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Flashcards in Solicitor Accounts Deck (31)
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1

What is the purpose of Solicitors' Accounts?

R 1.1 - To keep client money safe, by keeping client money in a separate account from firm money.

2

Define client money, with 5 examples.

Money held and received for a client, including:
(i) as trustee;
(ii) as agent or stakeholder;
(iii) for payment of disbursements not yet incurred (i.e. before the bill is received)
(iv) for the payment of unpaid professional disbursements (other lawyers or experts); and
(v) on account of costs generally.

3

What are the 2 rules regarding the payment of client money?

R 14.1 - (i) pay into client account; (ii) without delay

4

3 exceptions to R. 14.1 where the money comes from the CLIENT?

1. Client's written INSTRUCTIONS to pay the cheque in at a later time
2. Where client hands cash to solicitor to pay 3P'S COSTS and solicitor pays out promptly (MUST record receipt and payment in client ledger)
3, Where client sends money for professional disbursement INCURRED but not yet PAID - can pay into office account if paid out within TWO working days

5

What to do when solicitor receives cheque on behalf of client from 3P payable to the firm (2 points)?

Solicitor can (i) endorse the cheque by making it out in favour of the client and send it on, but (ii) must record the receipt of the cheque as client money

6

What to do when solicitor receives cheque payable to 3P or the client?

Solicitor must (i) forward it to appropriate recipient (since he cannot cash it) and (ii) make a note in the client ledger to record the receipt and handing over of the cheque

7

When can client money be placed in office account?

Where client sends money for professional disbursement INCURRED but not yet PAID - can pay into office account if paid out within TWO working days

Otherwise, NEVER

8

5 situations where permissible to withdraw money from client account (Rule 20)?

1. Pay to or on behalf of (including disbursements) client
2. Reimburse solicitor for office money spent
3. Transfer from one client ledger to another
4. Transfer to office account to pay solicitor's bill of costs
5. Client's written instructions, provided for the client's convenience

9

How should a solicitor deal with a mixed cheque? Key distinction?

1. Pay the whole sum into the client account and transfer the office money part to the office account within 14 days
2. Split the cheque between office and client accounts when cashing it in

Distinction is whether client intends to settle bill of costs (Rule 17.1) or otherwise (Rules 18.2-18.3)

10

What is "double-entry bookkeeping"? Is it compulsory?

Every entry into an account or ledger requires a corresponding and opposite entry in a different account or ledger - i.e., always recorded twice.

Compulsory pursuant to R. 29.

11

3 rules of double entry bookkeeping?

1. A PAIR of entries in separate ledgers required for every transaction.
2. One entry must be a CR; the other a DR.
3. But both entries must be on the SAME SIDE of the ledger - either client, or office side.

12

Four essential pieces of information for an account or ledger entry?

1. Date
2. Details - (i) which ledger and (ii) description
3. Sum and whether CR or DR
4. New account balance and whether is CR or DR balance

13

What is the difference between a client account and a client ledger?

Client account = an actual bank account where client money is kept
Client ledger - bookkeeping record of to whom money belongs, and you need one ledger for each individual client to state how much cash in the main client account is held for each client

14

What entries do you make when a client sends you a cheque on account of general costs?

1. CR client ledger (you hold more $$ for that client).
2. DR client cash (client account owes client $$).

15

What entries do you make when money is paid out of the client account (e.g. a disbursement paid on client's behalf)?

1. DR client ledger (you hold less $$ for client)
2. CR client cash (client owes client account less $$)

16

What entries do you make when money is paid out of office account on behalf of client?

1. DR office ledger
2. CR office cash

17

What entries do you make when client sends you money to settle a debt already owed to the firm (e.g. for disbursements paid by firm on client's behalf)? What kind of money is this?

It is office money.
1. CR office ledger
2. DR office cash

18

What entries do you make when you issue a bill of costs?

1. DR office ledger (office account is short of $$ as debt is owed)
2. CR profit costs

19

What entries do you make when transferring money from client account to office account to settle a bill of costs?

1. DR client ledger (less $$ held for client)
2. CR client cash
AND
1. CR office ledger
2. DR office cash

20

What entries do you make when you receive a mixed cheque and want to split the cheque on cashing it in?

1. CR client ledger
2. DR client cash
AND
1. CR office ledger
2. DR office cash

21

What entries do you make when you receive a mixed cheque and want to pay it into client account before transferring the office money portion to the office account?

1. CR client ledger
2. DR client cash
AND
1. DR client ledger
2. CR client cash
AND
1. CR office ledger
2. DR office cash

22

What entries do you make when you pay for a disbursement out of petty cash?

1. DR office ledger
2. CR petty cash

23

What entries do you make when you are acting for a partner and the partner sends you money in relation to that transaction?

1. CR partner capital account
2. DR office cash

24

What is the problem, and the solution, when a cheque from the client for disbursements already paid for out of the client account bounces?

Per Rule 20.6, a solicitor must never allow the client account to become overdrawn. If the solicitor has paid for disbursements out of the client account in the belief that the cheque would clear, the client account may become overdrawn.

Solution - the solicitor must immediately transfer office money across to the client ledger to bring
the balance back up to zero (Rule 17.1).

25

4 steps to transferring office money to overdrawn client account after a cheque from the client to reimburse for disbursements already paid has bounced?

1. Receipt of cheque: CR client ledger, DR client cash
2. Cheque has been dishonoured, so reverse: DR client ledger; CR client cash
3. Transfer from office account: DR office ledger; CR office cash
4. Transfer into client account: CR client ledger; DR client cash.

26

Requirements under SRA Accounts Rules re accounting for interest on client account? Can rules be waived?

The Rules require solicitors to:
1) account to the client for interest when it is fair and reasonable to do so (Rule 22.1). This means paying a proportion of the interest earned on a client account to the client; and
2) have a written policy relating to the payment of interest "which seeks to provide a fair outcome" (Rule 22.3).

The Rules permit solicitors to contract out of the interest rules in appropriate circumstances (Rule 25).

27

How much interest on the client account should be paid to the client?

Interest paid must be a "fair and reasonable sum calculated over the whole period for which money
is held" (Rule 23.1).

28

Which account does interest on client cash in a client account fall under?

Interest earned on client money which is held in a general client account is office money (Rule 12.7(b)).

29

How to record (i) interest earned on a client account; and (ii) payment of that interest to client?

1. Payment of interest to solicitor: (i) CR interest received ledger; (ii) DR office cash
2. Paying fair and reasonable interest to client: (i) DR interest received ledger + CR office cash; (ii) CR client ledger + DR client cash

30

What type of balance is in the client office ledger?
What type of balance is in the client ledger for its own account?

Debit - because it records money which the client owes the office.
Credit - because it records money which the office owes the client.