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Professional Conduct > Double Entry Bookkeeping > Flashcards

Double Entry Bookkeeping Flashcards

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1
Q

What kind of records must a law firm keep?

A

Accurate, contemporaneous, chronological records

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2
Q

What should be recorded in the client ledger?

A

Client’s name / description of the matter

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3
Q

What two records are needed for client money?

A

Cash sheet client account

Client ledger for each individual client

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4
Q

What two records are needed for non-client money?

A

Cash sheet business account

Client ledger business account

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5
Q

if someone sends you client money, is it a debit or a credit on the client ledger?

A

Credit - this is the logical first perspective.

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6
Q

What does the balance on an individual client ledger, client side show?

A

How much of the client account overall belongs to that specific client.

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7
Q

What does the balance on an individual client ledger, business side show?

A

How much that individual client owes to the authorised body

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8
Q

What does the balance of the client cash book show?

A

Total balances of all client ledgers

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9
Q

What should balances on individual clients’ client ledgers always be?

A

Nil

Credit

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10
Q

What should balances on the business side of individual clients’ client ledgers always be?

A

Nil

Debit balances

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11
Q

How should bills and costs be recorded?

A

Centrally; this is more administrative as opposed to accounting - this is separate from double entry principle

record of bills is sometimes called profit costs [account]

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12
Q

How often must you reconcile accounts?

A

Every 5 weeks

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13
Q

Where would entries for money in from a client be logged?

A

Credit: Client ledger client account

Debit: cash sheet client account

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14
Q

If authorised body pays out of client account, what are entries?

A

Debit client ledger client account

Credit cash sheet client account

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15
Q

What are the entries for non-client money recieved into the business account?

A

Credit: client ledger business account

Debit: cash sheet business account

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16
Q

What are the entries when non client money is paid out / withdrawn from the business account?

A

Debit; client ledger business account

Credit; cash sheet business account

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17
Q

If a cheque is received which is payable to the client but does not relate to work the authorised body has done, what should you do?

A

Forward cheque on to client - no transaction / no double entry

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18
Q

Entries for non-client money paid out from petty cash account on behalf of a client

A

Debit client ledger business account

Credit cash sheet petty cash account

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19
Q

if you are transferring money between the authorised body’s bank accounts, how many entries should there be?

A

Two sets of two

Two when money is removed from first account

Two when money is paid into the second account

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20
Q

When transferring money out of client account and into authorised body’s business account, what conditions must be complied with?

A

Give a bill of costs before to client, before you send any money, and any movement of money must be for the specific sum in the bill of costs.

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21
Q

What entries are needed to transfer money from the client account to the business account?

A

Withdraw from client account:
debit client ledger client account for the client, credit cash sheet client account

Pay into business account:
credit client ledger business account
debit cash sheet business account

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22
Q

What entries are needed to transfer money from the business account to the client account?

A

Withdraw from the business account:

Debit client ledger business account
Credit cash sheet business account

Pay into client account:
Credit client ledger client account
Debit cash sheet client account

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23
Q

What can you instruct a bank to do when receiving a mixed payment cheque?

A

Can ask the bank to split the cheque and pay part into client acc and part into business account

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24
Q

What are the entries for a split cheque payment?

A

Payment into the client account
Credit client ledger client account
Debit cash sheet client account

Payment into the business account
Credit client ledger business account
Debit cash sheet business account

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25
How many steps are there if you are transferring money from one client to another?
One step - money is already in client account
26
What are the entries for transfers between two clients?
Debit client ledger client account of transferor Credit client ledger client account of transferee
27
What are the entries for when a deposit is received by a solicitor from a buyer client?
Credit client ledger client account Debit cash sheet client account
28
What are the entries when the buyer's solicitor pays the deposit to the seller's solicitor?
Debit client ledger client account for buyer client Credit cash sheet client account
29
What will the ledger entry to record receipt of the deposit from buyer's solicitor to seller's solicitor depend on?
Whether deposit is held by seller's solicitor as an agent or a stakeholder
30
What is a stakeholder arrangement regarding a property deposit?
A kind of trust under which the seller's solicitor holds the deposit on trust for both the buyer and seller until completion date
31
What are the two entries for deposit received by seller's solicitor to be held as stakeholder?
At exchange of contracts: seller's solicitor records receipt of deposit as stakeholder: Credit client ledger stakeholder (stakeholder ledger) Debit cash sheet client account On completion: deposit goes from stakeholder ledger to seller's client ledger Debit stakeholder ledger Credit client ledger client account for that client (seller)
32
What are the entries when deposit is received by seller's solicitor as agent?
Deposit belongs to seller from exchange here Entries as follows: -Credit client ledger client account for seller client -Debit cash sheet client account
33
What are the two methods for accounting entries on receipt of mortgage funds?
Open a separate ledger for the lender, or not
34
If the solicitor does not open a separate ledger for the lender, what are the entries when a solicitor acting for a buyer and lender receives mortgage funds?
Credit client ledger client account for the buyer client Debit cash sheet client account
35
If the solicitor opens a separate ledger for the lender, what are the entries when a solicitor acting for a buyer and lender receives mortgage funds?
Two sets of entries: 1) Receipt of mortgage funds from lender Credit client ledger client account Debit cash sheet client account 2) Completion - mortgage money is now buyer's Debit client ledger client account for the lender client Credit client ledger client account for the buyer client
36
If a solicitor does not open a separate ledger for the lender versus seller, what are the entries for mortgage redemption?
Debit client ledger client account Credit cash sheet client account
37
If a solicitor does open a separate ledger for the lender versus seller, what are the entries for mortgage redemption?
Redemption money first moved from seller's client ledger to lender's ledger: Debit client ledger client account Credit client ledger client account Then sent to lender Debit client ledger client account for lender client Credit cash sheet client account
38
What are the entries for transfer of loan monies between clients?
Debit client ledger client account Credit client ledger client account for client receiving money
39
How much interest do you need to pay on client money?
Fair sum, or whatever a written agreement says as long as sufficient information has been given to enable informed consent.
40
Through what process is interest paid to clients?
Interest overall is non client money - so should be paid into authorised body's business account Then a fair sum of interest should be paid to each client
41
What are the two interest ledgers?
Interest receivable and interest payable
42
What is the entry for the receipt of interest earnt by the client account in authorised body's business account?
Credit interest receivable ledger Debit cash sheet business account
43
What are the entries to pay a sum of interest to a client?
1) Recording withdrawal of interest from business account Debit interest payable ledger Credit cash sheet business account 2) Recording the receipt of the interest into the client account Credit client ledger client account Debit cash sheet client account
44
What are the entries for a transfer into a separate designated client account?
1) Withdraw money from the general client account Debit client ledger client account for the client Credit cash sheet client account 2) Pay the money into a separate designated client account Credit client ledger separate designated client account Debit cash sheet separate designated client account for the client
45
What are the entries for a transfer out of a separate designated client account, and paying into main account?
1) Withdraw from designated account Debit client ledger separate designated client account Credit cash sheet separate designated client account 2) Pay the money into main account Credit client ledger client account Debit cash sheet client account
46
What are the accounting entries to pay interest earnt by a separate designated client account?
Credit client ledger separate designated client account Debit cash sheet separate designated client account for client
47
What happens when you issue a bill?
You create a debt which the client now owes the authorised body, but you do not move any money until it is paid.
48
Where should all bills of costs be recorded?
On the business side of the client ledger account A central record of all bills given - sometimes called the profit costs account
49
What are the entries for issuing a bill?
Debit client ledger business account Credit profit costs account
50
How much is standard VAT on legal services?
20%
51
What should solicitors remember to do in terms of VAT?
Must remember to tell the client that fees will be 'plus VAT'. If you don't say that, fees are deemed to be inclusive of VAT.
52
What are the entries if you send a bill of costs plus VAT to a client?
Two sets of entries Bill of costs: -Debit client ledger business account -Credit profit costs account VAT: -Debit client ledger business account -Credit VAT account ledger
53
What are the entries to record the receipt of the payment of a bill and VAT?
Credit client ledger business account Debit cash sheet business account
54
What are the entries for paying a client bill, plus VAT, by transfer from the client account?
Taking money from client account -Debit client ledger client account -Credit cash sheet client account Paying money into business account: - Credit client ledger business account - Debit cash sheet business account Conditions must be fulfilled: Bill of costs / written notification before transfer, which must be for the specific sum
55
If a client is buying a property with mortgage and you are also acting for the lender, what are the two ways the lender's bill could be recorded in the accounts?
Lender's separate client ledger Or, if no separate ledger - in the borrower client's ledger
56
If there is no separate client ledger, what will the entries for the bill and VAT say when a bill is issued?
Debit client ledger business account (for borrower) with the amount of the profit costs charged to the lender Credit profit costs account with amount charged to lender Debit client ledger business account Credit VAT account ledger with amount of VAT charged to lender
57
If there is a separate client ledger, what will the entries for the bill and VAT say when a bill is issued?
-Debit client ledger business account for the lender with the amount of profit costs -Credit profit costs account -Debit client ledger business account for the lender with the amount of VAT charged to the lender -Credit VAT account
58
How will the payment of a lender's costs by a borrower be recorded when the lender does not have a separate ledger?
Receipt of non-client money from the borrower client -Credit; client ledger business account -Debit; cash sheet business account Transfer of borrower's money from client account to business account: TWO steps Withdrawing money from client account -Debit client ledger client account -Credit cash sheet client account Paying money into business account -Credit client ledger business account -Debit cash sheet business account
59
What are the entries when the lender does have a separate ledger, when the borrower pays the lenders costs?
It is a transfer of debts; Debit client ledger business account (borrower - costs plus VAT) Credit client ledger business account (lender - costs plus VAT).
60
What is important to remember when you are abating a bill?
That if profit costs is reduced, the amount payable of VAT is also reduced
61
What are the entries if a bill is abated?
Profit costs Credit client ledger business account for that client for amount of reduction Debit profit costs for the amount of the reduction VAT Credit client ledger business account for amount of reduction Debit VAT Account for amount of reduction
62
What is a bad debt?
Client fails to pay and authorised body decides that some or all of the money will never be collected - amount due will then be 'written off'.
63
What can a firm recover from a bad debt?
VAT element of debt if it at least 6 months old.
64
What are the entries for writing off a bad debt?
Write off bad debt -Credit client ledger business account -Debit bad and doubtful debts account Write off VAT -Credit client ledger business account -Debit VAT account
65
What are the entries if a cheque is dishonoured?
Accounting entries that recorded the original receipt of the money are reversed
66
What must you do if the client side of the client ledger becomes overdrawn by virtue of a dishonoured cheque?
Transfer non-client money over to bring the balance of the client side up to 0.
67
When does a law firm pay a disbursement as an agent?
Where the law firm pays on behalf of a client - a third party has invoiced the client, but the client has asked the firm to pay on their behalf Bill tends to be addressed to the client
68
What are two key principles when paying a disbursement plus VAT as an agent?
VAT must be combined - accounting entries are for the total combined figure You should use client money to make the payment unless client does not have enough client money
69
What are the accounting entries for paying a disbursement plus VAT as agent?
Debit client ledger client account Credit cash sheet client account
70
When does a law firm pay a disbursement for a client as a principal? What are two key principles for this?
Law firm instructs the third party itself and is invoiced itself for the disbursement plus VAT VAT separate from cost of disbursement Must use non-client money to make the payment
71
What are the accounting entries if you pay a disbursement plus VAT as principal?
1) Disbursement and VAT are paid by the law firm: Debit client ledger business account Credit cash sheet business account Debit VAT ledger Credit cash sheet business account 2) Law firm sends a bill to the client Debit client ledger business account for VAT Credit VAT ledger

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