if only missing a small bit)

Question 33

What is a residual client account and what are the rules around withdrawal

Answer 33

Money the firm has not returned to client, usually as client has ghosted or died. If less than 500 then withdraw to donate, if over 500 then sra needs to authorise

Question 34

Can you use a client account as a banking facility

Answer 34

No as money laundering issues

Question 35

What do client bank accounts need to show

Answer 35

• all receipts and payments on behalf of client
• all payments made on behalf of client with firms own money
• bills issued to client

Question 36

How is the client ledger account for each client identified

Answer 36

By name, matter description with all receipts shown

Question 37

What is a seperate cash book needed to show for client accounts

Answer 37

All transactions through the client accounts

Question 38

True or false - all client bank accounts and firm business accounts need bank statements or bank reconciliation statements every 4 weeks

Answer 38

FALSE - every 5

Question 39

What needs to be sorted to generate a bank reconciliation statements

Answer 39

• cash book is up to date
• figures adjusted to reflect client money paid by firm may have left firm bank but not cashed in yet

Question 40

What must any discrepancies revealed by reconicilation need to be?

Answer 40

Investigated asap

Question 41

Why are 2 sets of records kept

Answer 41

So client money is seperate from the firms ordinary biz dealings

Question 42

What do both sets of records need to be

Answer 42

Use the double entry book keeping system, legible, up to date, ledger accs kept with names and matter description, up to date business records in relation to each client

Question 43

What does an inter ledger need to show

Answer 43

Contemporary and chronological records

Question 44

What are dual cash accounts

Answer 44

2 seperate accounts to deal with different cash flows. One account for client and one for business. Usually moved onto same page for easy comparison

Question 45

What is a dual ledger for client

Answer 45

A client ledger account with client money on behalf of client, and firms own money payments and receipt of bills

Question 46

What is the first step to deal with receipts

Answer 46

identify if it is business or client and record

Question 47

Wheres is a cash entry into account regsitered under and where is the corresponding one registered

Answer 47

DR, and CR is in ledger account of client from whom or on behalf of money received

Question 48

Where do client money receipts get put

Answer 48

Into the relevant client bank account

Question 49

Where do business money receipts get dealt with

Answer 49

The relevant client inbebtness to the firm is reduced

Question 50

What happens if a payment is from a biz account

Answer 50

DR balance on biz column of client ledger sheets shows client owes firm money

Question 51

What happens if a payment is made from client bank

Answer 51

Amount held for c is reduced (reduced CR)

Question 52

What happens when a bill is issued

Answer 52

entries on account will show proof of charges and VAT. If there is no fund movement then theres no cash account entry

Question 53

How is professional charges bills recorded in client ledger

Answer 53

DR entries for professional chargea and VAT in business section. Corresponding CR entries made on an income ledger account for professional charges and HMRC account.

Question 54

What happens to professional charges and HMRC billed at end of year

Answer 54

Balance on profit costs account shows amount firm has billed for professional charges and HMRC ledger will show VAT paid to hMRC

Question 55

True or false - no entries made on account re disbursements until the bill sent is recorded as/when paid

Answer 55

true

Question 56

True or false - bill issued for professional charges and paid or unpaid dusbursements, money received in payment of bill will be firms own money and paid into the business

Answer 56

True

Question 57

When will cash transfers occur

Answer 57

Where money is withdrawn from client bank account and paid into the business bank account to pay for firms professional charges

To advance money to a client or trust where solicitor needs to make payment on behalf of the client or trust and insufficient client money is available (once advanced, money becomes client money)

To replace withdrawn money

To allow a client a sum in lieu of interest

Question 58

How is a transfer from client account to business account recorded

Answer 58

• Record payment of money from client account
• record receipt of monies into the business bank account

Question 59

What are 4 key things to bare in mind when dealing with bills

Answer 59

• monies received as bill payment for professional charges/disbursements will be firms own money and paid into biz acc
• If firm is holding client money in client account and issues a bill for prof charges and paid/unpaid disbursements, the whole amount billed can be transferred into biz acc

-Where firm is holding client money in client acc, money due to firm for disbursements paid w firms own money can not be transferred unless a bill has issues or firm has made clear that when the money is received it will be used this way

• If a bill has not been issued, money received for a paid disbursement is firms own money, not client money and so is not in client acc

Question 60

What is an inter client transfer

Answer 60

Where client A stops holding money for self and holds it for B ie if money is owed to B . No money is taken out but firms own records need to show this

Question 61

How are inter client transfers shown

Answer 61

No entries are made on the cash account as no money is moving. A DR entry is made in client section of ledger acc of client for whom money it was originally, and a CR entry in client section of ledger for who the money is being held for

Question 62

What is splitting a cheque

Answer 62

Where the firm pays different parts of the cheque into different bank accounts. IE firm pays £40 for a disbursement, client send £100 for costs and for the £40. This would be split-

DR Biz portion to cash account - business section

DR Client portion to Cash account - Client section

CR Business portion to client ledger account - business section

CR client portion to client ledger account - client section

Question 63

What is a direct transfer

Answer 63

Where firms transfer money from a mixed receipt into one bank account and it is split after transfer. Should be paid into client and taken from there.

IE- DR whole amount to cash account and CR whole amount to client ledher account - listed in client section

When transferring business portion-

CR Cash Account and DR Client ledger account - client section

DR Cash account and CR Client ledger - biz section

Question 64

What is a cash account

Answer 64

A record of receipts and payments in and out of bank. Petty cash usually holds a small amount of money for day to day

Question 65

What is output tax

Answer 65

Output tax is the tax that a VAT registered business is required to charge on its taxable supplies (broadly, its sales) at the standard and reduced rates of VAT. It is payable to HMRC after the deduction of any recoverable input tax.

Question 66

What is supply of goods

Answer 66

Where the whole property in goods is transferred including a gift of goods

Question 67

What is supply of services

Answer 67

Everything that isnt a supply of goods but is done for consideration.

Question 68

What is a taxable supply

Answer 68

Any supply of goods or services other than exempt supply.

Question 69

Give examples of exempt tax supplies

Answer 69

supplies of land (apart from new commercial leases/leases of com prop where supplier has opted to be taxable)

Insurance

Finance

Health services

Burial

Cremation

Some postal services

Question 70

What are the two main catergories of taxable supplies

Answer 70

Chargeable at a standard rate

Chargeable at a zero rate such as food supplies, water supplies, books

Question 71

What services are subject to a reduced rate of tax

Answer 71

Mobiliity aids, domestic fuel, instillation of energy saving materials, renovation of certain dwellings, childrens car seats

Question 72

What type of taxable supply will a legal firm charge

Answer 72

a standard rated supply

Question 73

How is VAT chargeable in business

Answer 73

only on taxable supplies made in course of furtherance of business carried on by the taxable person

Question 74

What is input tax

Answer 74

charged to the business by its suppliers

Question 75

What does a business registered for VAT charge its customers

Answer 75

A business registered for VAT charges its customers output tax for which it must then account to HMRC.

Question 76

What will the business deduct input tax charged to the business from

Answer 76

The amount accounted for to HMRC

Question 77

Who is liable to HMRC for the amount of output tax charged

Answer 77

The person making the supply is liable

Question 78

What’s similar about zero rated and exempt supplies

Answer 78

No VAT is charged in either case by the supplier to his customer

Question 79

What is different about zero rated and exempt supplies

Answer 79

Only a person who makes taxable supplies is able to recover input tax, i.e. the VAT charged to him by his suppliers.

Question 80

Who is the taxable person

Answer 80

A person is a taxable person if they are or are required to be registered under VATA 1994.

Generally a person must register if the value of taxable supplies (not profit) in the preceding 12 months exceeded a figure specified in each year’s Budget (£85,000 for 2020/21)

Question 81

When is an employee’s services taxable

Answer 81

where a person, in the course of carrying on a trade, profession or vocation, accepts any office, any services supplied by them as holder of the office shall be treated as supplied in the course of a business carried on by them and are therefore chargeable with VAT.

Question 82

What are the rules around exempt supply for input tax

Answer 82

If a person makes only exempt supplies they are not a taxable person (therefore no input tax recovery).

Exempt supplies made by a taxable person may fall within certain de minimis limits which can be ignored and input tax is recoverable.

If a taxable person makes taxable and exempt supplies, they are partially exempt (only a proportion of the input tax can be charged)

Question 83

If a supply is fully taxable, what VAT is payable and on what?

Answer 83

If a supply is fully taxable, VAT at the standard rate is payable on the value of the supply. If the consideration is money, the value of the supply is equal to the consideration.

If a price/fee is agreed, it will be deemed to include VAT unless it states it is tax exclusive.

Question 84

What are the rules around VAT for professional legal fees

Answer 84

When a fee is quoted it must be given plus VAT. If the VAT is not quoted the customer will only pay the quoted figure and the business will pay the rest.

Question 85

What is the time of supply

Answer 85

The time of supply (tax point) decides the quarter at the end of which a taxable person becomes liable to account for output tax on a particular supply. Additionally, it determines the quarter in which a taxable person can claim input tax.

Question 86

What are the 2 variations of tax point

Answer 86

1- if supplier issues a tax invoice w/in 14 days after basic tax point, date of invoice becomes tax point unless longer is agreed w HMRC (provided solicitors deliver bills w/in 3 months of services completion, the date of each bill is the tax point)

2- if the supplier issues a tax invoice or receives payment before basic tax point, the supply will (to extent covered by invoice/payment) be treated as taking place at date of invoice or payment

Question 87

How long does a taxable person making a taxable supply to another taxable person have to provide an invoice?

Answer 87

30 days after time of supply (or longer if HMRC allows)

Question 88

What needs to be included on a tax invoice

Answer 88

-An identification number
-The date of the supply i.e. Tax point
-The supplier’s name address and VAT registration number
-The name and address of the person to whom the supply is made
-The type of supply, e.g. sale, loan, hire
-The description of the goods or services supplied
-The quantity of goods or the extent of the services and the amount (excluding VAT) payable for each description
-The total amount payable (excluding VAT)
-The rate of cash discount
-The rate and amount of tax charged

Question 89

What must a taxable person do within one month of the end of each quater account period

Answer 89

Submit a completed return form to HMRC

Question 90

How is the amount of tax payable calculated

Answer 90

Total output tax charged less deductible input tax

Question 91

What is needed in accounts regarding tax

Answer 91

a ledger account in the name of HMRC

Porfits costs account

ledger account in client name

Question 92

True or false - disbursement are regarded by HRMC as supply of legal services and are VAT chargeable

Answer 92

FALSE

Question 93

What are the conditions that must be satisifed for there to be a VATable disbursement

Answer 93

-You acted as the agent of your client when you paid the third party

-Your client actually received and used the goods or services provided by the third party

-Your client was responsible for paying the third party (e.g. estate duty and stamp duty)

-Your client authorised you to make the payment on their behalf

-Your client knew that the goods or services you paid for would be provided by a third party

-Your outlay will be separately itemised when you invoice your client, you will only recover the exact amount paid to the 3rd party

Question 94

What does not qualify as disbursements

Answer 94

Those which are a normal and necessary part of the service supplied to the client
For example, telephone charges, postage and photocopying charges - these are sorted by an increase in professional charges

These are overheads of the business and HMRC requires the firm to charge VAT on them.

Question 95

Are travelling expenses for a solicitor disbursements

Answer 95

No so are included in overall charge

Question 96

If vatable items are mentioned seperately, what must the firm remember to do

Answer 96

To charge VAT on seperate elements

Question 97

Where is VAT not charged in regards to searches

Answer 97

Local land charges, search fees, LR fees

Question 98

Are LR fees VATable

Answer 98

No as they are a disbursement

Question 99

Is SDLT a disbursement

Answer 99

Yes

Question 100

What does HRMC accept as disbursements

Answer 100

Company search fees
Company registration fees
Court fees
Witness fees
Oath fees paid to another solicitor

Question 101

What is the procedure when there is receipt of a cheque made out to the client or third party?

Answer 101

The cheque cannot be paid into a firm bank account. The firm is not the payee. The firm must forward the cheque to the payee asap

Question 102

What is a dishounered cheque and what to do in that situation

Answer 102

A cheque that doesnt clear, where money taken from client bank accont exceeds what is held for the client.

any money improperly withdrawn from a client account must be immediately replaced. The firm will have to make good the shortfall by transferring its own money to the client bank account.

Question 103

What are the rules around accepting commission in accounts

Answer 103

It is an additional income
The firm will have a commission received account (receipts are credited)

The firm will have a ledger account in the name of each company paying commission

HOWEVER - RARELY ENTITLED TO RETAIN IT and have to ‘properly account to clients for any financial benefit received as a result’

Question 104

How are comission fees ‘properly accounted for’

Answer 104

Paying it to the client

Offsetting it against fees;

Keeping it only where the firm can justify keeping it, has told the client the amount of the benefit (or an approximation if the exact amount is not known) and the client has agreed to the firm keeping it.

Question 105

Why do firms not want to retain commission fees

Answer 105

Retaining commission would take a firm outside the exemption allowing professional firms to avoid regulation by the Financial Reporting Council in relation to investment business.

Question 106

How do firms deal with non payment of legal services (‘bad debt”)

Answer 106

The firm have to write off the amount owing for its professional charges and VAT and for any disbursements paid from the business bank account.

IE- CR Client ledger account in the business section

BR Bad debts account

After 6 months outstanding, VAT relief from HMRC

Question 107

What is an abatement record and what does HMRC allow to happend regarding the output tax charged

Answer 107

Subsiding or decreasing. AKA if client moans bill is too high, the firm can reduce the price or subsidise the costs. HMRC allows output tax charged on bill to be reduced proportionally

Question 108

What entries are made regarding an abatement record

Answer 108

Entries are made on the profit costs and HMRC account when the bill was issued are reversed.
The firm must also send the client a VAT credit note.

IE-

DR Profit costs account and DR HMRC account (with reduction)

CR Client ledger account (business section) with reduction in professional charges and VAT

Question 109

Can firms debit abatements to a seperate abatements account

Answer 109

Yes

Question 110

What happens to the abatements account balance at the end of the accounting period

Answer 110

The debit balance on the abatements account is transferred to the debit side of the profit costs account.

Question 111

How is a withdrawal of petty cash recorded

Answer 111

CR Cash- business section

DR Petty cash account

Question 112

Can a firm make a payment from petty cash on behalf of a client

Answer 112

Yes, butwill want to DR the client ledger account to show that the client now owes the firm for the expense incurred.

The DR entry must be made on the business section of the client ledger account even if client money is held for the client.

This is because petty cash is business money. The firm has elected to use business money on behalf of the client by deciding to use petty cash.

Question 113

Can a law firm instruct another firm as an agent in a transaction such as criminal or civ litigation

Answer 113

Yes

Question 114

How does the agent firm treat the instructing firm regarding accounts

Answer 114

The agent firm treats the instructing firm like any other client.

The firm will have a client ledger account in the name of the instructing firm and the normal entries will be made to deal with any client money and the delivery of the bill.

The professional fees charged by the agent are not a disbursement paid by the instructing firm on behalf of the client.

The professional fees of the agent are an expense of the instructing firm.

The firm will charge more for its legal services to cover the expense of using an agent.

Disbursements charged to client as usual

Question 115

What comprises a total amount regarding agent fees and how are these recorded

Answer 115

The agent’s professional fees

VAT on those fees

any disbursements paid by the agent

The different elements are recorded separately in the instructing firm’s accounts.

Agent’s professional charges

CR cash account
DR Agency expenses account
=Business section

Agent’s VAT

CR cash account
DR HMRC account
= Business section

Agent’s disbursements

CR Cash account
DR Client’s ledger account
= Business section

Question 116

How does an instructing firm charge its own client the agents fees

Answer 116

The instructing firm will send its own client a bill adding the agent’s professional charges to its own professional charges and passes on the agent’s disbursements to the client.

Question 117

Why would it be wrong for firms to earn interest on money held in client banks without accounting for the benefit of clients?

Answer 117

The SRA’s principles of not abusing your position/taking advantage and properly accounting for any benefit received as a result of client instructions made come into question here

Question 118

What are the sra rules on charging interest

Answer 118

You must ‘account to clients or third parties for a fair sum of interest on any client money held by you on their behalf, unless you have reached a separate agreement with your client’.

Rule 7.1 of the SRA Rules

AND

You ‘may by a written agreement come to a different arrangement with the client or the third party for whom the money is held as to the payment of interest’ but you must provide the client or third party with ‘sufficient information to enable them to give informed consent’.

Rule 7.2 of the SRA Rules

Question 119

What do sra rules not cover regarding interest

Answer 119

When interest is to be paid
How interest is calculated

Firms can set their own policy

Question 120

What are some things that may be included in a firms interest policy

Answer 120

• A de minis e.g. interest will be accounted for unless it is less than a stated figure i.e. £20 or less.

-The figure will need to be set at a reasonable level

-The figure will need to be reviewed in light of current interest rates (n.b. these are increasing at present)

The policy should be highlighted to the client at the outset of the retainer.

Question 121

What methods are there that firms can use to deal with interest

Answer 121

Firms can choose to pay client money either:

1) into a general client bank account, or

2) into a separate deposit bank account designated for money of that particular client.

Question 122

Do the rules by the sra re interest change depending on the amount

Answer 122

The requirement under the Rules is the same, irrespective which method is adopted.

The interest allowed must be a ‘fair sum’.

Question 123

When will a firm create a seperate designated bank account for that client

Answer 123

If the matter holds a substantial amount for a significant time and the firm simply want to pass all interest acquired to client

Question 124

What does a firm have to decide re interest if the client money is in the general client bank account

Answer 124

By reference to the firms policy, whether to allow interest and how to calculate it. The sum decide on will be allowed from business bank account and is technically a business expense - some firms will cover the interest taken as a business expense by taking the intesrest from a general client account, paying it into business bank and then calculating and withdrawing the relevant interest for the client

Question 125

Why is opening a seperate client account for every client a pain

Answer 125

As it would be administratively bothersome and tiresome to keep all different bank info. Also, keeping it to one client account and paying out interest proportionately means the firm may earn more interest then they need to pay out

Question 126

What do firms need to ensure when opening a separate client account for a particular client

Answer 126

• The client’s ledger account must show receipts and payments of client money dealt with through a designated deposit bank account made for them.

-The firm’s cash account must include details of receipts and payments of client money dealt with via the separate designated deposit bank account. There can be a separate cash account for each dedicated deposit bank account or a combined cash account showing all transactions on the designated deposit bank account.

Disadvantage - no opportunity to earn money like they would with one client account

Question 127

When cash is transferred to the seperate designated client account, what is it recorded as

Answer 127

DR, and notes need to be added to the ledger too

Question 128

What are the 2 stages when transferring money from the general client bank account to a designated client bank account and how is this recorded

Answer 128

Payment out of general client -

CR Cash and DR Client ledger account (both in client section)

To record receipt into seperate account

CR designated Client ledger account (or an additional column on the original general client account)

DR deposit cash acc

If money is received and sent straight to designated client, than the payment out of general is not needed

Question 129

What is interest earned on a separate designated deposit account recorded as and where

Answer 129

CR on clients new ledger

DR on deposit cash account

Question 130

What is the process to follow if the bank will not allow a payment directly from designated deposit accounts

Answer 130

The total sum including interest is transferred to the general client bank account so it can be made from the general account

Question 131

What is the disadvantage of just using one general client account for interest

Answer 131

Firm has to calculate how much would have been earned

Question 132

True or false - interest allowed usually reduces fees the client has to pay

Answer 132

true - if the balance is cleared a cheque for interest may be sent

Question 133

How is interest recorded on general client account entries

Answer 133

The business money related to interest will be recorded in the business cash account and in the business section of the client ledger account. If money is transferred from the business bank account to the client bank account and held for the client, entries have to be made on client ledger and cash account to record cash from business to client account

Question 134

What does the Guidance to Acccountants guide say about holding money as a stakeholder (holding completion monies until can be released)?

Answer 134

Stakeholder money may be shown on sellers ledger but has to clearly be labelled as stakeholder money held for both buyer and seller.

Stakeholder money can just be shown on the sellers ledger account without setting up 2 seperate ones providing it is labelled clearly

Question 135

How would stakeholder money held in the sellers ledger be labelled

Answer 135

DR cash account
CR sellers ledger account

Both in client section

Question 136

How would stakeholder money in a joint account with both parties names be registered

Answer 136

DR Cash
CR Joint account

Both in client section

Question 137

On completion, how are the completion monies transferred from a joint stakeholder ledger account to the sellers ledger

Answer 137

Inter client transfer-

DR Joint stakeholder ledger account
CR Sellers ledegr account

Both client section

Question 138

How is a deposit when acting as an agent in property transactions credited to a sellers ledger

Answer 138

DR Cash
CR Seller’s ledger account

Both on client section

Question 139

What is a bridging loan

Answer 139

Where a seller does not have enough momey to pay a depsoit on a new property w/o compeltion funds, a loan can be taken from a bank to cover the exchange period.

Question 140

When a bridging loan is in effect, what happens to the money recieved by the solicitors as a deposit

Answer 140

It is held to the order of the borrower as the loan is between the borrow and the bank. The monies are credited to the borrowers ledger account

Question 141

What are the 2 methods a firm can use when dealing with mortgage funds when acting for both lender and borrower

Answer 141

1- the mortgage is advanced to the borrowers ledger account when received - the details column must include name of the lender and that the mortgage is an advance

2- The mortgage advance is credited to a separate ledger account in the name of the lender on receipt. On completion day, the funds are available to the borrower and so an intra-client transfer should be made to borrowers ledger

Question 142

If another person is discharging the debt acquired by the lender for legal fees, the debt can be transferred to that person’s ledger account. How is this usually shown?

Answer 142

General notations before transfer-

DR on buyers ledger account, business section with the fees charged on the purchase and VAT

CR profit costs account and HMRC account regarding fees and VAT

DR lenders ledger account, business section with fees charged on mortgage and VAT

CR profit costs account and hmrc account with fees and vat

To transfer the debt from the lenders ledger account to the borrowers ledger-

CR lenders ledger account, business section with fees charged on mortgage and VAT as one figure

DR buyers ledger account, business section with fees charged on purchase and VAT as one figure

If the firm has chosen not to have a seperate ledger account for the lender, the charges and VAT of the lender will have to be shwon on borrowrs ledger acc.

Question 143

What is an alternative and quicker method of splitting proceeds when acting for seller and lender with a mortgage redemption

Answer 143

The credit entries can be split at time of receipt, with part credited to seller ledger and part client ledger, with all amount debited to cash account client section.

Question 144

If acting for a seller and the lender with a sale involving a mortgage redemption , how would the sale proceeds be shown to be split?

Answer 144

Credit the whole amount to sellers ledger account and then do an inter client transfer of amount to redeem the mortgage

CR sellers ledger account and DR Cash account - client section

DR sellers ledger account and CR lenders ledger account - client section

Firm then pays the mortgage redemption to the lender-

DR Lender’s ledger account and CR Cash account - client section

Question 145

If a seller is paying for the lenders legal fees for a mortgage redemption, how is this shown (if acting for both parties)?

Answer 145

DR sellers ledger acc, business section with fees on sale and VAT

CR profit costs account and HMRC account with fees charged on sale and vat

DR lenders ledger account, business section with fees charged on mortgage and VAT

CR profit costs acc and HMRC acc with fees charged on mortgage and VAT

Transfer debt from lenders ledger account to sellers ledger-

CR Lenders ledger acc with fees charged on mortgage and VAT as one amount

DR sellers ledger account with fees charged on mortgage and VAT as one amount

Question 146

When opening a joint account for the firm/solicitor and a client/3rd party, how is this described and what must be recorded

Answer 146

joint names of sol/firm and client. This account is NOT classed as a client account but it IS client money.

The account has to have statements taken from the bank every 5 weeks minimum

The bills and notifications of costs from this account has to be recorded

Question 147

What rules apply if a solicitor is using the clients own personal bank account (maybe via power of attorney)

Answer 147

Statements taken min every 5 weeks

Reconciliations (figure checking) every 5 weeks min

Keeping a readily accessible central records of bills/cost notifications.

If cant keep up with the 5 week process, not in sra rules breach as long as reasonable steps have been taken to show money not at risk

Question 148

What must be considered if a firm enters into an agreement with a client to use a third party account to manage client money rather than firms own client account

Answer 148

• Must be appropriate to use the third party in that matter

-firm must have an overview on how it operates

• Do the costs of the third party come with more benefits (usually yes as its more secure and reduction of firm over heads)

-Is the TPMA (Third party managed account) regulated by Financial Conduct authority? if so, is it an authorised payment institution, a small payment institution adopted voluntary safeguards or an EEA-authorised institution?

-It must be an acc held at a bank or BS by which the third party receives and pays money on the solicitors and clidnts behalf (escrow service)

Question 149

What must a client understand when a TPMA is used

Answer 149

• the contractual terms of the TPMA, any of their fees and who pays them
• the clients right to terminate and dispute fees
• complaint procedure

Question 150

What info does the firm have to give the SRA if it uses a TPMA

Answer 150

• name and SRA firm number
  -TPMA name
  -TPMA’s FCA authorisation number
  -TPMA commencement date

If same provider used for multiple clients, only inform SRA at first use

Question 151

When must an accountant report be obtained

Answer 151

When a firm has received or held client money, or operated a joint acc or clients own acc

Question 152

What is the purpose of the accountant report

Answer 152

To confirm compliance

Question 153

When must the accountant report be delivered to the SRA

Answer 153

W/in 6 months of the end of the accounting period, and must be submitted by the firm or managers

Question 154

What are some serious factors rhat the SRA would consider as a failure to comply with SRA rules

Answer 154

• Significant shortfall unless bank error or rectified promptly
• Systematic billing for fees and disbursements not been incurred
• Evidence of disregard for client money/assets
  -Actual or suspected fraud or dishonesty
  -Significantly defecient account records/records not available
  -Failure to provide requested docs
• Client account reconciliations not carried out
  -Client account used as a banking facility

Question 155

When are accountant reports not required

Answer 155

-All of client money held/received during period is from Legal Aid Agency OR

• In the accounting period the total balance of all client accunts plus any joint accounts and clients own accounts doesnt exceed and avg of 10k and max of 250k (In pounds or the equivaent conversion in foreign money0

Question 156

True or false - the sra will always require a final accountants report on firm closure

Answer 156

False - only on a case by case basis

Question 157

When can an accountants report be disqualified

Answer 157

• accountant is not registered with a charted account body or does not work for a registered auditor
• the accountant has been found guilty by relevant body for misconduct or equivalent
• SRA is satisfied account hasnt excerise due care and skill in making the report

Question 158

What does the firm have to provide the accountant preparing the accountant report with

Answer 158

• details of all accounts held at bank/BS/financial institution at any time during accounting period
• all other info and docs required to complete report

Question 159

How long do accounting records need to be securely stored and retained for

Answer 159

at least 6 years