Summary
Summary Solicitor Accounts for SQE1 FLK2
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notes based on Barbri prep course and external resources - debits, credits, rules for solicitor accounts
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Solicitor AccountsQuestions
1. Is it client money? Would client be mad if you spent it? All client money recorded on client side
2. Is cash moving? Then use cash account
3. All payments/receipts for a client are recorded in that client’s ledger + corresponding entry in Cash Account
4. DR and CR always on same side - either both busi or client side depending on whose money is used
5. Bill Issued: both Profit Costs & VAT = DR client ledger-business side & CR Profit/HMRC-busi
6. Is money moving out of client money or business money?
7. If inter-client transfer do not use cash account bc no money is goiing in/out
8. Does client have enough money to pay for disbursement? If not, then use business money. C.n withdraw
more money than is held for that client otherwise breach
9. Is 3P invoice to client (1 txn - cash) or to business (2 txns - cash/hmrc)?
10. Is invoice to firm for counsel fees? Agency method
11. Petty cash used for a client - always use busi money
RECEIPT FOR/FROM CLIENT (owed to client) → CR client ledger // DR cash
PAYMENT FOR CLIENT (owed to firm) → DR client ledger // CR cash
Received from client but for firm = CR client-busi side
Firm paid expense for client = DR client-client side
Issue Bill:
Profit Costs = DR client-busi // CR Profit-busi
VAT = DR client-busi // CR HMRC-busi
After Bill Issued: all disb in bill are busi money not just the disb already paid
Ex. 180,000 for house -- get mixed receipt - deposit & transfer promptly
Entry 1: pay into client account = CR client-client // DR cash-client
Entry 2: transfer busi money out = DR client-client // CR cash-client
Entry 3: transfer busi money into busi account = CR client-busi // DR cash-busi
Pay Bill A: when client sends money no entries for VAT or Profit Costs when bill paid
CR client-busi // DR cash-busi
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, Pay Bill B: when you move suff funds after bill sent and client agrees note 2 diff sides used
DR client-client // DR client-busi
CR cash-client // DR cash-busi
Reducing Bill: reverse entries to extent of reduction
Profit Costs: CR client-busi // DR profit-busi (for amount reduced)
VAT: CR client-busi // DR VAT-busi (for amount reduced)
Bounced Cheques:
First, the firm deposits the chq: CR client-client // DR cash-client
If firm deposited cheque and then bank said it bounced, reverse original entries: DR client-client // CR
cash-client
If firm paid disb but chq bounced, must pay back into client account from busi account:
Entry 1 (taking out of business account): DR client-busi // CR cash-busi
Entry 2 (pay into client account): CR client-client // DR cash-client
Mixed Cheques
Split the Chq:
- Into Busi Account for busi money = CR client-busi // DR cash-busi
- Into Client Account for client money = CR client-client // DR cash-client
Deposit & Transfer Promptly:
- Entry 1: first into client account = CR client-client // DR cash-client
- Entry 2: then out of client account = DR client-client // CR cash-client
- Entry 3: then into busi account = CR client-busi // DR cash-busi
Inter-Client Transfer: only using client ledgers
DR client X-client // CR client Z-client
Paying Disb:
Invoice to Client or Legal Counsel (barrister) fees - agency method: client or busi account
DR client // CR cash
Invoice to Firm - principal method: busi account only
Entry 1: DR client-busi // CR cash-busi
Entry 2: DR HMRC-busi // CR cash-busi
Deposits:
On Receipt → CR stakeholder-client // DR-cash-client
On Completion → DR stakeholder-client // CR seller-client
Mortgage Advance:
On Receipt → CR lender-client // DR cash-client
On Completion → DR lender-client // CR buyer-client
Petty Cash: must use busi money
CR petty-busi // DR client-busi
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