QLTS School Question Of The Week – Solicitors’ Accounts
One of the reasons I wanted to be a lawyer was because I liked dealing with facts. Arguments. Analysis. One thing was for sure: I didn’t like dealing with numbers and figures!
But like it or not, proficiency – or at least a working understanding – of Solicitors’ Accounts is a pre-requisite to qualification as an English solicitor. Whether you qualify domestically via the LPC/training contract route or the QLTS, you will be assessed on Solicitors’ Accounts. And it’s one of those subjects that, at first, stumps most candidates.
But there’s a knack to it. Once you figure it out, something will ‘click’ in your brain, and you’ll ‘get it’. Until then, you just have to keep practicing with questions and exercises, to familiarise yourself with the system and internal logic of Solicitors’ Accounts.
Our video tutorial helps to provide a basic overview on the concept of double-entry accounting. But have a look at the question below and see how you do in answering it.
You are an assistant solicitor employed by a large high street practice, wishing to conduct your own conveyancing on your new house. You deliver a cheque to your accounts department for £300.00 on account of costs. Which of the following describes the correct accounting entries?
A) This is office money and must be paid into the office account:
DR cash account £300.00 – office section
CR your ledger account £300.00 – office section
B) This is client money and must be paid into the client account:
DR cash account £300.00 – client section
CR your ledger account £300.00 – client section
C) As you are acting for yourself and this is client money, you must pay the money into a separate deposit account:
DR your separate designated client account £300.00 – client section
CR your ledger account £300.00 – client section
D) You cannot be a client of your own firm so cannot effect this transaction.
E) This is neither client nor office money as you are acting for yourself.
Let’s break the fact pattern down, because it’s very important to see it’s constituent elements:
- You are a solicitor.
- You are acting for yourself on your house purchase.
- You deliver a cheque in the sum of £300.00.
- The cheque is on account of costs.
The correct answer is B. Even though you are acting for yourself, you are considered a client of the firm for the purposes of the Rules (Rule 12(8)). Accordingly, money on account of costs generally is client money (Rule 17(4)) and must be paid into the client account.
A is wrong as this is office money, not client money.
C is wrong because you are not obliged to pay the money into a separate designated client account because you are a client of the firm, although you may do if you wish.
D is wrong because you are permitted to be a client of your own firm (Rule 12(8)).
E is wrong because you are a client of the firm (Rule 12(8)) and accordingly the money is client money (Rule 17(4)).
See how the possible answer options hinge upon whether the money is office money, client money or neither? This is your first hurdle. After a cursory study of accounts, you should be aware that money on account of costs is generally client money.
So, working on this assumption, is there anything about the fact that you are a solicitor and acting for yourself that changes whether this is client money? Rule 12(8) explicitly states that this does not the change the situation.
So, knowing this is client money, you can safely eliminate options A, D and E. This leaves you with options B and C.
Let’s look at option C. The wording of the option is that, because you are acting for yourself and this is client money, it must be paid into a separate deposit account.
Two things here. First, and generally, use of the word must in an MCT option means that the course of action in the option is mandatory. If, however, there are alternatives, or the action is discretionary, then choosing that answer would be wrong, because it is not mandatory.
Second, you have already looked at Rule 12(8) and know that the money is considered client money in these circumstances. There are no additional conditions or requirements placed on you. So you know Answer C is wrong.
That leaves option B. By process of elimination, it must be correct, right? Maybe, but check the option to be sure. It correctly identifies the money as client money, and states that the money must be paid into the client account. So far, so good.
It has a debit entry for cash into the cash account, client section, for the correct sum (£300.00). We know, then, that the debit entry is correct – cash paid into a cash (asset) account is always a debit. The corresponding credit entry is against your ledger account, indicating a liability increase in the firm’s balance to you. This is also correct, therefore the answer is the only correct one out of the four.
This may seem a laborious, time-consuming process on paper. But through practice and familiarity, it will soon get to the point where this exercise takes no more than a minute to do in your head!
- Tips for Success in the QLTS Multiple Choice Test (MCT) Assessment
- How to Become a Lawyer in the UK
- Supreme Court Plays Wild Card to Cash in Ghosh’s Dishonesty Chips
- Joint Statement regarding a Settlement Agreement between the Law Society of England and Wales and QLTS School
- Important Updates to the MCT Course (April 2017)