Summary
Summary ULAW LPC, Solicitors Accounts Chapter Readings
- Module
- Solicitors Accounts (SAC)
- Institution
- University Of Law (ULaw)
ULAW LPC, Solicitors Accounts Chapter Readings
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Intro to PP – WS1 Solicitors Accounts TIFF LIAOChapter 14 – Miscellaneous Matters page 159
INTRODUCTION
Considers a variety of more unusual transactions which will occur from time to time and how to deal with them.
SUMMARY
Cheques which are NOT made OUT TO THE FIRM CANNOT be paid into the firms bank account
The cheque does not represent money in the firms hands
The firm must forward the cheque to the payee and does NOT need to record the receipt and payment in the accounts
= there’s no dealing with client money
A firm can draw against a clients cheque BEFORE it has cleared (not advisable)
If the clients cheque is dishonoured, the firm will have breached the Rules
They will have to remedy the breach by transferring sufficient cash from the BUSINESS to the client account to cover
the payment
If the firm reduced the amount charged for profit costs, VAT is ALSO reduced
If a clients debt is written off as bad, the firm will lose the amount charged for profit costs + any disbursements paid
from the BUSINESS bank account
VAT bad debt relief can also be obtained once the debt has been outstanding for 6M
Petty cash = BUSINESS money, any payment made for client using petty cash is business money
A firm will normally account to a client for commission received as a result of acting for a client
RECIEPT OF CHEQUE
MADE OUT TO THE CLIENT/3rd PARTY
- If you receive a cheque made out NOT to be the firm but to the client (or 3rd party) you
CANNOT pay that cheque into the firms bank account, the firm is NOT the payee.
- ONLY OBLIGATION: is to forward the cheque to the payee without delay
- As you have not received client money, there is NO OBLIGATION under RULE 8.1(a) to record the event on the
CLIENT ledger account and CASH account – however, you will want to keep a written record on the correspondence
file.
- AS A PRECAUTION: many firms will have a special control account where all cheques received by the firm will be
recorded irrespective of the payee.
This is NOT required by the Rules but helps to prevent cheques being overlooked.
The SRA guidance, ‘Helping you keep accurate client accounting records’, says:
o We expect you to have systems and controls in place for identifying client money, including cash, when
received in the firm, and for promptly recording the receipt of the money in, for example, a cash diary.
DISHONOURED
CHEQUES
- There is nothing in the rules to prevent a firm drawing against a cheque which has been paid into the client account, but
which has not yet been cleared.
- HOWEVER, if that cheque is then dishonoured, there will be a BREACH of RULE 5.3
More money will have been taken from the CLIENT bank account than is held for the client
Money belonging to the other clients will, therefore, have been used to make the payment
under RULE 6.1 any breaches must be correct promptly upon discovery AND any money improperly withdrawn
from a CLIENT account must immediately be replaced.
1
TIFF LIAO
, Intro to PP – WS1 Solicitors Accounts TIFF LIAO
Chapter 14 – Miscellaneous Matters page 159
EXAMPLE
On 1 March, you receive a cheque for £500 on account of costs from your client, Smith. On 2 March, you pay a court fee
of £100 out of the client bank account on behalf of Smith.
On 4 March, the bank informs the solicitor that Smith’s cheque for £500 has been dishonoured.
First you must make entries to reverse the apparent receipt on 1 March. Then you must deal with the consequences of the
payment from the client bank account.
Because it turns out that you had no money for Smith when you made the £100 payment, you must have used £100
belonging to another client for the benefit of Smith. You must, therefore, transfer £100 from the business bank account to
the client bank account to remedy your breach of the rules.
On 7 March, Smith tells you that there are now sufficient funds to meet the cheque. He asks you to re-present it. You do
so on 7 March and it is met.
When you re-present the cheque, the client now owes you £100. So the receipt is a mixture of business and client money.
This means you can either:
(a) split the cheque, or
(b) pay the whole amount into one account and transfer funds to the other account promptly (Rule 4.2).
If you pay the whole £500 into the client bank account, you must transfer the £100 to the business bank account
promptly.
You make the £100 payment form the CLIENT bank RULE 2.1: Money is client money and is paid
account even though the cheque from Smith has not into the client bank account (RULE 2.3)
been cleared yet
CR Smith ledger account
CR CASH account DR CASH account = CLIENT
When the cheque is re- DR Smith ledger account = CLIENT
presented you can
under RULE 4.2 either:
(a) Pay the whole CLIENT: SMITH
amount into one MATTER: MISCELLANEOUS
bank account; DATE DETAILS BUSINESS ACCOUNT CLIENT ACCOUNT
OR March DR CR BAL DR CR BAL
1 Cash. 500 500 CR
(b) EXAMPLE: split From
it so that £100 Smith on
goes into the Account
BUSINESS bank 2 Cash. 100 400 CR
account and Court Fee
£400 into the
4 Cash. 500 100 DR
CLIENT bank
Smiths
account
Cheque –
returned
4 Cash. 100 100DR 100
Entries if split:
Transfer
£100 BUSINESS
from
Money
business
CR Smith ledger acc
to rectify
DR CASH account
breach
7 Cash. 100 - 400 400 CR
Smiths
cheque re-
£400 CLIENT MONEY
presented
CR Smith ledger acc
DR CASH account
To record the dishonouring, you must make
entries reversing those made when you received
This results in a DR balance of £100 on Smith’s ledger account the cheque
and you are in BREACH of RULE 5.3.
DR Smith ledger account
(effectively used another clients money on behalf of Smith for CR CASH account = CLIENT
whom you weren’t holding any)
Withdrawal from BUSINESS account
DR Smith ledger account
CR CASH account = BUSINESS
2
Receipt into client account
TIFF LIAO
CR Smith ledger account
DR CASH account = CLIENT
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