Double Entry Bookkeeping and the SRA Accounts Rules
Double Entry Bookkeeping
• Bookkeeping: The process of recording financial transactions in the accounts
of a law firm.
• All firms use the same bookkeeping systems, double entry bookkeeping system.
Principles
Based on the premise that every financial transaction has 2 aspects to it and both
aspects need to be recorded:
• E.g. when a firm pays cash to buy premises.
o Aspect 1: The firm has less cash.
o Aspect 2: The firm has acquired an asset in the form of premises.
• Each aspect must be recorded in a different account.
• Accounts are then divided into 2 sides with the 2 aspects of any transaction
recorded on different sides of the 2 accounts.
• Debit (DR) is used as a label for the left-hand side and Credit (CR) as the label
for the right-hand side.
• The combination of all accounts will be referred to as ‘ledger accounts’, apart
from the cash account (record of receipts into and payments out of the bank
account) and the petty cash account.
Examples:
• When business owner puts in some cash, business is gaining cash (DR on
cash account) and is incurring liability (CR on capital account) because it now
owes money to the proprietor, i.e., capital of the business.
• Bill issued:
o Charges for solicitor’s services: CR entry on an income account, profit
costs.
▪ Profit costs account: Merely records the bill issued.
o Client’s debt: DR entry on an account in the name of the client.
▪ The firm gains a right to receive money from the client, that is an asset
receivable. Debt owed to the firm is in fact an asset, a trade receivable
(an amount owed by a client).
▪ Therefore, it is a DR because asset acquired/ increased (receivable).
, Form
Accounts are usually presented in the tabular form:
• Date of transaction
• Details: Cross-reference to the name of the account where the other part of the
double entry is made.
• DR or CR: Where amount involved is entered.
• Balance: The running balance on the account. If DR entries exceed CR entries,
balance is a DR balance, and vice versa.
SRA Accounts Rules
• The purpose of the Rules is to ensure that the money belonging to clients is
safe and kept separately from money belonging to the firm.
• The SRA Principles also apply to the regulation of Accounts.
• Typically, it is left to individual firms to interpret the Rules and apply them in an
appropriate and justifiable manner.
• Breach of the Rules is a disciplinary matter, and the SRA can take action
against individuals and/or firms in accordance with the Enforcement Strategy.
• Rule 1: The authorised body’s managers are jointly and severally responsible
for compliance with the Rules by the authorised body, its managers and
employees. In respect to a licenced body, the Rules only apply in respect of
activities regulated by the SRA in accordance with the terms of its licence.
Current Rules: The SRA stated intention in introducing the rules in this form was to
focus on key principles and requirements for keeping client money safe, including:
i) Keeping client money separate from the firm’s own money.
ii) Ensuring client money returned promptly at the end of a matter.
iii) Using client money only for its intended purpose.
iv) Proportionate requirements for firms to obtain an annual accountant’s report.
, Client Monet and Client Accounts
Client Money
• Costs: ‘fees and disbursements.
• Fees: ‘your own charges or profit costs’.
• Disbursements: ‘any costs or expenses paid or to be paid to a third party on
behalf of the client or trust (save for office expenses)’.
Rules:
• Rule 4.1: Client money must be kept separate from the money belonging to the
firm.
• Rule 2.1: Client money is money held or received by a firm:
a) Relating to regulated services delivered by you to a client.
b) On behalf of a third party in relation to regulated services delivered by you
(e.g. money held as an agent, stakeholder, or held to the sender’s order).
c) As a trustee or as the holder of a specified office or appointment
d) In respect of your fees and any unpaid disbursements if held or received prior
to delivery of a bill for the same.
a. Generally on account of costs: Means that money received for all fees
and disbursements paid to the firm is considered client money unless
and until billed.
b. Such money can be used for the purposes explained to the client (Rule
4.3).
Definition of client money does not include money received for disbursements
which have already been paid (e.g., reimbursement by a client of a payment by the
firm). This is business money and can be paid into a business account.
Client Accounts
A client bank account is one opened by the firm in the name of the firm, but used for
client money.
• Must be a bank or building society in England and Wales and must include the
word client in its title (Rule 3).
• Adding the word client means that the bank does not have any recourse or
right against the money in respect of any liability of the solicitor to the bank
(s.85(2) of the Solicitors Act 1974).
• Firms must ensure client money is available on demand unless there is
alternative agreement in writing with the client or third party for whom the money
is held (rule 2.4).
Paying Money into the Client Bank Account
General Rule: Client money must be paid promptly into a client bank account (Rule
2.3). ‘Promptly’ depends on the particular circumstances of the matter and the
nature of the firm.
Double Entry Bookkeeping
• Bookkeeping: The process of recording financial transactions in the accounts
of a law firm.
• All firms use the same bookkeeping systems, double entry bookkeeping system.
Principles
Based on the premise that every financial transaction has 2 aspects to it and both
aspects need to be recorded:
• E.g. when a firm pays cash to buy premises.
o Aspect 1: The firm has less cash.
o Aspect 2: The firm has acquired an asset in the form of premises.
• Each aspect must be recorded in a different account.
• Accounts are then divided into 2 sides with the 2 aspects of any transaction
recorded on different sides of the 2 accounts.
• Debit (DR) is used as a label for the left-hand side and Credit (CR) as the label
for the right-hand side.
• The combination of all accounts will be referred to as ‘ledger accounts’, apart
from the cash account (record of receipts into and payments out of the bank
account) and the petty cash account.
Examples:
• When business owner puts in some cash, business is gaining cash (DR on
cash account) and is incurring liability (CR on capital account) because it now
owes money to the proprietor, i.e., capital of the business.
• Bill issued:
o Charges for solicitor’s services: CR entry on an income account, profit
costs.
▪ Profit costs account: Merely records the bill issued.
o Client’s debt: DR entry on an account in the name of the client.
▪ The firm gains a right to receive money from the client, that is an asset
receivable. Debt owed to the firm is in fact an asset, a trade receivable
(an amount owed by a client).
▪ Therefore, it is a DR because asset acquired/ increased (receivable).
, Form
Accounts are usually presented in the tabular form:
• Date of transaction
• Details: Cross-reference to the name of the account where the other part of the
double entry is made.
• DR or CR: Where amount involved is entered.
• Balance: The running balance on the account. If DR entries exceed CR entries,
balance is a DR balance, and vice versa.
SRA Accounts Rules
• The purpose of the Rules is to ensure that the money belonging to clients is
safe and kept separately from money belonging to the firm.
• The SRA Principles also apply to the regulation of Accounts.
• Typically, it is left to individual firms to interpret the Rules and apply them in an
appropriate and justifiable manner.
• Breach of the Rules is a disciplinary matter, and the SRA can take action
against individuals and/or firms in accordance with the Enforcement Strategy.
• Rule 1: The authorised body’s managers are jointly and severally responsible
for compliance with the Rules by the authorised body, its managers and
employees. In respect to a licenced body, the Rules only apply in respect of
activities regulated by the SRA in accordance with the terms of its licence.
Current Rules: The SRA stated intention in introducing the rules in this form was to
focus on key principles and requirements for keeping client money safe, including:
i) Keeping client money separate from the firm’s own money.
ii) Ensuring client money returned promptly at the end of a matter.
iii) Using client money only for its intended purpose.
iv) Proportionate requirements for firms to obtain an annual accountant’s report.
, Client Monet and Client Accounts
Client Money
• Costs: ‘fees and disbursements.
• Fees: ‘your own charges or profit costs’.
• Disbursements: ‘any costs or expenses paid or to be paid to a third party on
behalf of the client or trust (save for office expenses)’.
Rules:
• Rule 4.1: Client money must be kept separate from the money belonging to the
firm.
• Rule 2.1: Client money is money held or received by a firm:
a) Relating to regulated services delivered by you to a client.
b) On behalf of a third party in relation to regulated services delivered by you
(e.g. money held as an agent, stakeholder, or held to the sender’s order).
c) As a trustee or as the holder of a specified office or appointment
d) In respect of your fees and any unpaid disbursements if held or received prior
to delivery of a bill for the same.
a. Generally on account of costs: Means that money received for all fees
and disbursements paid to the firm is considered client money unless
and until billed.
b. Such money can be used for the purposes explained to the client (Rule
4.3).
Definition of client money does not include money received for disbursements
which have already been paid (e.g., reimbursement by a client of a payment by the
firm). This is business money and can be paid into a business account.
Client Accounts
A client bank account is one opened by the firm in the name of the firm, but used for
client money.
• Must be a bank or building society in England and Wales and must include the
word client in its title (Rule 3).
• Adding the word client means that the bank does not have any recourse or
right against the money in respect of any liability of the solicitor to the bank
(s.85(2) of the Solicitors Act 1974).
• Firms must ensure client money is available on demand unless there is
alternative agreement in writing with the client or third party for whom the money
is held (rule 2.4).
Paying Money into the Client Bank Account
General Rule: Client money must be paid promptly into a client bank account (Rule
2.3). ‘Promptly’ depends on the particular circumstances of the matter and the
nature of the firm.
