'T-accounts' - Accounting entries required (Client money)-FS

Question 1

What is a T-account in legal accounting?

Answer 1

A T-account is a financial record that uses double-entry bookkeeping, visually represented with a “T” format to track assets on the left and liabilities/equity on the right.

Question 2

Double-Entry Bookkeeping

Answer 2

An accounting system where every transaction affects two accounts:

• One debit (left side, assets/expenses)
• One credit (right side, liabilities/equity/revenue)

Question 3

What types of items are recorded on the left-hand side (debit side) of a T-account?

Answer 3

• Cash
  
  • Property
  • Expenses
  • Accounts receivable (client debts to the firm)

Question 4

What types of items are recorded on the right-hand side (credit side) of a T-account?

Answer 4

• Owner’s equity
• Revenue (e.g. billed profit costs)
• Liabilities (e.g. bank loans)

Question 5

Accounts Receivable

Answer 5

Money owed to the law firm by clients—considered an asset.

Question 6

Why is revenue shown on the credit side of the T-account?

Answer 6

Because revenue is treated as a form of owner’s equity, i.e. it is a liability of the business to the owner.

Question 7

Accounting Equation

Answer 7

Assets = Liabilities + Equity
This equation must always balance and reflects the source and use of all resources in the business.

Question 8

Why must the two sides of a T-account always balance?

Answer 8

Because every asset the firm holds is owed to someone—either the owner (equity) or a third party (liabilities).