Double Entry Book Keeping pt.2

Question 1

What category does the money that is interest earned on client money fall into?

Answer 1

Non-client money which belongs to the authorised body

Question 2

What must the authorised body do when claiming the interest to ensure client money is kept separate from non-client money?

Answer 2

Arrange with its bank for all interest earned on main client account to be paid into authorised body’s business account

Question 3

What is the name of the ledger where interest is received by the authorised body?

Answer 3

Interest receivable payable ledger

Question 4

What is the name of the ledger where interest is paid out by the authorised body?

Answer 4

Interest payable ledger

Question 5

What does Rule 7.1 say regarding the paying of interest to each client?

Answer 5

A fair some of interest should be paid to each client

Question 6

What are the entries used for the receipt of interest earnt by the client account in the authorised body’s business account?

Answer 6

Credit interest receivable ledger
Debit cash sheet business account

Question 7

What are the four entries used when paying a sum of interest to a client?

Answer 7

Recording withdrawal of interest from business account
Debit interest payable ledger
Credit cash sheet business account

Recording the receipt of the interest into the client account
Credit client ledger client account for client [whom is being paid the interest]
Debit cash sheet client account

Question 8

What must the authorised body ensure is available if they have decided to open a separate designated client account to keep an individual’s client’s client money in?

Answer 8

1. Separate designated client ledger
2. Cash sheet separate designated client account

Question 9

What are the steps needed for the transfer of money between the separate designated client account and authorised body’s business account?

Answer 9

Two steps, with both include a double entry

1. To withdraw money from one bank account
   - One credit entry
   - One debit entry
2. To pay the money into the other bank account
   - One credit entry
   - One debit entry

Question 10

What do most authorised bodies do when it comes to interest earnt on a separate designated client account in practice?

Answer 10

Pay all interest directly to the relevant client

Question 11

What are the entries inputted when paying interest earnt by a separate designated account?

Answer 11

Credit client ledger separate designated client account for the client
Debit cash sheet separate designated client account for the client

Question 12

Can a firm of solicitors agree with a client that they will never pay interest on client money whilst in the firm’s client account?

Answer 12

Though Rule 7.1 provides a fair sum must be paid,

Rule 7.2 allows the firm to come to a different arrangement as long as written agreement with sufficient information to enable client to give informed consent

Question 13

What are the names for the two places where the entries for issuing a bill will be recorded?

Answer 13

1. Rule 8.1 - business side of the client ledger account
2. Profit costs account

Question 14

What are the two entries for when an authorised body sends a bill of costs to a client?

Answer 14

Debit the client ledger business account for that client
Credit the profits costs account

Question 15

What is the profits costs account?

Answer 15

The authorised body’s central record of bills or other written notification of costs

Question 16

What’s the standard rate of VAT that an VAT registered authorised bodies subject to pay on the supply of legal services it makes to clients?

Answer 16

20%

Question 17

How is VAT charged on authorised body’s that are VAT registered?

Answer 17

Charged on top of fees for the authorised body’s services

e.g., services (£1k) +vat (£200)

Question 18

What is the name of the record kept by the authorised body of VAT paid or charged by them?

Answer 18

The VAT account [ledger]

Question 19

What are the entries for sending a bill of costs plus VAT to a client?

Answer 19

Debit the client ledger business account for that client
Credit VAT account ledger

Question 20

What does the client ledger business account show?

Answer 20

How much money that client owes the authorised body

Question 21

What are the four entries an authorised body must record when issuing a bill plus VAT?

Answer 21

Debit client ledger business account
Credit profit costs account

Debit client ledger business account
Credit VAT account ledger with amount of VAT

Question 22

What money is the money paid by the client when paying a bill plus VAT?

Answer 22

Non-client money that belongs to the authorised body

Question 23

What is important to take note of when the client pays the bill plus VAT?

Answer 23

Not to simply reverse the accounting entries for issuing the bill plus VAT because the

a) Profit Costs account
b) VAT account ledger

are not bank accounts

Their bill must be paid into business accounts and client ledger business accounts belonging to the authorised body

Question 24

What are the entries the the receipt of payment of bill and VAT?

Answer 24

Credit client ledger business account
Debit cash sheet business account

Question 25

What must be done if a client pays the bill plus VAT (non-client money) and money on account of costs (client money)?

Answer 25

Must be separated as it is a mixed payment First entry to record non client money Second entry to record client money into client account and client ledger

Question 26

What will the four entries be if the client requests that their bill plus VAT is to be paid/transferred from their existing client account and there is sufficient money in there?

Answer 26

**Withdraw money from client account** Debit client ledger client account Credit cash sheet client account **Pay money into business account** Credit the client ledger business account Debit the cash sheet business account

Question 27

What is the figure of the money paid from the client when paying a bill plus VAT?

Answer 27

It is one figure inclusive of VAT

Question 28

What are the two ways an authorised body acting for a client either: a) buying a property with a mortgage or b) selling a property and redeeming an existing mortgage and acting for their lender record the lender's bill in the double entry book keeping accounting system?

Answer 28

Recorded in either a) Lender's separate ledger if authorised body has set one up b) Borrower's client ledger if they body hasn't set a separate on for the lender

Question 29

What is a common term in a loan agreement between the borrower and lender?

Answer 29

That the borrower will pay the lender's legal fees plus VAT

Question 30

What would need to happen if the lender's bill plus VAT has been recorded in the lender's separate client ledger and they agree with their borrower that the borrow pays their legal fees plus VAT?

Answer 30

The debt will need to be transferred to the borrower's client ledger first before the borrow can pay it to the authorised body

Question 31

What entries and details would need to be inputted into the accounting system when sending a bill to a lender where there is no separate ledger for the lender?

Answer 31

Debit client ledger business account (for borrower) with amount of profit costs [bill] Credit profit costs account with amount of profit costs [bill] Debit client ledge business account (for borrower) with amount of VAT charged to lender Credit VAT account ledger with amount of VAT charged to lender

Question 32

What entries and details would need to be inputted into the accounting system when sending a bill to a lender where there *is* a separate ledger for the lender?

Answer 32

Debit client ledger business account (for lender) with amount of profit costs [bill] Credit profit costs account with amount of profit costs [bill] Debit client ledge business account (for lender) with amount of VAT charged to lender Credit VAT account ledger with amount of VAT charged to lender

Question 33

What are the two ways a lender's costs of bill plus VAT can be paid to the authorised body when the lender does not have a separate ledger?

Answer 33

a) Authorised body receives non-client money from borrower client b) borrower client money is transferred from client account to business account

Question 34

Is money sent to pay a lender's bill plus VAT client money or non-client money?

Answer 34

Non client money

Question 35

What are the two steps and four entries involved in a borrower client transferring funds from their client account to the authorised body's business account?

Answer 35

**Withdraw money from borrower client account** Debit client ledger client account (for borrower client) Credit cash sheet client account **Pay money into business account** Credit client ledger business account (for borrower client Debit cash sheet business account

Question 36

What is the amount that will be transferred when the lender's bill plus VAT is being paid?

Answer 36

Total bill, plus VAT as one figure

Question 37

Why will the debt owed to the law firm that is recorded in the lender's own client ledger need to be transferred to the borrower's client ledger?

Answer 37

Needs to be done before the borrower can pay it, as usually the borrower agrees to pay the fees of the lender

Question 38

What are the entries inputted when transferring the debt of the lender to the borrower before the debt [bill plus VAT] is paid?

Answer 38

Debit client ledger business account (of borrower) Credit client ledger business account (of lender) - No money has moved; just a reallocation of the debt

Question 39

Why is the entry for transferring the debt of the lender to the borrower before the debt [bill plus VAT] is paid a debit on the side of the borrower?

Answer 39

Because the amount the borrower owes the authorised body has increased

Question 40

What may fees also be known as?

Answer 40

Profit costs

Question 41

What may an authorised body agree to do if a client disputes a bill that has been issued to them?

Answer 41

Abate the fees that were recorded when the bill was sent out

Question 42

What happens when the fees/profit costs of a client abate?

Answer 42

There is a reduction in both the - Profit costs/fees - VAT payable

Question 43

What are the two transactions and four debit and credit entries for abating a bill?

Answer 43

**Reduce profit costs/fees** Credit client ledger business account for the client for the amount the profit costs/fees are being reduced by *(if you've agreed £400, you reduce by £400)* Debit the profit costs account for the amount the profit costs are being reduced by *(if you've agreed £400, you reduce by £400)* **Reduce payable VAT** Credit client ledger business account for client for VAT reduction *(if you've agreed £400, you reduce by £80)* Debit VAT account ledger *(if you've agreed £400, you reduce by £80)*

Question 44

What will be the total reduction of costs if you agree to reduced/abate clients fees by £400 plus VAT?

Answer 44

£480 £400 fees and £80 VAT

Question 45

When may an authorised body 'write off' bad debts?

Answer 45

When they decide that some or all of the money will never be collected

Question 46

What can a firm do when they write off bad debt with respect to VAT?

Answer 46

They can write it off if it is at least 6 months old

Question 47

How many entries are there when writing off bad debts?

Answer 47

Two double entries (x2 credit and x2 debit transactions)

Question 48

What do the double entries for writing off bad debt look like?

Answer 48

**Write off back debt** Credit client ledger business account for client with amount of debt being written off (Excluding VAT) Debit the bad and doubtful debts account **Write off VAT** Credit client ledger business account for client with amount of VAT in respect of unpaid debt Debit VAT account ledger

Question 49

What happens to the accounting entries if a cheque is dishonoured?

Answer 49

They are reversed

Question 50

What happens if a dishonoured cheque causes the client side of the client ledger to be overdrawn?

Answer 50

Solicitor must transfer non-client money from the business account to the client account to bring up balance to zero

Question 51

What are 'disbursements' defined as? Provide examples

Answer 51

Costs or expenses paid to a third party on behalf of client E.g., court fee

Question 52

When will a disbursement have a VAT charged on top?

Answer 52

If the third party whom the disbursement is being paid on behalf of, is a VAT registered business making a taxable supply of goods and services

Question 53

How will you know that a disbursement is VAT payable on top?

Answer 53

The invoice or bill will state 'plus VAT' If there is no wording, that

Question 54

What is the standard rate of VAT for disbursements?

Answer 54

20%

Question 55

Why does it matter whether you are paying the disbursement and VAT on top as a law firm in the capacity of an agent or principal?

Answer 55

Because both use different double entries

Question 56

How do you know if you are a law firm paying a disbursement and VAT as an agent?

Answer 56

When the invoice is addressed to the client (paying it on behalf of client is on an agency) The law firm has nothing to do with the relationship

Question 57

What is important to note when paying a disbursement and VAT on top as agent?

Answer 57

VAT is combined with the cost of the disbursement Accounting entries are for the total combined figure

Question 58

What money should be used when paying a disbursement plus VAT as agent?

Answer 58

Client money, unless client doesn't have sufficient funds in client bank account

Question 59

What are the accounting entries for paying a disbursement plus VAT as agent?

Answer 59

Debit the client ledger client account (total sum of disbursement plus VAT) Credit cash sheet client account (total sum of disbursement plus VAT)

Question 60

What raises paying a disbursement plus VAT as principal?

Answer 60

When the law firm instructs the third party and is invoiced itself for the disbursement plus VAT

Question 61

What is a common example of needing to make a payment as principal?

Answer 61

Environmental search fees for a report on title for their client

Question 62

What money is used to pay for payments as principal?

Answer 62

Non-client money

Question 63

What is important to note when paying a disbursement and VAT on top as principal?

Answer 63

VAT amount must be kept separate from the cost of the disbursement There are separate accounting entries for the VAT

Question 64

What are the two stages when paying disbursement plus VAT when paying as principal?

Answer 64

1. Paying 2. Law firm sending bill to client for the VAT you paid on the disbursements, on top of their own profit costs/fees and VAT

Question 65

What are the two entries when paying disbursement plus VAT when paying as principal?

Answer 65

Debit client ledger business account for disbursement Credit cash sheet business account for disbursement Debit VAT account ledger for VAT Credit the cash sheet business account for VAT

Question 66

What are the accounting entries for the law firm sends a bill to the client?

Answer 66

Debit client ledger business account for the VAT Credit VAT account ledger for VAT

Question 67

What money is 'account of costs'?

Answer 67

Client money, that client is asking you to spend on their behalf

Question 68

What money should you use when paying disbursements preferably when paying as agent?

Answer 68

Client money

Question 69

What type of transaction is sending out a bill?

Answer 69

A business transaction that never involves client money Sending out a bill doesn't move any more

Question 70

If it's client money...

Answer 70

It's a client transaction