Solicitor’s Accounts Notes:
Assessment:
- 2 hours
- Covers:
1. Making entries in the accounts of a solicitor
2. Analysing entries in the accounts of a solicitor
3. Preparing financial statements
4. Questions on SRA Accounts Rules and client accounting.
- Can use a calculator
To make an entry:
1. Decide whether client or office transaction e.g.
Bill = Office
Paying a disbursement on behalf of the client = Office as you are using office cash.
Money received on account of costs = Client.
2. If making an entry on the client ledger (whether office side or client side), look at the client ledger first (as
opposed to cash ledger).
3. For the client ledger, decide if money is coming in or going out.
Coming in = CR client account.
Going out = DR client account.
4. Then do the opposite in the client cash ledger.
or
5. If making an entry on the client office ledger, decide if money is coming in or going out.
Money going out = DR.
Money coming in = CR.
If no money e.g. bill to client, decide if the client’s debt to the firm is increasing or decreasing.
If more money now owed to firm by the client = DR entry office account.
If less money to be owed to the firm by the client = CR entry office account.
6. Then do the opposite in the office cash ledger.
7. Put in the:
a. Date of transaction.
b. Details: Name of double entry ledger, client name and brief description of the entry.
c. Running balance, including whether the total is CR or DR.
1
,Chapter 1:
Rules on accounts:
- SRA Rule 12 Accountants’ Reports and SRA Rule 13 Record-keeping and the SRA Guidance Notes ‘Accountant’s
report and the exemption to obtain one’ and ‘Planning for and completing an accountant’s report’.
Client money:
SRA Rule 2.1: Client money is money held or received by the firm:
(a) Relating to regulated services delivered by the firm to a client:
Regulated services = Legal and professional services provided by the firm and regulated by the SRA. E.g. Money
sent by a client to the firm for pre-contract searches before the purchase of a property.
(b) On behalf of a third party in relation to regulated services delivered by the firm.
E.g. held as agent/stakeholder, for example, deposit for a property to be purchased from a client received from
the other side.
(c) As a trustee or as the holder of a specified office or appointment.
E.g. donee of POA
(d) In respect of your fees and any unpaid (as in unpaid by the firm to the third party) disbursements if held or
received prior to delivery of a bill for the same. But when a bill is delivered to the client then this money stops
being client money when it is held/received or if the disbursement has already been paid (e.g. money to LR for
their fees) then it is not client money either.
Basically only money given ahead of time.
Fees = Own charges or profit costs, inc VAT.
Disbursements = Cost expenses paid/to be paid to a third party on behalf of the client, inc VAT but doesn’t
include office expenses and postage fees. E.g. payment to expert witness.
SRA Rule 4.1: This client money should be kept separate to office money.
Types of account:
Client account:
- SRA Rule 4.1: Firm must keep client money separate from money belonging to the firm.
So, firms need to have:
1. Office bank account = Holds the firm’s money.
2. Client account = Holds client monies.
SRA Rule 3.1: Client account must be held at a branch of a bank/building society in E&W.
SRA Rule 3.2: The name of the client account must include:
(a) the name of the firm
(b) the word “client” to distinguish it from any other type of account held or operated by the firm.
- Total amount owed to all clients should equal the total amount held by the aggregate of all the client accounts.
Office money and the office account:
= Bank account used by the firm to run its business.
Any money received or held by the firm which is not client money = Office money.
Might pay a disbursement on behalf of a client out of the office account when their client account doesn’t hold
any/enough money.
When the client reimburses you = this is office money; as it is in relation to a paid disbursement, so does not come
under SRA Rule 2.1(d) It should then be paid into the office account.
If the disbursement has not been paid by the firm, this would be client money, even if the firm has not sent the client
a bill and the third party has sent the firm a bill.
2
, When to pay money INTO the office account:
Office money is paid into the office account.
- SRA Rule 2.1(d): Money sent to the firm from the client after the firm has already paid for costs/expenses on the
client’s behalf. The client is reimbursing the firm, so funds go into the office account.
Bill does not have to be issued to the client.
Client should have been made aware of these costs in compliance with CCS 8.7.
- SRA Rule 2.1(d): Money sent to the firm from the client after the firm has already delivered to the client a bill
for their fees for doing the work.
This is office money and should be paid straight into the office account.
- SRA Rule 2.1(d): Money sent to the firm from the client after the firm has delivered a bill to the client for unpaid
costs/expenses.
The money received from the client is to pay for the costs/expenses that are unpaid on the client’s behalf so
should be paid into the office account.
When to pay OFFICE money INTO the client account:
This is an exception to SRA Rule 4.1 that client money has to be kept separate from office money.
- When the firm receives mixed payment = both client + non-client money. E.g. money to pay a bill for work done
(non-client money) and money for another matter that the client has just instructed the firm for (client money).
- SRA Rule 4.2 requires a firm to allocate promptly any funds from mixed payments to the correct client account
or office account.
So, either move the client money out of the office account into the client account asap or move the office money
out of the client account to the office account asap.
When to pay money INTO the client account:
SRA Rule 2.3: Client money is to be promptly paid into the client account.
So pay it into the client account once you have identified that it is client money.
Exceptions: SRA Rule 2.3: Unless:
(a) money held as a trustee of the holder of a specified office or appointment does not have to be paid into a client
account if doing so would conflict with the obligations under rules or regulations relating to the specified office
or appointment.
Check the applicable rules/regulations to see how the money should be held instead e.g. separate client account.
(b) the client money represents payments from the Legal Aid Agency for your costs (fees (own charges or profits inc
any VAT) + disbursements)) does not have to be paid into the client account.
(c) you agree in the individual circumstances an alternative arrangement in writing with the client, or third party,
for whom the money is held not to hold the money in client account.
Keep a record of the terms of the agreement with the client.
When to pay money OUT of the client account:
SRA Rule 3.3: Solicitors should not use a client account to provide banking facilities to clients or third parties and:
- Payments into
- Transfers from
- Withdrawals from
a client account must be in respect of the delivery of regulated services by the solicitor/firm.
SRA Rule 5.1: Client money can only be withdrawn from the client account when it is:
(a) For the purpose for which it is being held. E.g. to pay a court fee on behalf of the client.
(b) Following receipt of instructions from the client/third party from whom the money is held. E.g. given instructions
to send deposit monies to send it to the seller’s solicitor for exchange of contracts by your buyer client.
(c) On the SRA’s prior written authorisation or in SRA prescribed circumstances.
The prescribed circumstances are to withdraw residual client account balances of <£500 on any one client matter
provided the balance is paid to a charity of the firm’s choice and the firm has met the conditions.
SRA Rule 5.2: Must appropriately supervise all withdrawals made from a client account.
SRA Rule 5.3: Withdrawals of client money can only be made from the client account if sufficient funds are held on
behalf of that specific client or third party to make the payment.
So, if there is no balance in the client’s client ledger to pay something on their behalf, you can’t use it and must use
office money instead.
Can pay money out of the client account when client money becomes office money:
= When the firm delivers a bill of costs to the client – must be done first. Bill first.
SRA Rule 4.3: Where the firm holds client money and some/all of it will be used to pay its costs:
(a) Give the client a bill of costs
(b) Do this before you transfer any client money from a client account to make the payment
(c) Any payments must be for the specific sum identified in the bill of costs and covered by the amount held for the
particular client
Costs = Fees + disbursements.
3
Assessment:
- 2 hours
- Covers:
1. Making entries in the accounts of a solicitor
2. Analysing entries in the accounts of a solicitor
3. Preparing financial statements
4. Questions on SRA Accounts Rules and client accounting.
- Can use a calculator
To make an entry:
1. Decide whether client or office transaction e.g.
Bill = Office
Paying a disbursement on behalf of the client = Office as you are using office cash.
Money received on account of costs = Client.
2. If making an entry on the client ledger (whether office side or client side), look at the client ledger first (as
opposed to cash ledger).
3. For the client ledger, decide if money is coming in or going out.
Coming in = CR client account.
Going out = DR client account.
4. Then do the opposite in the client cash ledger.
or
5. If making an entry on the client office ledger, decide if money is coming in or going out.
Money going out = DR.
Money coming in = CR.
If no money e.g. bill to client, decide if the client’s debt to the firm is increasing or decreasing.
If more money now owed to firm by the client = DR entry office account.
If less money to be owed to the firm by the client = CR entry office account.
6. Then do the opposite in the office cash ledger.
7. Put in the:
a. Date of transaction.
b. Details: Name of double entry ledger, client name and brief description of the entry.
c. Running balance, including whether the total is CR or DR.
1
,Chapter 1:
Rules on accounts:
- SRA Rule 12 Accountants’ Reports and SRA Rule 13 Record-keeping and the SRA Guidance Notes ‘Accountant’s
report and the exemption to obtain one’ and ‘Planning for and completing an accountant’s report’.
Client money:
SRA Rule 2.1: Client money is money held or received by the firm:
(a) Relating to regulated services delivered by the firm to a client:
Regulated services = Legal and professional services provided by the firm and regulated by the SRA. E.g. Money
sent by a client to the firm for pre-contract searches before the purchase of a property.
(b) On behalf of a third party in relation to regulated services delivered by the firm.
E.g. held as agent/stakeholder, for example, deposit for a property to be purchased from a client received from
the other side.
(c) As a trustee or as the holder of a specified office or appointment.
E.g. donee of POA
(d) In respect of your fees and any unpaid (as in unpaid by the firm to the third party) disbursements if held or
received prior to delivery of a bill for the same. But when a bill is delivered to the client then this money stops
being client money when it is held/received or if the disbursement has already been paid (e.g. money to LR for
their fees) then it is not client money either.
Basically only money given ahead of time.
Fees = Own charges or profit costs, inc VAT.
Disbursements = Cost expenses paid/to be paid to a third party on behalf of the client, inc VAT but doesn’t
include office expenses and postage fees. E.g. payment to expert witness.
SRA Rule 4.1: This client money should be kept separate to office money.
Types of account:
Client account:
- SRA Rule 4.1: Firm must keep client money separate from money belonging to the firm.
So, firms need to have:
1. Office bank account = Holds the firm’s money.
2. Client account = Holds client monies.
SRA Rule 3.1: Client account must be held at a branch of a bank/building society in E&W.
SRA Rule 3.2: The name of the client account must include:
(a) the name of the firm
(b) the word “client” to distinguish it from any other type of account held or operated by the firm.
- Total amount owed to all clients should equal the total amount held by the aggregate of all the client accounts.
Office money and the office account:
= Bank account used by the firm to run its business.
Any money received or held by the firm which is not client money = Office money.
Might pay a disbursement on behalf of a client out of the office account when their client account doesn’t hold
any/enough money.
When the client reimburses you = this is office money; as it is in relation to a paid disbursement, so does not come
under SRA Rule 2.1(d) It should then be paid into the office account.
If the disbursement has not been paid by the firm, this would be client money, even if the firm has not sent the client
a bill and the third party has sent the firm a bill.
2
, When to pay money INTO the office account:
Office money is paid into the office account.
- SRA Rule 2.1(d): Money sent to the firm from the client after the firm has already paid for costs/expenses on the
client’s behalf. The client is reimbursing the firm, so funds go into the office account.
Bill does not have to be issued to the client.
Client should have been made aware of these costs in compliance with CCS 8.7.
- SRA Rule 2.1(d): Money sent to the firm from the client after the firm has already delivered to the client a bill
for their fees for doing the work.
This is office money and should be paid straight into the office account.
- SRA Rule 2.1(d): Money sent to the firm from the client after the firm has delivered a bill to the client for unpaid
costs/expenses.
The money received from the client is to pay for the costs/expenses that are unpaid on the client’s behalf so
should be paid into the office account.
When to pay OFFICE money INTO the client account:
This is an exception to SRA Rule 4.1 that client money has to be kept separate from office money.
- When the firm receives mixed payment = both client + non-client money. E.g. money to pay a bill for work done
(non-client money) and money for another matter that the client has just instructed the firm for (client money).
- SRA Rule 4.2 requires a firm to allocate promptly any funds from mixed payments to the correct client account
or office account.
So, either move the client money out of the office account into the client account asap or move the office money
out of the client account to the office account asap.
When to pay money INTO the client account:
SRA Rule 2.3: Client money is to be promptly paid into the client account.
So pay it into the client account once you have identified that it is client money.
Exceptions: SRA Rule 2.3: Unless:
(a) money held as a trustee of the holder of a specified office or appointment does not have to be paid into a client
account if doing so would conflict with the obligations under rules or regulations relating to the specified office
or appointment.
Check the applicable rules/regulations to see how the money should be held instead e.g. separate client account.
(b) the client money represents payments from the Legal Aid Agency for your costs (fees (own charges or profits inc
any VAT) + disbursements)) does not have to be paid into the client account.
(c) you agree in the individual circumstances an alternative arrangement in writing with the client, or third party,
for whom the money is held not to hold the money in client account.
Keep a record of the terms of the agreement with the client.
When to pay money OUT of the client account:
SRA Rule 3.3: Solicitors should not use a client account to provide banking facilities to clients or third parties and:
- Payments into
- Transfers from
- Withdrawals from
a client account must be in respect of the delivery of regulated services by the solicitor/firm.
SRA Rule 5.1: Client money can only be withdrawn from the client account when it is:
(a) For the purpose for which it is being held. E.g. to pay a court fee on behalf of the client.
(b) Following receipt of instructions from the client/third party from whom the money is held. E.g. given instructions
to send deposit monies to send it to the seller’s solicitor for exchange of contracts by your buyer client.
(c) On the SRA’s prior written authorisation or in SRA prescribed circumstances.
The prescribed circumstances are to withdraw residual client account balances of <£500 on any one client matter
provided the balance is paid to a charity of the firm’s choice and the firm has met the conditions.
SRA Rule 5.2: Must appropriately supervise all withdrawals made from a client account.
SRA Rule 5.3: Withdrawals of client money can only be made from the client account if sufficient funds are held on
behalf of that specific client or third party to make the payment.
So, if there is no balance in the client’s client ledger to pay something on their behalf, you can’t use it and must use
office money instead.
Can pay money out of the client account when client money becomes office money:
= When the firm delivers a bill of costs to the client – must be done first. Bill first.
SRA Rule 4.3: Where the firm holds client money and some/all of it will be used to pay its costs:
(a) Give the client a bill of costs
(b) Do this before you transfer any client money from a client account to make the payment
(c) Any payments must be for the specific sum identified in the bill of costs and covered by the amount held for the
particular client
Costs = Fees + disbursements.
3
