Solicitors account entries - Accounting entries required (Client money)-FS Flashcards
(12 cards)
What is the ‘client ledger business account’ in solicitor’s accounts?
It’s a ledger that shows how much money a client owes to the firm, equivalent to accounts receivable.
When is the client ledger business account debited?
When the amount owed by the client to the firm increases (e.g., when a bill is issued).
When is the client ledger business account credited?
When the amount owed by the client to the firm decreases (e.g., when a bill is paid).
What are the correct account entries when a bill is issued for professional charges of £500?
Debit client ledger business account; Credit profit costs account.
What are profit costs in solicitor’s accounting?
A form of revenue recorded as equity, representing money owed by the firm to the business owner.
What are the correct account entries when a bill of £750 is paid by the client?
Credit client ledger business account; Debit cash sheet business account.
Why is VAT not included in some transactions in the examples?
Because the solicitor is not registered for VAT, typically due to expected earnings below the VAT threshold.
What does Rule 8.1 of the SRA Accounts Rules relate to?
The requirement for law firms to keep accurate accounting records.
What is the main function of the client ledger business account in the SQE exam?
To show accounts receivable (money owed by the client to the firm), but it can also show VAT and interest.
What do the accounting entries reflect when a bill is raised but not yet paid?
Debit to the client ledger business account (increase in debt owed by client) and credit to the profit costs account (increase in revenue/equity).
What do the accounting entries reflect when a bill is paid by the client?
Credit to the client ledger business account (decrease in amount owed) and debit to the cash sheet business account (increase in firm’s cash).
What does the SRA guidance require regarding solicitor’s accounting entries?
Firms must comply with rules such as Rule 8.1 and maintain accurate and timely accounting records.
