Solicitors Accounts Flashcards
(94 cards)
1
Q
What does the SRA recommend that you do if client money is lost or taken?
A
- Rectify the breach
- Report the breach to them
2
Q
Who do SRA Account Rules Apply to?
A
- Authorised bodies (anyone licensed or recognised by SRA)
- Managers and their employees (e.g., sole practitioner, partners, a member of an organisations governing body)
3
Q
Who is responsible for compliance?
A
The authorised bodies managers are jointly and severally liable
4
Q
When do you need to create an accounting report?
A
If you have:
held or received any client money
operated a joint account or
a clients own account as signatory
during an accounting period
5
Q
What is the deadline for obtaining an accounting report?
A
6mo from the end of the accounting period
6
Q
In what circumstances and when do you have to submit an accountant report to the SRA?
A
- If the report is qualified to show a failure to comply with SRA rules such that money belonging to clients/third parties has been or is likely to be placed at risk
- Within 6mo of the end of the accounting period
7
Q
What does a qualified accountant report mean?
A
It is really bad, significant errors e.g.,:
- Significant/un-replaced shortfall
- Actual or suspected fraud or dishonesty
- Accounting records not available
- Client account bank reconciliations not being carried out
- Client account improperly used as a banking facility
8
Q
What are the exceptions to needing to prepare an accountant report that year?
A
- All money received or held was from legal aid
- Balance of client money you have held or received does not exceed
- An average balance on client account 10k
- Maximum 250k
9
Q
In what 2 circumstances can the SRA require an accountant report on reasonable notice?
A
- If body has ceased to operate as an authorised body or hold a client account
- If it is considered in the public interest
10
Q
What 2 criteria are needed for accountants to be eligible to prepare reports for SRA submission?
A
- Member of chartered accountancy body
- Work for or be a registered auditor
11
Q
How long must you store and retain accounting records?
A
6 years
12
Q
Which rules still apply to jointly held client accounts?
A
- ‘to whom these rules apply’
8.2 obtain (at least every 5 weeks), statements from banks, building societies for all client accounts and business accounts
8.4 to keep readily accessible a **central record **of all bills, or other written notifications of costs given by you
12 (all rules pertaining to eligible accountants)
13 must store records for 6 years
13
Q
Which rules still apply to operating a client own account as a signatory?
A
- ‘to whom these rules apply’
8.2 obtain (at least every 5 weeks), statements from banks, building societies for all client accounts and business accounts
8.3 complete (at least every 5 weeks), a reconciliation of the bank/building society statements balance for the account with the cash book balance and client ledger total so that you can promptly investigate and resolve any differences shown by the reconciliation
8.4 to keep readily accessible **a central record **of all bills, or other written notifications of costs given by you
12 (all rules pertaining to eligible accountants)
13 must store records for 6 years
14
Q
What is a third party managed account? (TMPA)
A
When you hire a third party to manage your accounting for you
15
Q
What 3 things must you ensure of if using a TMPA?
A
- Entering the agreement doesn’t result in you receiving or holding client money
- Client is informed and understands (before you accept instructions)
- Understands fee structure
- Rights to terminate and dispute payment requests that the client has - That you regularly review and obtain statements to check accuracy
16
Q
Is money held in a TMPA considered client money?
A
No
17
Q
Does the obligation to protect client money and assets still apply when in a TMPA?
A
Yes
18
Q
What 5 criteria make a TMPA eligible for use?
A
- Regulated by FCA
- Are authorised payment institution/EEA authorised/eligible small payment institution
- An account at a bank/building society
- Operated as an escrow payment service
- Monies inside TMPA are beneficially owned by a third party
19
Q
Do you need to notify the SRA if using a TMPA?
A
Yes
20
Q
What are the 4 categories of client money?
A
- money relating to regulated services and delivered by you to a client
- on behalf of a third party in relation to regulated services delivered by you (e.g., property money from buyer’s sol)
- as a trustee, or as holder of a specified office or appointment such as a donee of power of attorney, pension scheme operator etc
- In respect of your fees, any unpaid disbursements if held or received prior to delivery of a bill for the same
21
Q
What 2 things must the name of any client account include?
A
- Name of the authorised body where is held
- The word client
22
Q
In which types of institutions can you maintain a client account?
A
Bank or building society in England and Wales
23
Q
Who technically owns the client account?
A
The law firm
24
Q
What are the 3 exceptions for paying client money promptly into a client account?
A
- would conflict with obligations under rules or regulations relating to your specified office or appointment
- client money was received from legal aid
- there is a separate agreement with the client or third party in writing
25
How can you hold client money if you don't have a client account (Rule 2.2)?
If the only money being held/received is for fees, disbursements or any prior delivery of a bill for the same
26
What 6 rules do not apply if holding client money outside the client account?
1. obligation to **pay money promptly** into a client account
2. money has to be **available on demand**
3. money has to be** kept separate**
4. accounting for a fair sum of **interest**
5. **only a client ledger** needed nothing else (e.g., list of balances)
6. **no accountants report**
27
Do you have to pay a proportionate sum of interest to clients for that which is accumulated because their money is in the client account?
Yes
28
What happens if you get a mixed payment (client and firm money in one)?
Promptly put them into their respective proper accounts
29
Is it a problem if a mixed payment is paid into the client account or business account?
No, just promptly apportion the money correctly
30
In what 5 circumstances can you make a withdrawal from a client account?
1. For the purpose which it was being held
2. Following receipt of instructions from the client or third party for whom it was being held
3. on the SRA's prior written instructions
4. after being overpaid
5. if you need to transfer it to another account (e.g., business)
31
Do you have to authorise and supervise all withdrawals from a client account?
Yes
32
Can you withdraw money from the client account if the money contributed by the client does not cover the full cost of the withdrawal?
No
33
What must you do before paying the business out of the client account?
Give a bill of costs, or other written notification of costs incurred to the client or paying party
34
What does the client account cash book (AKA cash sheet client account) record?
Payments in and out of the client account for all clients
35
What does the client ledger account (AKA client ledger account) record?
Records payments in and out of an account for that particular client
36
What does the business account cash book (AKA cash sheet business account) record?
Firm money
37
What does the client ledger business account record?
Records receipts and payments of non-client money from a particular client. The balance shows how much money that particular client owes the authorised body.
38
Do you have to have different client ledgers for the same client who has multiple matters being dealt with by the firm?
Yes
39
What is the double-entry principal?
For every transaction, 2 separate entries on 2 different accounts must be made.
40
Which account works as the opposite of a bank account in terms of crediting and debiting?
The client account cash book (AKA cash sheet client account)
41
What is the concept behind why the client account cashsheet/book is opposite?
Because it is from the firms perspective. The client ledger represents the firms obligation to the client. For example when money client money is received:
1. Client ledger is credited, because that's how much money the firm owes the client
2. Cash sheet is debited, because debit, strictly speaking, means money is going in
and vice versa.
42
How do you account for creation of new debts (which are transactions which don't involve receiving or withdrawing money e.g., law firm issuing a bill)?
1. Debit the client ledger business account
2. Credit the profit/costs account or similar
43
How often do you have to check/reconcile your accounts (both internally and externally)?
Every 5 weeks (8.2/8.3)
44
How do you record client money being received and being paid into the client account (e.g., a retainer)?
1. Credit the client ledger client account
2. Debit the cash sheet client account
45
How to record withdrawing money from the client account?
1. Debit the client ledger account
2. Credit the cash sheet client account
46
How to record non-client money being received (e.g., payment of a debt)?
1. Credit the client ledger business account
2. Debit the cash sheet business account
47
How to record paying out non-client money (e.g., cause a retainer hasn't been received yet)?
1. Debit the client ledger business account
2. Credit the cash sheet business account
48
What should you do if you receive a cheque payable to the client (e.g., it is in their name)?
Pass the cheque on, make a note in the client ledger (client side) of the receipt and handing over of the cheque (*thus it is a double-entry exception)
49
How does the petty cash account operate?
The same way as the business cash book
50
How to record using petty cash for a client purchase?
1. Debit the client ledger business account (to show the debt the client owes)
2. Credit the cash sheet petty cash account
51
How to record transferring money from a client account to a business account? (4 entries required)
Step 1:
1. Debit the client ledger client account
2. Credit the cash sheet client account
Step 2:
1. Credit the client ledger business account
2. Debit the cash sheet business account
52
How to record transferring from business account to client account?
Step 1: Withdraw Money from the Business Acc
1. Debit the client ledger business account
2. Credit the cash sheet business account
Step 2: Pay money into the client account
1. Credit the client ledger client account
2. Debit the cash sheet client account
53
How to allocate a mixed payment (splitting money)?
Step 1: Paying client account (client money)
1. Credit the client ledger client account
2. Debit the cash sheet
Step 2: Pay the business account (business money)
1. Credit the client ledger business account
2. Debit the cash sheet business account
54
How to record transferring money between 2 clients?
1. Debit client ledger account of the transferor
2. Credit the client ledger account of the transferee
55
How to record receiving a deposit from a client to pay for property you are helping them buy?
1. Credit the client ledger account
2. Debit the cash sheet client account
56
How to record acting as the buyers solicitor, and sending the seller's solicitor money?
1. Debit client ledger client account
2. Credit the cash sheet
57
What does it mean to hold money as a stakeholder?
Holding money on trust until it becomes clear who you need to transfer the money to
58
What does it mean to hold money as an agent?
It is as if the money was transferred to the client themselves.. you can give it to them right away
59
How to record receiving money to be held as a stakeholder?
1. Credit client ledger stakeholder
2. Debit the cash sheet client account
60
How to record transferring money held as a stakeholder?
1. Debit the stakeholder ledger
2. Credit the client ledger client account
61
How to account for receiving money as an agent?
1. Credit the client ledger
2. Debit the cash sheet
62
What is Method 1 of receiving mortgage money for a client from a lender? (no separate client account)
1. Credit the client ledger
2. Debit the cash sheet
**make sure you record in the notes what it was for**
63
What is Method 2 of receiving mortgage money from lender on behalf of a client? (separate client account for the lender)
Step 1: Put money in lender account
1. Credit the client ledger lender account
2. Debit the cash sheet
Step 2: Move money to buyers account
1. Debit the client ledger lender account
2. Credit the client ledger buyer account
64
What is Method 1 of an entry for paying back a mortgage when acting for both lender and seller?
Step 1: Internal transfer between clients
1. Debit the client ledger seller account
2. Credit the client ledger lender account
Step 2: Send money to lender (using the normal accounting entries for money paid out)
1. Debit the client ledger lender account
2. Credit the cash sheet
65
How to account for private loans between clients?
1. Debit the client ledger lender account
2. Credit the client ledger debtor account
66
Can a client give written informed consent to vary their entitlement to a fair sum of interest?
Yes
67
How do you account for paying a fair sum of interest?
Step 1: Withdraw interest from the business account
1. Debit the interest payable ledger
2. Credit the cash sheet business account
Step 2: Record the receipt of the interest into the client account
1. Credit the client ledger client account
2. Debit the cash sheet
68
How do you pay money into a separate/designated client account?
1. Credit client ledger separate account
2. Debit the cash sheet associated with that separate account
69
How do you withdraw money from a separate/designated client account?
1. Debit the client ledger separate designated client account
2. Credit the cash sheet
70
How do you transfer general client money into a separate/designated account?
Step 1: Withdraw money from the main client account
1. Debit client ledger client account
2. Credit the cash sheet
Step 2: Pay the money into the separate client account
1. Credit the client ledger separate designated account
2. Debit the cash sheet separate designated account
71
How to pay interest to a separate client account?
1. Credit the client ledger separate account
2. Debit the client separate cash sheet
72
Is it mandatory to keep a central record of all bills and written notifications of costs given out by you?
Yes
73
At what point is VAT applied?
When a bill of costs/invoice is issued to the client
74
What happens if the solicitor forgets to tell the client that a bill is baseline + VAT?
The bill is deemed to be VAT inclusive
75
How to account for VAT when issuing a bill?
1. Debit the client ledger business account (e.g., business side)
2. Credit the VAT account ledger
76
What is a client ledger separate account?
A client ledger separate account is used to track individual client transactions separately.
77
Is it mandatory to keep a central record of all bills and written notifications of costs given out by you?
Yes.
78
At what point is VAT applied?
When a bill of costs/invoice is issued to the client.
79
What happens if the solicitor forgets to tell the client that a bill is baseline + VAT?
The bill is deemed to be VAT inclusive.
80
How to account for VAT when issuing a bill?
1. Debit the client ledger business account (e.g., business side)
2. Credit the VAT account ledger.
81
When a client pays a bill + VAT, whose money is it?
Firm.
82
What account does a bill payment + VAT go into?
Business account.
83
What entries do you have to make for payment of the bill and VAT?
1. Credit the client ledger business account for the client
2. Debit the cash sheet business account.
84
What entries do you have to make to pay a bill by transfer from the client account to the business account?
Step 1: Withdraw money from the client account
1. Debit the client ledger client account
2. Credit the cash sheet client account
Step 2: Pay the Money into the Business Account
1. Credit the client ledger business account
2. Debit the cash sheet business account.
85
What entries do you make to record issuing a bill + VAT to a lender who does not have a separate client ledger?
1. Debit the client ledger business account (for the borrower)
2. Credit the profit costs account
3. Debit the client ledger business account for the borrower with the amount of VAT
4. Credit VAT account with the amount of VAT.
86
What entries do you make to issue a bill + VAT to a lender who has a separate client ledger?
1. Debit the client ledger business account for the lender with the amount of profit/costs
2. Credit profit costs account with the amount of profit/costs
3. Debit the client ledger business account for the lender with the amount of VAT
4. Credit VAT account with the amount of VAT.
87
What entries to transfer costs from one client to another?
1. Debit client ledger business account for the borrower
2. Credit client ledger business account for the lender.
88
What are the entries required for abating a bill?
Step 1: PROFIT COSTS
1. Credit the client ledger business account for the amount the profit costs are being reduced by
2. Debit the profit costs for the amount being reduced by
Step 2: VAT
1. Credit the client ledger business account for that client for the reduction in VAT
2. Debit the VAT account for the reduction in VAT.
89
What entries do you need to make to write off a bad-debt?
Step 1: Write off the bad-debt
1. Credit the client ledger business account for the client with the amount of the debt being written off
2. Debit the bad and doubtful debts record
Step 2: Write off VAT
1. Credit the client ledger business account for the client
2. Debit the VAT account.
90
What do you do with a dishonoured cheque?
1. Reverse the original entries that recorded the original receipt of the money
2. If this causes the client account to be overdrawn, must pay it out of firm money.
91
What accounting entries are needed to pay a disbursement + VAT as an agent for the client?
1. Debit the client ledger client account
2. Credit the cash sheet client account.
92
What does it mean to be paid as a principal?
The law firm instructs a third party and the firm itself is invoiced.
93
What entries do you make if paying a disbursement + VAT as a principal?
Step 1: Firm pays disbursement + VAT
Disbursement
1. Debit client ledger business account
2. Credit cash sheet
VAT
1. Debit the VAT account ledger
2. Credit the cash sheet business account
Step 2: Firm sends bill to client
1. Debit the client ledger business account for the VAT
2. Credit the VAT account.
94
What 2 key things do you need to remember when making a disbursement + VAT as a principal?
1. VAT amount must be kept separate (separate entry for it)
2. You have to use non-client money to pay.
