Solicitors Accounts

Question 1

What does the SRA recommend that you do if client money is lost or taken?

Answer 1

1. Rectify the breach
2. Report the breach to them

Question 2

Who do SRA Account Rules Apply to?

Answer 2

1. Authorised bodies (anyone licensed or recognised by SRA)
2. Managers and their employees (e.g., sole practitioner, partners, a member of an organisations governing body)

Question 3

Who is responsible for compliance?

Answer 3

The authorised bodies managers are jointly and severally liable

Question 4

When do you need to create an accounting report?

Answer 4

If you have:

held or received any client money

operated a joint account or

a clients own account as signatory

during an accounting period

Question 5

What is the deadline for obtaining an accounting report?

Answer 5

6mo from the end of the accounting period

Question 6

In what circumstances and when do you have to submit an accountant report to the SRA?

Answer 6

1. 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
2. Within 6mo of the end of the accounting period

Question 7

What does a qualified accountant report mean?

Answer 7

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

Question 8

What are the exceptions to needing to prepare an accountant report that year?

Answer 8

1. All money received or held was from legal aid
2. Balance of client money you have held or received does not exceed
   - An average balance on client account 10k
   - Maximum 250k

Question 9

In what 2 circumstances can the SRA require an accountant report on reasonable notice?

Answer 9

1. If body has ceased to operate as an authorised body or hold a client account
2. If it is considered in the public interest

Question 10

What 2 criteria are needed for accountants to be eligible to prepare reports for SRA submission?

Answer 10

1. Member of chartered accountancy body
2. Work for or be a registered auditor

Question 11

How long must you store and retain accounting records?

Answer 11

6 years

Question 12

Which rules still apply to jointly held client accounts?

Answer 12

1. ‘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

Question 13

Which rules still apply to operating a client own account as a signatory?

Answer 13

1. ‘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

Question 14

What is a third party managed account? (TMPA)

Answer 14

When you hire a third party to manage your accounting for you

Question 15

What 3 things must you ensure of if using a TMPA?

Answer 15

1. Entering the agreement doesn’t result in you receiving or holding client money
2. Client is informed and understands (before you accept instructions)
   - Understands fee structure
   - Rights to terminate and dispute payment requests that the client has
3. That you regularly review and obtain statements to check accuracy

Question 16

Is money held in a TMPA considered client money?

Answer 16

No

Question 17

Does the obligation to protect client money and assets still apply when in a TMPA?

Answer 17

Yes

Question 18

What 5 criteria make a TMPA eligible for use?

Answer 18

1. Regulated by FCA
2. Are authorised payment institution/EEA authorised/eligible small payment institution
3. An account at a bank/building society
4. Operated as an escrow payment service
5. Monies inside TMPA are beneficially owned by a third party

Question 19

Do you need to notify the SRA if using a TMPA?

Answer 19

Yes

Question 20

What are the 4 categories of client money?

Answer 20

1. money relating to regulated services and delivered by you to a client
2. on behalf of a third party in relation to regulated services delivered by you (e.g., property money from buyer’s sol)
3. as a trustee, or as holder of a specified office or appointment such as a donee of power of attorney, pension scheme operator etc
4. In respect of your fees, any unpaid disbursements if held or received prior to delivery of a bill for the same

Question 21

What 2 things must the name of any client account include?

Answer 21

1. Name of the authorised body where is held
2. The word client

Question 22

In which types of institutions can you maintain a client account?

Answer 22

Bank or building society in England and Wales

Question 23

Who technically owns the client account?

Answer 23

The law firm

Question 24

What are the 3 exceptions for paying client money promptly into a client account?

Answer 24

1. would conflict with obligations under rules or regulations relating to your specified office or appointment
2. client money was received from legal aid
3. there is a separate agreement with the client or third party in writing

Question 25

How can you hold client money if you don't have a client account (Rule 2.2)?

Answer 25

If the only money being held/received is for fees, disbursements or any prior delivery of a bill for the same

Question 26

What 6 rules do not apply if holding client money outside the client account?

Answer 26

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**

Question 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?

Answer 27

Yes

Question 28

What happens if you get a mixed payment (client and firm money in one)?

Answer 28

Promptly put them into their respective proper accounts

Question 29

Is it a problem if a mixed payment is paid into the client account or business account?

Answer 29

No, just promptly apportion the money correctly

Question 30

In what 5 circumstances can you make a withdrawal from a client account?

Answer 30

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)

Question 31

Do you have to authorise and supervise all withdrawals from a client account?

Answer 31

Yes

Question 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?

Answer 32

No

Question 33

What must you do before paying the business out of the client account?

Answer 33

Give a bill of costs, or other written notification of costs incurred to the client or paying party

Question 34

What does the client account cash book (AKA cash sheet client account) record?

Answer 34

Payments in and out of the client account for all clients

Question 35

What does the client ledger account (AKA client ledger account) record?

Answer 35

Records payments in and out of an account for that particular client

Question 36

What does the business account cash book (AKA cash sheet business account) record?

Answer 36

Firm money

Question 37

What does the client ledger business account record?

Answer 37

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.

Question 38

Do you have to have different client ledgers for the same client who has multiple matters being dealt with by the firm?

Answer 38

Yes

Question 39

What is the double-entry principal?

Answer 39

For every transaction, 2 separate entries on 2 different accounts must be made.

Question 40

Which account works as the opposite of a bank account in terms of crediting and debiting?

Answer 40

The client account cash book (AKA cash sheet client account)

Question 41

What is the concept behind why the client account cashsheet/book is opposite?

Answer 41

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.

Question 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)?

Answer 42

1. Debit the client ledger business account 2. Credit the profit/costs account or similar

Question 43

How often do you have to check/reconcile your accounts (both internally and externally)?

Answer 43

Every 5 weeks (8.2/8.3)

Question 44

How do you record client money being received and being paid into the client account (e.g., a retainer)?

Answer 44

1. Credit the client ledger client account 2. Debit the cash sheet client account

Question 45

How to record withdrawing money from the client account?

Answer 45

1. Debit the client ledger account 2. Credit the cash sheet client account

Question 46

How to record non-client money being received (e.g., payment of a debt)?

Answer 46

1. Credit the client ledger business account 2. Debit the cash sheet business account

Question 47

How to record paying out non-client money (e.g., cause a retainer hasn't been received yet)?

Answer 47

1. Debit the client ledger business account 2. Credit the cash sheet business account

Question 48

What should you do if you receive a cheque payable to the client (e.g., it is in their name)?

Answer 48

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)

Question 49

How does the petty cash account operate?

Answer 49

The same way as the business cash book

Question 50

How to record using petty cash for a client purchase?

Answer 50

1. Debit the client ledger business account (to show the debt the client owes) 2. Credit the cash sheet petty cash account

Question 51

How to record transferring money from a client account to a business account? (4 entries required)

Answer 51

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

Question 52

How to record transferring from business account to client account?

Answer 52

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

Question 53

How to allocate a mixed payment (splitting money)?

Answer 53

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

Question 54

How to record transferring money between 2 clients?

Answer 54

1. Debit client ledger account of the transferor 2. Credit the client ledger account of the transferee

Question 55

How to record receiving a deposit from a client to pay for property you are helping them buy?

Answer 55

1. Credit the client ledger account 2. Debit the cash sheet client account

Question 56

How to record acting as the buyers solicitor, and sending the seller's solicitor money?

Answer 56

1. Debit client ledger client account 2. Credit the cash sheet

Question 57

What does it mean to hold money as a stakeholder?

Answer 57

Holding money on trust until it becomes clear who you need to transfer the money to

Question 58

What does it mean to hold money as an agent?

Answer 58

It is as if the money was transferred to the client themselves.. you can give it to them right away

Question 59

How to record receiving money to be held as a stakeholder?

Answer 59

1. Credit client ledger stakeholder 2. Debit the cash sheet client account

Question 60

How to record transferring money held as a stakeholder?

Answer 60

1. Debit the stakeholder ledger 2. Credit the client ledger client account

Question 61

How to account for receiving money as an agent?

Answer 61

1. Credit the client ledger 2. Debit the cash sheet

Question 62

What is Method 1 of receiving mortgage money for a client from a lender? (no separate client account)

Answer 62

1. Credit the client ledger 2. Debit the cash sheet **make sure you record in the notes what it was for**

Question 63

What is Method 2 of receiving mortgage money from lender on behalf of a client? (separate client account for the lender)

Answer 63

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

Question 64

What is Method 1 of an entry for paying back a mortgage when acting for both lender and seller?

Answer 64

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

Question 65

How to account for private loans between clients?

Answer 65

1. Debit the client ledger lender account 2. Credit the client ledger debtor account

Question 66

Can a client give written informed consent to vary their entitlement to a fair sum of interest?

Answer 66

Yes

Question 67

How do you account for paying a fair sum of interest?

Answer 67

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

Question 68

How do you pay money into a separate/designated client account?

Answer 68

1. Credit client ledger separate account 2. Debit the cash sheet associated with that separate account

Question 69

How do you withdraw money from a separate/designated client account?

Answer 69

1. Debit the client ledger separate designated client account 2. Credit the cash sheet

Question 70

How do you transfer general client money into a separate/designated account?

Answer 70

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

Question 71

How to pay interest to a separate client account?

Answer 71

1. Credit the client ledger separate account 2. Debit the client separate cash sheet

Question 72

Is it mandatory to keep a central record of all bills and written notifications of costs given out by you?

Answer 72

Yes

Question 73

At what point is VAT applied?

Answer 73

When a bill of costs/invoice is issued to the client

Question 74

What happens if the solicitor forgets to tell the client that a bill is baseline + VAT?

Answer 74

The bill is deemed to be VAT inclusive

Question 75

How to account for VAT when issuing a bill?

Answer 75

1. Debit the client ledger business account (e.g., business side) 2. Credit the VAT account ledger

Question 76

What is a client ledger separate account?

Answer 76

A client ledger separate account is used to track individual client transactions separately.

Question 77

Is it mandatory to keep a central record of all bills and written notifications of costs given out by you?

Answer 77

Yes.

Question 78

At what point is VAT applied?

Answer 78

When a bill of costs/invoice is issued to the client.

Question 79

What happens if the solicitor forgets to tell the client that a bill is baseline + VAT?

Answer 79

The bill is deemed to be VAT inclusive.

Question 80

How to account for VAT when issuing a bill?

Answer 80

1. Debit the client ledger business account (e.g., business side) 2. Credit the VAT account ledger.

Question 81

When a client pays a bill + VAT, whose money is it?

Answer 81

Firm.

Question 82

What account does a bill payment + VAT go into?

Answer 82

Business account.

Question 83

What entries do you have to make for payment of the bill and VAT?

Answer 83

1. Credit the client ledger business account for the client 2. Debit the cash sheet business account.

Question 84

What entries do you have to make to pay a bill by transfer from the client account to the business account?

Answer 84

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.

Question 85

What entries do you make to record issuing a bill + VAT to a lender who does not have a separate client ledger?

Answer 85

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.

Question 86

What entries do you make to issue a bill + VAT to a lender who has a separate client ledger?

Answer 86

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.

Question 87

What entries to transfer costs from one client to another?

Answer 87

1. Debit client ledger business account for the borrower 2. Credit client ledger business account for the lender.

Question 88

What are the entries required for abating a bill?

Answer 88

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.

Question 89

What entries do you need to make to write off a bad-debt?

Answer 89

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.

Question 90

What do you do with a dishonoured cheque?

Answer 90

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.

Question 91

What accounting entries are needed to pay a disbursement + VAT as an agent for the client?

Answer 91

1. Debit the client ledger client account 2. Credit the cash sheet client account.

Question 92

What does it mean to be paid as a principal?

Answer 92

The law firm instructs a third party and the firm itself is invoiced.

Question 93

What entries do you make if paying a disbursement + VAT as a principal?

Answer 93

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.

Question 94

What 2 key things do you need to remember when making a disbursement + VAT as a principal?

Answer 94

1. VAT amount must be kept separate (separate entry for it) 2. You have to use non-client money to pay.