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Solicitors Accounts

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  • August 26, 2024
  • 6
  • 2024/2025
  • Exam (elaborations)
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Solicitors Accounts
Step 5: Complete Date, Details and Balance

The Overarching Objective: - ANSWER Rule 1.1 of SRA Accounts Rule - To keep client money safe

VAT - How is VAT on Disbursements recorded (1) Payment of accountant's invoice by solicitor: -

ANSWER CR Office cash with the net amount of invoice & CR office cash with amount of VAT, DR
VAT account with the VAT payable, DR Office ledger for the client with the net amount of the invoice.

VAT - How is VAT on Disbursements recorded (2) Solicitor invoices client for the accountant's costs: -

ANSWER DR Office ledger with profit costs excluding VAT, CR Profit costs, DR Office ledger with
VAT & CR VAT Account. VAT - How is VAT on profit costs

recorded - ANSWER by recording profit costs first then DR Office ledger with VAT payable & CR VAT
Account with VAT payable

VAT - VAT & Lender's costs (1) No separate ledger for lender: - ANSWER Both VAT & Profit costs
recorded in borrower's office ledger.

VAT - VAT & Lender's costs (2) Separate ledgers: - ANSWER The profit costs & VAT for each client
are recorded in their respective office ledgers & then the lender's costs including VAT are transferred
to office ledger in usual way.

VAT definition: - ANSWER For exam purposes standard rate will be 20%. A Solicitor must keep a
record of all VAT paid in the VAT account.

3 Basic Rules of solicitor's accounts: - ANSWER 1. There will always be 2 entries for every
transaction (double entry book-keeping)

2. One of each pair will be a credit entry (CR) and the other a debit entry (DR).

3. Either both entries will be in client or both entries will be in office, you can never have a pair of
entries where one will be in client & the other is in office

Abatement of Costs - How is it Recorded: - ANSWER CR Office ledger & DR Profit Costs. CR Office
ledger for VAT, DR VAT account.

Abatement of Costs -definition: - ANSWER when solicitor reduces fees.

Accounting Records Part 4 of Rules (26-30): - ANSWER specifies in detail how the accounts of
Solicitors must be kept. Rule 29 states that every Solicitor must at all times keep properly writtenup
accounts.

Bad Debts: How to write off bad debts: - ANSWER CR Office Ledger for the client with the amount
of the unpaid debts excluding any VAT (if app), DR bad & doubtful debts accounts, CR office ledger
for the client with the amount of VAT in respect of unpaid debt, DR VAT account.

Capital Account: - ANSWER When acting on behalf of firm's partners must consider Rule 12.8 any
money received from the partner is office money. Also that a partner's contribution to the firm is
called capital & often kept in a separate capital account. You must record entries as you would need
to enter entries in Capital Account & in Bank Account. E.G. any money received would be CR in the
capital account office ledger & DR in bank account.

, Solicitors Accounts
Client Money & Client Account: - ANSWER Belongs to clients. Clients are the person for whom
you act. Keep client money separate from firm's money. However, consider if client is a principal of
the firm then Rule 12.8 applies its office money.

Client Money & Client Account: 12.8(a) & 12.8 (b) & 12.8 (c) - ANSWER jointly with spouse,
mortgage & employee.

Client Money & Client Account: Rule 12 - ANSWER defines client money. Consider Rule 12.2 (e)
money received from client on account of costs, 12.2 (d) money received in respect of unpaid
disbursements & 12.2 (a) money held as trustee. Rule 14.1 client money must be paid into client
account.

Client Money & Client Account: When are you permitted to pay money out of the client account? -
ANSWER Rule 20.1(a), Rule 20.1(c), Rule 20.1(d), 20.1 (a) & (e), Rule 20.1 (f), Rules 17.2 & 3, Rule
17, Rule 18, Rule 20.1 (i).

Client Money & Client Account:Exceptions: - ANSWER (1)Rules 15 & 16.1 (c) client instructions,
(2) Rule 16 cash received & paid out and cheque received & endorsed, (3) 17.1 (b)unpaid
professional disbursements and (4) cheques not payable to firm.

Client Money: - ANSWER Belongs to clients.

De Minimis Rule - ANSWER Rule 22 - usually £20 if you hold a small amount for a long time or a
large amount for a short period of time

Deposits - Accounting records for receipt of deposit are as follows: - ANSWER CR client ledger DR
client cash.

Deposits - If holding as agent: - ANSWER Deposit belongs to seller from exchange so CR Client
ledger & DR Client cash. DR Client ledger CR Client cash.

Deposits - if holding deposit as stakeholder as following entries need to be made: On Exchange: -
ANSWER CR Client ledger stakeholder, DR Client Cash.

Deposits - Payment of the deposit to seller's solicitors - ANSWER DR Client ledger & CR Client
Cash.

Deposits -if holding deposit as stakeholder as following entries need to be made On completion: -
ANSWER DR Client ledger: stakeholder & CR Client Ledger.

Disbursements Exception: - ANSWER Unpaid professional disbursements - if received an invoice
but not yet paid it any money received from client in respect of that invoice is client money Rules
12.2(c) & 12.7(c) (iii

Disbursements Rule 12.7(c) (ii) - - ANSWER if the solicitor has already paid the disbursement then
the client's cheque in reimbursement is treated as office money.

Disbursements Rule 12.7(c)(iii) - ANSWER if a solicitor has incurred a disbursement but not yet
paid it then any money received from the client is also treated as office money.

Disbursements: Rule 12.2(d) & Rule 12 Guidance note (i) - ANSWER - if a solicitor has not yet paid
the disbursement then any sums received from the client in anticipation of those disbursements are
client money.

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