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Solicitor's Accounts > SA 1 > Flashcards

SA 1 Flashcards

1
Q

What is bookkeeping?

A

Process of recording financial transactions in the accounts of a law firm

(financial records)

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2
Q

How does double entry bookkeeping work?

A

Records both aspects of a transaction in the books (accounts).

One DR and one CR entry for each transaction.

Each aspect recorded on different accounts (or ledgers?.

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3
Q

What are the two aspects of double entry bookkeeping?

A

As one increases, the other reduces.

Each transaction - identify each aspect and record separately.

One under each column:

DR (Debt) (Left-hand)

  • Expense incurred
  • Asset acquired/increased
  • Liability reduced/extinguished
  • Cash gained

CR (Credit) (Right-hand)
- Income earned
- Asset disposed of/reduced
- Liability incurred/increased
- Cash paid

Example:
rent out office to tenant
L: cash gained
R: income earned

(also see OneNote examples)

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4
Q

What different accounts are required to be opened under double entry bookkeeping?

A

Generally - one for:
- each type of asset
- each type of expense
- one for each person to whom firm owes money
- one for each debtor that owes money to the firm

Can have as many as u want.

E.g.

Capital account
(eg for money invested)
Cash account
(eg pays for a computer)
Asset account
(eg gains a computer)
Expense account
(eg incurs rent)
Premises Account
(eg gain asset in form of premises)
Income account AKA profit costs
(to show firm earned income)
Agency expenses account
(if instructing another law firm)

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5
Q

Does double bookkeeping system consider whether business is profit making from transaction?

A

Nope

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6
Q

Principle of double entry bookkeeping in relation to business owner

A

Considers the business as completely separate from its owner

So when owner sets up business and puts in cash, two aspects of transaction are that:
- gaining cash (DR)
- incurs liability as owes money to the owner (CR)

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7
Q

Liability to repay owner referred to as “____” of the business

A

Capital

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8
Q

What information about transaction is recorded double entry bookkeeping?

A
  • Date of transaction
  • Cross-reference to account where other double entry is made
  • Amount involved entered in DR or CR column (whichever appropriate)
  • Balance on account
    (see OneNote for example)
  • If DR entries exceeded CR entries, balance described as DR balance
  • Usually also brief description transaction
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9
Q

When must financial transactions of law firm’s be recorded?

A

In accounts AS IT HAPPENS

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10
Q

What is a cash account in law firms?

A
  • (aka ‘cash sheet’ or ‘cash book’)
  • All accounts except for cash and petty cash account are ‘ledger accounts’
  • Cash account is a record of receipts into and payments out of the bank account
  • ‘Petty cash account ‘ to record periodic receipts of cash from the bank and various payments from petty cash
    (ie small amount physical cash kept on premises for day to day)

(guessing just receipts of getting the cash out of the bank and then receipt from Sainsbury’s for the tea etc)

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11
Q

What rules must law firms and managers/employees follow when doing accounts/bookkeeping?

A

SRA accounts rules

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12
Q

What approach do SRA account rules take to risk?

A

Often left to firms to interpret and apply but more prescriptive where higher risk to clients’ money

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13
Q

Breach of SRA Accounts rules?

A

Disciplinary matter (under SRA Enforcement Strategy)
Takes proportionate approach
Dishonesty and misuse client’s money most seriously

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14
Q

Main principles of SRA Accounts rules

A
  • Keep client money SEPARATE
  • Ensure client money returned PROMPTLY at end of matter
  • Use client money only for intended purpose
  • Proportionate requirements for firms to obtain annual accountant’s report
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15
Q

Who is bound by SRA Acccounts rules?

A
  • Authorised bodies,
  • Their managers
  • Their employees
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16
Q

Who is liable for failure to comply with SRA Accounts rules and to what degree?

A
  • Authorised body’s managers are jointly and severally responsible
  • If licenced body, Rules only apply in respect of activities regulated by SRA

Both even if unaware

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17
Q

When an invoice is issued to client, how should it be recorded on accounts?

A

Charges for professional services = CR entry on INCOME (aka profit costs) account

Client debt = DR on account in name of client

When they pay, solicitor will record receipt of cash and loss of the debt

Imp = no entry made on profit costs account when client pays the cash due - profit costs account just records the bill issued but not whether that has been paid

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18
Q

What requirements imposed by SRA Account Rules on law firms re how hold client money?

A

Keep it separate from money belonging to firm’s money
(usually in client account)

Beyond that no requirements on what does with its own money

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19
Q

What is classed as ‘client’ money under SRA Accounts Rules?

(Rule 2.1)

imp

A

Money:
A) related to regulated services delivered by you to client
B) on behalf of third party in relation to your regulated service (stakeholder/agent eg property)
C) as a trustee or holder of specified office
(eg power of attorney or Court of Protection)
D) for fees and any UNPAID disbursements received BEFORE delivery of bill

(if falls into any of these categories, must keep separate to business money)

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20
Q

What are solicitors a) fees and b) disbursements and c) costs defined as for accounts rules

A

A) Own charges or profit costs inc any VAT

B) costs or expenses to be paid to TP on behalf of client or trust inc VAT but not inc office expenses eg postage

C) costs fees and disbursements so covers both

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21
Q

When does client money cease to be client money under accounts rules?

A

Unless and until billed

Should be paid into and stay in client account until then

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22
Q

What is not included in definition of client money (kind of surprisingly)? What are they instead?

A

Money received for disbursements which have already paid
(e.g. firm has paid for barrister’s fees and then client reimburses)

Instead ‘business money’, so it will be paid into a business bank account

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23
Q

Two ways for firms to pay disbursements

A
  1. Bill on account of costs
    - e.g. anticipated dibs and fees
    - can use to make payments on client’s behalf
    - keep in business bank account
    - not always permitted
  2. make payment from business account for client then client pays firm in reimbursement
    - money held as paid disbursement and must be held in business account
  3. bill on account of costs
    - pay into client account
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24
Q

What is a client bank account and rules around it?

A

Opened in name of firm but used for client money

Must have client in title

Need to be in England or Wales

SRA Account Rules require that client money available on demand unless alternative arrangement in writing with client or TP
(so can’t have extended notice periods etc)

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25
Q

Impact of having ‘client’ as word in Client bank account?

A

Bank or building society have no recourse or right against money in it in respect of any liability of solicitor to the bank

(protected if solicitor gets into bother)

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26
Q

When must client money be paid into client bank account?

A

Promptly

But subject to exceptions

e.g. client may agree that client money is not paid into client bank account

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27
Q

Exceptions to general rule that client money must be paid into client bank account?

(Rule 2.3)

(imp)

A
  1. if falls into 2.1(c) i.e. money held as trustee or holder specified office/apt
    - and paying into client bank account would conflict with obligations under that office
  2. If client money represents Legal Aid Agency payments for firm’s costs;
  3. Firm agrees alternative arrangement in writing with client or TP for who money is held

(2.2)
4. If for fees / unpaid dibs received before bill and firm doesn’t have client bank account,
must inform client in advance how money would be held
(see sep queue card)

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28
Q

If client paying via legal aid payments, which bank account CAN they be paid into?

A

Business bank account

(inc for disbursements)

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29
Q

When firm received LAA (legal aid payments) which cover TP professional fees (e.g. counsel),

are there any requirements around this?

A

They don’t need to be paid within specified time

Don’t need to be transferred to client bank account if TP not paid within the specified time

However, cannot retain LAA fees in business account indefinitely.

E.g. if delays client matter because does not pay expert’s fee because avoiding going into overdraft, breach Code of Conduct

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30
Q

When does rule 2.2 exception apply?

(that if do not have client bank account and receive client money for fees/unpaid dibs before bill delivered)

A

^ then can keep sep to client account if inform client where and how money held

  • e.g. unpaid dibs may be Counsel instructed on behalf of client

DOES NOT APPLY if firm receives any other types of client money
eg funds to complete purchase of property
(so just get the unpaid dibs or your legal fees but not getting things like to hold as stakeholder or agent)

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31
Q

Benefits of s2.2 exception to paying into client account?

(ie if unpaid dibs/bills prior to delivery not need go in client account)

A

If don’t need a client bank account, costs savings

eg in relation to professional indemnity insurance and compliance

Since no accountant’s report required

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32
Q

When must client money be returned and at what pace?

A

Promptly (not defined)

To client or TP

As soon as no longer any proper reason to hold them

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33
Q

What must firm do if receives mixed payment?

(eg firm’s bill and dibs)

A

Allocate funds promptly to correct bank account

(eg completion money client money - client acc / fees and billed dibs is firm’s money - business acc)

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34
Q

If you are holding client money and some or all of that money will be used to pay costs, what must you do?

(ie moved to business account to pay legal fees or sent to TP professional/Land Registry etc),

A
  • Give a BILL of costs or other written notification to client or paying party
    (eg send an invoice saying for fees in respect of X)

BEFORE you transfer the money

  • And any such payment must be for the SPECIFIC sum identified in the bill and covered by the amount held
    (no more no less)
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35
Q

When should you transfer money from client account to business account to pay costs (presuming requirements are satisfied)?

A

Promptly

But if bill inc anticipated dibs which not yet been incurred, it is permitted to leave in client account until they are paid

(eg Counsel money before they issue invoice but still want on account)

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36
Q

Firm insolvent, can client get their money back if in business account?

A

No

But is protected in client account

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37
Q

What do SRA not permit billing in advance for?

A

Disbursements that client will remain liable to pay
E.g. Stamp Duty Land Tax

AND should NOT be kept in firm’s BUSINESS account - since any risk to firm’s business would mean client may have to pay twice

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38
Q

If receiving client money into business account what must you do?

A

Explain risks to client

How explain depends on client

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39
Q

Potential impact on accountant’s report if receive client money into bank account?

A

Likely to qualify a report if view that money belonging to client is, has been or may be placed at risk

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40
Q

When do SRA Accounts Rules guidance permit money to be withdrawn from client account?

(Rule 5)

A

“For the purpose for which it is being held”

Provided firm made clear to client that the client money may be used to reimburse for payments made, this will be permitted without issuing a bill.

(eg in CCL)

But cannot transfer if dibs have not yet been either incurred or paid by firm

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41
Q

In what circumstances can client money be withdrawn?

A
  1. Purpose for which held; or
  2. Following instructions from client or TP for whom money is held; or
  3. SRA prior written authorisation or prescribed circumstances
    (withdrawal of residual client balances less than £500 on any one client matter if paid to charity)
    (prescribed circumstances = must take reasonable steps to return to client and keep records on this)
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42
Q

Requirements surrounding withdrawal of client money?

A
  • Withdrawals must be appropriately authorised and supervised
  • Must be sufficient funds on client account for that client - cannot take more than hold for them - would be a breach.
    If need to make payment but not enough money in client account, must use business account.
  • Any money improperly withdrawn must be rectified promptly and replaced
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43
Q

Options if disbursement worth more than amount have on client bank account?

A
  • pay from firm’s business account, without transferring from client account unless bill issued or client aware would pay this way
  • firm can advance its own money to client
    advance itself is subject to Rules in applying client money
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44
Q

What is a residual client account balance?

A

money that the firm has not returned to the client at the end of the retainer and it is now difficult to return the money

e.g. can;’t trace, died, don’t want cos affect benefits

(can pay to charity if reas steps, under £500 per client)

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45
Q

Residual client balance of more than £500?

A

Apply to SRA for authorisation to make withdrawal.

46
Q

Crucial - client account cannot be used to provide _____ ______ .

What does this mean?

A

Baking facilities to clients or TPs

i.e. payments/transfers/withdrawals from client account must relate to provision of regulated services

Therefore, a solicitor should only receive money and make payments which relate to a legal transaction.

If don’t, breach accounts rules, principles and accountants may qualify report. Also money laundering risk.

47
Q

What is the SRA’s warning notice?

A

Cannot provide banking facilities to client or TPs

Consider whether anything suspicious

Funds can only be received into client account where proper connection with regulated services

Cannot pay client’s routine outgoings

48
Q

Exemptions/exclusions under FSMA are likely to be lost if _____ (relates to solicitors accounts?)

A

Deposit taken which does not relate to regulated services

49
Q

What must firms maintain accurate records of for each client in the client bank account?

A
  • All receipts and payments of client money;
  • All payments made on behalf of client from firm’s own money; and
  • Bills issued to the client.
50
Q

What must individual client ledger account contain?

A
  • Name with brief description of matter
  • Receipts and payments of client money
  • Any payments made by the firm from its own money on behalf of the client
  • Bills issued to client
  • Any receipts of money in payment of such bills
51
Q

What are firm’s required to do in terms of cash books?

A

(a financial journal that contains all cash receipts and disbursements, including bank deposits and withdrawals.)

Maintain a separate cash book which shows all transactions going through client bank account

Don’t need a cash book to show dealings with firm’s own money but firm will obvs choose to

52
Q

Firm’s requirements re bank statements?

A
  • Must obtain bank statements for all client bank accounts and the business accounts
  • at least every 5 weeks

AND

  • must prepare BANK RECONCILIATION STATEMENTS for client bank accounts
  • cash book must be updated to reflect any unexpected items on bank statement
  • figures on bank statement adjusted to reconcile with firm’s records
    (eg if paid for something using cheque won’t show on bank acc yet)
53
Q

Why is it important to carry out client account reconciliations?

(ie where cash book updated and figures on bank statement adjusted to reflect anything which wouldn’t yet appear on statement)

A

Raise first red flag if issue in record keeping, rules breached or failures in policies and procedures

54
Q

Record-keeping requirements in relation to client accounts?

A
  • Client bank account
    (showing all receipts / payments of client money, payments made on behalf of client and bills to client)
  • Client ledger account for each client
  • List of all balances shown by client ledger account of liabilities to clients/TPs with running total of those balances
  • Separate cash book showing all transactions through client bank account
  • Bank statements for all client accs and business bank acc
  • prepare client account reconciliation
  • central record of bills / other written notifications of costs
55
Q

If a firm does not have a client account, do they need to comply with record-keeping requirements?

A

No, just need a readily accessible record of bills or written notifications of costs given

56
Q

Could firm enter a debit on one set (eg business) of accounts and a credit on the other (eg client account)?

A

No. Entirely separate.

Two separate businesses in two separate accounts.

57
Q

Cash book vs cash account

A

Cash book = Book of accounts in which cash, bank and discount transactions recorded in chronological order

Cash account =

58
Q

What should format of law firm’s accounts be?

A
  • Double-entry
    (every transaction relating to client money should be recorded in at least client cash book and client ledger)
  • Legible, up to date and descriptions to identify transaction
  • Current balance easy to ascertain
  • Entries should be made in chronological order and record date of transaction
  • Ledger accounts contain name of client / person money held for and description of matter
  • Business account entries in relation to each client (eg X owes us £5) up to date
  • Separate chronological record of inter-ledger transfers
59
Q

Do law firms have to have cash accounts? (to record dealings with each bank account)

A

Only requires one cash account to record dealings with client bank account.

But need to know cash received and spent obvs

So will usually need at least 2 separate cash accounts shown side by side

One for business money dealings, other for client

Usually one set of columns for ‘date’ and ‘details’ for both accounts

(see OneNote for example)

60
Q

What must be recorded on ledger?
Is there a ledger for client and business accounts?

A

SRA requires following to be recorded:
- issue of bills to client
- payment of firm’s own money on behalf of clients
- receipts in payment of bills

^ requires 2 separate ledger accounts (client and business)

Often show side by side.

61
Q

When dealing with cash RECEIPTS OR PAYMENTS, what is the first step?

A

Identify whether it involves business money or client money.

Then the receipt or payment can be recorded in the appropriate section of the accounts.

(e.g. receipt is a DR entry)

62
Q

What are the entries for a RECEIPT? (solicitor’s accounts)

A
  • CR on client ledger account (which will be called something like ‘Khan ledger account’);
  • DR on cash account; and
  • In the business or client section as appropriate.

(client money if held for them - e.g. on account / business if reduced indebtedness of client to firm - e.g. bill due)

(nb the CR and DR are corresponding)

63
Q

What are the entries for PAYMENT in cash account (solicitors accounts)?

A
  • DR on client ledger account;
  • CR on cash account; and
    -in the business or client section as appropriate.

(nb the CR and DR are corresponding)

64
Q

If payment made from business bank account on behalf of client, what will the effect of this be on client ledger account?

A

Shows that client owes firm money

If payment made from client bank account, the amount held for client reduced

(remember no payment should be made from client account unless holding sufficient funds - otherwise, pay from business bank account)

65
Q

nb Client Ledger account is just like an individual client’s individual account and within that it will have business and client account

Diff to a cash account which is where all cash transactions are recorded - it is for money coming in and out (I kind of view it as neutral - it is just saying this HAS come out or HAS come in like don’t shoot the messenger) (or also anticipated to come in etc like we know that she has this debt that we are recovering so it will be DR in her client cash account)

A
66
Q

debits record incoming money, whereas credits record outgoing money.

A

See OneNote “^ so you have £500 from the client” and should make sense

67
Q

Once a bill is sent to a client, what entries must be made?

A
  • Professional charges with:
    a) DR (debt) entry in business section of the client ledger account (individual matter)
    b) CR (credit) in profit costs account; and
  • Any VAT with:
    a) DR entry in business section of client ledger account; and
    (it is client who pays VAT)
    b) CR entry in:
  • income ledger (aka professional charges/fees/profit costs) account; and
  • HMRC account
    (HMRC being credited I guess)
68
Q

At the end of the year, what does the HMRC ledger account and profit costs (i.e. professional charges/income ledger/professional fees) accounts show?

A

HMRC = how much firm owes HMRC in VAT

Profit costs account = balance shows much firm has billed for own fees

69
Q

When are disbursements recorded?

A

When PAID.

No entries on accounts made when sent.

70
Q

When bill issued for legal fees and paid and/or unpaid dibs, where should money be paid?

A

Business bank account, since firm’s own money

(even if unpaid, firm will be paying - although remember not if things like SDLT)

71
Q

When firm sends bill, what should it include re disbursements?

A
  • Any already paid
  • Any to be paid in future
  • If paid on account, usually accompanying statement setting out how much used already and whether further funds required / whether money owed to client
72
Q

Firms are required to record on each client’s ledger account, all ____ and ____

A

Receipts and payments

73
Q

What is a cash transfer?

A

Client money withdrawn from client bank account and paid into business bank account.

This must be recorded.

Need bill to be issued before can transfer for professional fees/disbursements/VAT.

74
Q

What is an inter-client transfer?

A

If holding money in client bank account for one client and stops holding it to for first client and starts holding for a second, must record this change in ownership.

There is no movement of cash.

Cash remains in client account.

E.g. Client A owes money to client B so asks firm to hold it for B

E.g. gift to another

E.g. giving the residuary beneficiary their share of estate - goes from estate to residuary beneficiary

75
Q

Examples of cash transfers in law firms?

A
  • money transferred from client ac to business ac to pay legal fees (main one)
  • advance money to a client or trust where need to make payment on behalf of client/trust and insufficient client money available
    (once advanced, becomes client money)
    (so guessing advance from business to cl)
  • Replace money withdrawn in breach
  • To allow client a sum in lieu of interest
76
Q

How to record a cash transfer?

A
  1. Record payment of money from client bank account
  • CR cash account; and
  • DR ledger account - both client section)
  1. Record receipt of money into business bank account
  • CR client’s ledger account ; and
  • DR cash account
    (both business section)

SEE ONENOTE

77
Q

If firm holding client money in client account and issues a bill, where can the money being held (covering the bill) be transferred to?

A

Business bank account

78
Q
A
78
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A
79
Q
A
80
Q

How to record inter-client transfer?

A

(held for one client then held for another)

No entries made on cash account as no money moving in or out.

DR entry on client ledger account of first client.

CR client ledger account second client.

(makes sense because DR they are losing money and other is CR gaining)

80
Q

Can you transfer money from client acc if bill not issued?

A

Not unless firm made clear when money received that would use in this way

Or if bill is for a paid disbursement (as it will not be client’s money)

81
Q

Example of when firm will received mixed funds (and what are mixed funds)?

A

Mix of business and client money

From clients

E.g. part for a pre-paid disbursement (business money) and part on account of costs (client money)

(wait until raised a bill and know how much it acc costs before paying into business acc)

82
Q

How can firms deal with mixed receipts? (i.e. client sends money and some is for business / some for client account)

A
  1. Split cheques
    i.e. pay diff parts of the cheque into diff bank accounts
    Simple but banks usually unwilling
  2. Direct transfers
    i.e. pay into one bank account then transfer correct amount to other
    More common
    Most clients pay by bank transfer anyway - firms usually give details of client bank account then transfer into business account
83
Q

SRA rules on what must do if get mixed receipts?

(ie one payment from client but some to go to business acc/some to client)

A

Pay promptly to correct one

can choose when cheque received which to initially pay it in

Usually firm’s have their own policy
Some flexible so that you can pay into whichever suits
(eg 90% for client acc so pay for client account)

84
Q

What should firm do with cheques not made out to firm?

A

CANNOT pay into firm’s bank account. It does NOT represent money in firm’s hands.

Must forward to payeee without delay.

Does not need to record receipt and payment in the accounts as not dealing with it.

Not required but should keep written record.

85
Q

Can a firm draw against a client’s cheque before it has cleared?

(withdraw)

A

Yes but not advised.

if client cheque is dishonoured, will have breached Rules by taking out more than holds for that client
(so used other clients money)

Would have to remedy by transferring sufficient cash from business to client to cover it.

86
Q

What is abatement?

A

Reduced costs (usually if client complains bill is too high)

87
Q

If firm reduces fees, what happens to VAT?

A

Reduced proportionately

(HMRC permits this)

87
Q

What must you do if you offer an abatement (i.e. reduction of fees)?

(NOT in terms of accounts)

A

Entries recorded on profit costs and HMRC accounts when bill was sent are reversed to extent of the abatement

Send client VAT credit note

88
Q

What may firm offer as an alternative to recording an abatement by credit on client ledger acc business section and DR on profits/HMRC?

A

DR in a separate abatements account

Then at end of accounting period, the DR balance on that account is transferred to debit side of profit costs account

(suppose it all ends up in same place anyway in balancing profits and losses to calculate total profits)

88
Q

What do you do about VAT if bad debts which having to write off?

A

If debt been outstanding for at least 6 months, firm entitled to full refund for VAT from HMRC.

88
Q

What are bad debts?

A

Client not paying amount owed so have to write off professional charges, any disbursements which were paid from business bank account and VAT.

88
Q

When get VAT relief for bad debts, how is it recorded?

A

HMRC account recorded as bad debts / VAT relief as DR.

(it’s a DR because HMRC are paying it so it’s a debt to them)

And in the bad debts account, it is credited for the VAT relief from HMRC

89
Q

How to record petty cash?

A

When cash withdrawn from bank for petty cash:
(e.g. we’ll get £10 out and leave it at office for tea bags)
- CR Cash - business esction
- DR Petty cash account

When payment made:
(e.g. tea bags bought)
- CR petty cash account
- DR appropriate ledger
(e.g. tea bags)

90
Q

Can firm use petty cash on behalf of client?

A

Yes but will be using business cash on behalf of client

91
Q

How to record petty cash payment if used for client?

A
  • CR petty cash account
  • DR client ledger account to show client now owes for that
    BUT will be on BUSINESS section, even though spent for client, because it is business money

(e.g. might pay £20 for expert witness in person)

92
Q

Is firm entitled to retain insurance commission?

A

Rarely

Have to ‘properly account’ to client for it

Usually by:
- paying it to client, offsetting against fees; or
- keeping where can justify, has told client amount and client agreed

Most not wish to retain as takes outside exemption allowing professional firms to avoid regulation by Financial Reporting Council in relation to investment business.

93
Q

How to record insurance commission on accounts?

A

CR receipts to a ‘commission received account’

Ledger account in name of company paying commission

94
Q

If law firm providing legal services instructs another law firm to act as its agent, how will the agent’s fees operate for the instructing firm?

(not in terms of recording)

A

They will be a business expense of the instructing firm, not a client disbursement.

Instructing firm will increase its own professional charges to cover it.

When sends own bill to client, adds agent’s professional charges/disbursements to own professional charges

95
Q

If law firm uses an agent firm for its client, how will the agent firm treat its fees in terms of recording/accounts?

A

Will treat like every other client - client ledger account in name of instructing FIRM

96
Q

If law firm providing legal services instructs another law firm to act as its agent, how will instructing firm record accounts?

A

Sends business bank account cheque for total amount. Could be 3 elements to that (prof fees, dibs and VAT).

ALL IN BUSINESS SECTION:
(since will just be transferring client’s fees from client account to business account)

Professional charges:
- CR cash account
- DR agency expenses account *

VAT:
- CR cash account
- DR HMRC account

Dibs:
- CR cash account
- DR client’s ledger account

(cash account only one that gets credited, common sense which ones get debited)

97
Q

Entries on accounts if offered abatement? (reduced fees)

A

ALL business section

DR Profit costs account
DR HMRC account
CR client ledger account with reduction
(client ledger account would be broken down into CR profit costs and VAT)

(makes sense that credit client ledger with debts from other accounts since they aren’t getting a refund it is just that firm is making up costs of remaining fees)

98
Q

If firm pays out of cash account and incurs an expense, what should be marked on the cash account?

A

CR entry

(e.g. if was paying for electricity - corresponding entry would be DR in firm’s electricity account)

Cash account a bit counterintuitive because receipts of cash from client are marked DR in cash account

99
Q

Are any entries made to cash register when bill is raised?

A

No since there is no movement of cash

(entries only required in Profit Costs and HMRC account with corresponding in client ledger)

100
Q

When is cash irrelevant?

A

If it is about billing process

inter-client transfer

baso just if does not leave one of the bank accounts (ie stays within client or stays within business)

cos there might be a transfer which is within the firm but involves it going out of client into business and vice versa

101
Q

When do u have to pay immediately vs promptly

A

Not sure but check lol they are the general time limits

102
Q

What do u do if client says don’t pay cheque in yet?

A

If instructions are in writing, cheque can be withheld. But since the cheque is for client money, it must be recorded on B’s ledger, meaning these entries:

  • DR cash account - client side
  • CR client ledger - client side

And note made that cheque not been presented

103
Q

When bill paid for money received for professional charges and dibs (both paid and unpaid), what entries should there be?

A

DR cash account - business section
CR client ledger account - business side

(because this is business rather than client money)

e.g. if receive £100 in payment of bill for court fee or counsel’s fees or professional charges and VAT
(I thought would also be VAT and profit costs but maybe comes at later date)

104
Q

Petty cash payment - what entries?

A
  • Petty cash ledger BUSINESS side CR
    • Client ledger BUSINESS side DR

Because petty cash is business money so must make from business account even if firm holding client funds

105
Q

ULaw LLP is holding £100 for a client, Frank. You need to pay a court fee of £110 for Frank immediately.

A
  • £10
    ○ Would need to make a cash transfer
    ○ CR cash account - business section
    ○ DR client ledger account - business section
    ○ DR cash account - client
    ○ CR client ledger - client
    (so you are first taking away (DR) from business account then CR client account to be able to pay it
    • Would then have £110 in so could pay it:
      ○ CR cash account - client section
      ○ DR client ledger client section

Or could pay whole thing from business account - CR cash account business / DR client ledger business
- But could only transfer £100 to business account if prior agreement with client
(if no prior agreement, can only do if bill delivered)

106
Q

Acquisition of furniture - liability, asset or expense?

A

Asset

Solicitor's Accounts (2 decks)

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