Solicitor’s Accounts
CHAPTER 1: DOUBLE ENTRY BOOKKEEPING AND THE SRA
ACCOUNT RULES
1.1 Introduction
Why Accounts Matter:
o Day-to-day records which a firm keeps of its financial transactions
o Essential for tracking financial position (e.g., profit, staffing).
o Day-to-day records summarize financial transactions (e.g., beyond bank
statements and bills).
Law Firms and Client Money:
o Unique responsibility to manage client money appropriately.
o Adherence to SRA Accounts Rules is a professional conduct
requirement.
1.2 Double Entry Bookkeeping
Definition: System for recording financial transactions using two aspects of
every transaction.
Historical Context: Developed by Venetian traders in the 15th century; still
globally used.
1.2.1 Principles of Double Entry
Two Aspects of Transactions:
1. Firm buys premises:
Less cash
Gained an asset (premises)
2. Firm pays wages:
Less cash
Incurred an expense
3. Firm bills client:
Earned income
Gained a debt (client owes money)
4. Client pays firm:
Debt reduced
Gained cash
Separate Accounts:
o Different accounts for cash, assets, expenses, liabilities, etc.
1.2.2 Rules for Recording Transactions
Left Column (DR) Right Column (CR)
Expense incurred Income earned
Asset disposed
Asset acquired/increased
of/reduced
Liability Liability
reduced/extinguished incurred/increased
Cash gained Cash paid
Recording:
o Two aspects recorded in separate accounts:
One on the left-hand side (Debit).
One on the right-hand side (Credit).
Examples:
1. Buying Office Furniture (£20,000):
o DR: Furniture Account (Asset gained).
o CR: Cash Account (Cash paid).
,Solicitor’s Accounts
2. Renting Premises:
o DR: Cash Account (Cash gained).
o CR: Rent Account (Income earned).
3. Paying Electricity Bill:
o DR: Electricity Account (Expense incurred).
o CR: Cash Account (Cash paid).
1.2.3 Business and Owner Relationship
The business is separate from its owner/proprietor
When owner sets up a business and puts in some cash, the transaction must be
recorded from the pov of the business
Example:
o Owner invests cash in the business:
DR: Cash Account (Cash gained).
CR: Capital Account (Liability incurred to owner).
1.2.4 Debit and Credit
Debit (DR): Left-hand side of an account.
Credit (CR): Right-hand side of an account.
Example:
Buying a Photocopier (£5,000):
o DR: Photocopier Account (Asset gained).
o CR: Cash Account (Cash paid).
1.3 The Form of Accounts
Accounts are commonly presented in tabular form:
o Columns: Date, Details, DR (debit), CR (credit), Balance.
o 'Date' records the transaction date.
o 'Details' cross-references the account where the other entry is recorded,
with a brief description of the transaction.
o Amount is entered in DR or CR column as appropriate.
o 'Balance' shows the running total.
DR balance: Occurs when DR entries exceed CR entries.
CR balance: Occurs when CR entries exceed DR entries.
Example: Electricity bills of £1,000, £2,000, £3,000 are recorded as:
Electricity Account (DR for expense):
1. £1,000 → 1,000 DR
2. £2,000 → 3,000 DR
3. £3,000 → 6,000 DR
Cash Account (CR for payment):
1. £1,000 → 1,000 CR
2. £2,000 → 3,000 CR
3. £3,000 → 6,000 CR
1.4 Making Entries
Double entry bookkeeping records both aspects of a transaction:
1. What the business gains.
2. What the business gives up.
Example:
June Transactions for Miriam's Solicitor Business:
1. Miriam invests £10,000 → Cash account (DR £10,000), Capital account (CR
£10,000).
,Solicitor’s Accounts
2. Business buys a computer for £2,000 → Computer account (DR £2,000), Cash
account (CR £2,000).
3. Business pays rent of £1,000 → Rent account (DR £1,000), Cash account (CR
£1,000).
- Charges for professional services are recorded as a CR entry on an income
account (‘profit costs’)
- Client’s debt is recorded as a DR entry on an account in the name of the client
- When client pays- solicitor will record receipt of cash and the loss of the debt
owed by the client to the firm
o No entry is made on the profit costs account when the client pays the
cash due
o The profit costs account merely records the bill issued- does not show
whether or not clients have paid their bills
1.5 Cash and Ledger Accounts
Cash account records receipts into and payments out of the bank (aka cash
sheet/cash book)
Petty cash is used for small daily expenses.
Petty cash account required to record the periodic receipts of cash from the
bank and the various payments made from petty cash
Accounts are referred to as 'ledger accounts,' except for the cash and petty cash
accounts.
Traditional accounts were kept in bound books ('ledgers'), but modern accounts
are computerized.
1.6 SRA Accounts Rules
Law firms use double entry bookkeeping but must also handle clients' money
separately under strict Solicitors Regulation Authority (SRA) rules.
Purpose of the Rules:
1. Ensure client money is separate from firm’s money.
2. Return client money promptly after a matter ends.
3. Use client money only for intended purposes.
4. Require an annual accountant's report.
1.6.1 Nature of the Rules
Designed to reduce the risk of accidental or deliberate misuse of client money.
Breach of the Rules is a disciplinary matter under the SRA's Enforcement
Strategy.
Focuses on substantive issues, rather than trivial/technical breaches especially
dishonesty or misuse of client money.
1.6.2 Principles Governing the Rules
SRA Principles:
1. Uphold the rule of law and justice.
2. Maintain public trust in the legal profession.
3. Act with independence, honesty, and integrity.
4. Promote equality, diversity, and inclusion.
5. Act in the best interests of each client.
1.6.3 Who is Bound by the Rules?
The Rules apply to:
o Authorised bodies (e.g., law firms).
o Managers and employees of authorised bodies.
, Solicitor’s Accounts
Managers are jointly and severally responsible for ensuring compliance by the
firm and its employees.
In relation to a licensed body- the Rules apply only in respect of activities
regulated by the SRA in accordance with the terms of its license
Weston v The Law Society (1998):
o Case emphasized strict compliance with the Rules, even without
dishonesty.
o Liability for breaches extended to unaware partners.
o Highlighted the duty to exercise proper stewardship over clients' money.
CHAPTER 2: CLIENT MONEY AND CLIENT
ACCOUNTS
2.1 Introduction
Purpose of the Rules: To protect client money.
2.2 Client Money
Definition (Rule 2.1):
Money held or received by a firm:
o (a) Relating to regulated services delivered to a client.
o (b) On behalf of a third party in relation to regulated services (e.g.,
stakeholder, agent or held to the sender’s orders).
o (c) As a trustee or specific officeholder (e.g., power of attorney, Court of
Protection deputy).
o (d) In respect of fees and unpaid disbursements before a bill is issued.
Key Points:
o Fees- your own charges or profit costs (including any VAT element)
o Disbursements- costs or exenses paid to a third party on behalf of the
client or trust (including any VAT element)
o Costs- fees and disbursements
o Money received for all fees and disbursements paid to the firm is
considered client money unless and until billed (money ‘generally on
account of costs’)- Rule 4.3- such money can be used for the purposes
explained to the client
o Rule 4.1: Client money must be kept separate from firm’s money. No
requirements are imposed on want the firm does with its own money
o Firms will choose to operate one or more bank accounts for its own money
(‘business accounts’)
o Money generally on account of costs (e.g., unbilled fees): Considered
client money and held in the client account.
o Money reimbursing paid disbursements: Considered firm’s business
money, deposited in the business account.
o Billing for future fees and disbursements into firm’s business
accounts: Permitted, but firms must be cautious.
2.3 Client Accounts
Definition: Bank account opened by the firm, titled with “client” to distinguish
it from business accounts.
Requirements:
o At Bank or building society located in England or Wales (Rule 3).
o Section 85(2) Solicitors Act 1974: Bank cannot claim liabilities against
money in client accounts.
o Funds must be available on demand unless agreed otherwise in writing
with client/third party(Rule 2.4)
CHAPTER 1: DOUBLE ENTRY BOOKKEEPING AND THE SRA
ACCOUNT RULES
1.1 Introduction
Why Accounts Matter:
o Day-to-day records which a firm keeps of its financial transactions
o Essential for tracking financial position (e.g., profit, staffing).
o Day-to-day records summarize financial transactions (e.g., beyond bank
statements and bills).
Law Firms and Client Money:
o Unique responsibility to manage client money appropriately.
o Adherence to SRA Accounts Rules is a professional conduct
requirement.
1.2 Double Entry Bookkeeping
Definition: System for recording financial transactions using two aspects of
every transaction.
Historical Context: Developed by Venetian traders in the 15th century; still
globally used.
1.2.1 Principles of Double Entry
Two Aspects of Transactions:
1. Firm buys premises:
Less cash
Gained an asset (premises)
2. Firm pays wages:
Less cash
Incurred an expense
3. Firm bills client:
Earned income
Gained a debt (client owes money)
4. Client pays firm:
Debt reduced
Gained cash
Separate Accounts:
o Different accounts for cash, assets, expenses, liabilities, etc.
1.2.2 Rules for Recording Transactions
Left Column (DR) Right Column (CR)
Expense incurred Income earned
Asset disposed
Asset acquired/increased
of/reduced
Liability Liability
reduced/extinguished incurred/increased
Cash gained Cash paid
Recording:
o Two aspects recorded in separate accounts:
One on the left-hand side (Debit).
One on the right-hand side (Credit).
Examples:
1. Buying Office Furniture (£20,000):
o DR: Furniture Account (Asset gained).
o CR: Cash Account (Cash paid).
,Solicitor’s Accounts
2. Renting Premises:
o DR: Cash Account (Cash gained).
o CR: Rent Account (Income earned).
3. Paying Electricity Bill:
o DR: Electricity Account (Expense incurred).
o CR: Cash Account (Cash paid).
1.2.3 Business and Owner Relationship
The business is separate from its owner/proprietor
When owner sets up a business and puts in some cash, the transaction must be
recorded from the pov of the business
Example:
o Owner invests cash in the business:
DR: Cash Account (Cash gained).
CR: Capital Account (Liability incurred to owner).
1.2.4 Debit and Credit
Debit (DR): Left-hand side of an account.
Credit (CR): Right-hand side of an account.
Example:
Buying a Photocopier (£5,000):
o DR: Photocopier Account (Asset gained).
o CR: Cash Account (Cash paid).
1.3 The Form of Accounts
Accounts are commonly presented in tabular form:
o Columns: Date, Details, DR (debit), CR (credit), Balance.
o 'Date' records the transaction date.
o 'Details' cross-references the account where the other entry is recorded,
with a brief description of the transaction.
o Amount is entered in DR or CR column as appropriate.
o 'Balance' shows the running total.
DR balance: Occurs when DR entries exceed CR entries.
CR balance: Occurs when CR entries exceed DR entries.
Example: Electricity bills of £1,000, £2,000, £3,000 are recorded as:
Electricity Account (DR for expense):
1. £1,000 → 1,000 DR
2. £2,000 → 3,000 DR
3. £3,000 → 6,000 DR
Cash Account (CR for payment):
1. £1,000 → 1,000 CR
2. £2,000 → 3,000 CR
3. £3,000 → 6,000 CR
1.4 Making Entries
Double entry bookkeeping records both aspects of a transaction:
1. What the business gains.
2. What the business gives up.
Example:
June Transactions for Miriam's Solicitor Business:
1. Miriam invests £10,000 → Cash account (DR £10,000), Capital account (CR
£10,000).
,Solicitor’s Accounts
2. Business buys a computer for £2,000 → Computer account (DR £2,000), Cash
account (CR £2,000).
3. Business pays rent of £1,000 → Rent account (DR £1,000), Cash account (CR
£1,000).
- Charges for professional services are recorded as a CR entry on an income
account (‘profit costs’)
- Client’s debt is recorded as a DR entry on an account in the name of the client
- When client pays- solicitor will record receipt of cash and the loss of the debt
owed by the client to the firm
o No entry is made on the profit costs account when the client pays the
cash due
o The profit costs account merely records the bill issued- does not show
whether or not clients have paid their bills
1.5 Cash and Ledger Accounts
Cash account records receipts into and payments out of the bank (aka cash
sheet/cash book)
Petty cash is used for small daily expenses.
Petty cash account required to record the periodic receipts of cash from the
bank and the various payments made from petty cash
Accounts are referred to as 'ledger accounts,' except for the cash and petty cash
accounts.
Traditional accounts were kept in bound books ('ledgers'), but modern accounts
are computerized.
1.6 SRA Accounts Rules
Law firms use double entry bookkeeping but must also handle clients' money
separately under strict Solicitors Regulation Authority (SRA) rules.
Purpose of the Rules:
1. Ensure client money is separate from firm’s money.
2. Return client money promptly after a matter ends.
3. Use client money only for intended purposes.
4. Require an annual accountant's report.
1.6.1 Nature of the Rules
Designed to reduce the risk of accidental or deliberate misuse of client money.
Breach of the Rules is a disciplinary matter under the SRA's Enforcement
Strategy.
Focuses on substantive issues, rather than trivial/technical breaches especially
dishonesty or misuse of client money.
1.6.2 Principles Governing the Rules
SRA Principles:
1. Uphold the rule of law and justice.
2. Maintain public trust in the legal profession.
3. Act with independence, honesty, and integrity.
4. Promote equality, diversity, and inclusion.
5. Act in the best interests of each client.
1.6.3 Who is Bound by the Rules?
The Rules apply to:
o Authorised bodies (e.g., law firms).
o Managers and employees of authorised bodies.
, Solicitor’s Accounts
Managers are jointly and severally responsible for ensuring compliance by the
firm and its employees.
In relation to a licensed body- the Rules apply only in respect of activities
regulated by the SRA in accordance with the terms of its license
Weston v The Law Society (1998):
o Case emphasized strict compliance with the Rules, even without
dishonesty.
o Liability for breaches extended to unaware partners.
o Highlighted the duty to exercise proper stewardship over clients' money.
CHAPTER 2: CLIENT MONEY AND CLIENT
ACCOUNTS
2.1 Introduction
Purpose of the Rules: To protect client money.
2.2 Client Money
Definition (Rule 2.1):
Money held or received by a firm:
o (a) Relating to regulated services delivered to a client.
o (b) On behalf of a third party in relation to regulated services (e.g.,
stakeholder, agent or held to the sender’s orders).
o (c) As a trustee or specific officeholder (e.g., power of attorney, Court of
Protection deputy).
o (d) In respect of fees and unpaid disbursements before a bill is issued.
Key Points:
o Fees- your own charges or profit costs (including any VAT element)
o Disbursements- costs or exenses paid to a third party on behalf of the
client or trust (including any VAT element)
o Costs- fees and disbursements
o Money received for all fees and disbursements paid to the firm is
considered client money unless and until billed (money ‘generally on
account of costs’)- Rule 4.3- such money can be used for the purposes
explained to the client
o Rule 4.1: Client money must be kept separate from firm’s money. No
requirements are imposed on want the firm does with its own money
o Firms will choose to operate one or more bank accounts for its own money
(‘business accounts’)
o Money generally on account of costs (e.g., unbilled fees): Considered
client money and held in the client account.
o Money reimbursing paid disbursements: Considered firm’s business
money, deposited in the business account.
o Billing for future fees and disbursements into firm’s business
accounts: Permitted, but firms must be cautious.
2.3 Client Accounts
Definition: Bank account opened by the firm, titled with “client” to distinguish
it from business accounts.
Requirements:
o At Bank or building society located in England or Wales (Rule 3).
o Section 85(2) Solicitors Act 1974: Bank cannot claim liabilities against
money in client accounts.
o Funds must be available on demand unless agreed otherwise in writing
with client/third party(Rule 2.4)
