Debits' and 'credits' - asset accounts - Accounting entries required (Client money)-FS Flashcards
(17 cards)
What is a T-account in the context of solicitors’ accounts?
A T-account is a method of recording financial transactions using double-entry bookkeeping. It shows assets on the left (debits) and liabilities/equity on the right (credits).
What is shown on the debit side of a T-account for assets?
Items that increase assets, such as cash inflow, expenses, property, and accounts receivable.
What is shown on the credit side of a T-account for assets?
Items that decrease assets, such as cash outflow or settlement of receivables.
In solicitors’ accounts, what happens when you issue a bill to a client?
The accounts receivable account is debited (increased), as it reflects an amount owed to the firm.
How should a purchase of office furniture for £250 be recorded?
Credit the cash account (or cash sheet), and debit the office furniture account.
What does the principle of double-entry bookkeeping require?
Every transaction must be recorded in two accounts: one debit and one credit, to ensure the accounting equation balances.
What is the accounting treatment when a bill is paid by a client?
Debit the cash account (increase cash), credit the accounts receivable account (decrease debt owed).
DR Cash Account
CR accounts receivable
In the SQE exam, how is a cash purchase of a computer monitor for £250 recorded?
Credit cash account (cash sheet), debit computer equipment account.
What does the cash account (or cash sheet) track in solicitors’ accounts?
The cash account records inflows and outflows of money, showing the balance after each transaction using debits (in) and credits (out).
How is a £100 cash inflow from a bank loan recorded in double-entry bookkeeping?
Debit the cash account, credit the loan liability account.
How is the purchase of a laptop for £100 recorded?
Credit the cash account, debit the equipment or laptop asset account.
What are examples of subcategories of asset accounts in a solicitor’s books?
Cash, property, expenses, and accounts receivable.
Why are expenses recorded on the debit (asset) side of the T-account?
Because they are treated as assets reflecting value acquired or used for business purposes.
What are typical subcategories on the liability/equity side of the T-account?
Bank loans, owner’s equity, and revenue (e.g., billed professional fees).
Why is billed revenue shown as equity in double-entry bookkeeping?
Because it reflects income owed to the business owner, thus treated as owner’s equity.
What is the accounting equation used in solicitors’ accounts?
Assets = Liabilities + Owner’s Equity – both sides must balance at all times.
How does issuing a bill to a client affect the accounts?
Debit accounts receivable (increase in assets), credit revenue or equity (increase in liabilities to owner).
