An Introduction to Legal Accounting Answers

Payments made out of the client bank account are recorded to the client cash book as:

  • Debits
  • Credits


Payments into the bank are debit entries in the client cash book because the bank now owes that money back to the firm.  

Cash Book Debits = money in

Payments made from the bank account are credit entries. The bank now owe the firm less.  

Cash Book Credits = money out


What is the name given to the ledger layout commonly used within legal practice?

  • T-Account
  • Tablet
  • Tabular


The Tabular Method is the term used to describe the same information recorded as an arrangement in columns or rows in the form of a table.


Your firm prepare a lot of wills and fixed fee interviews as one-off transactions for clients. However, instead of opening an individual client ledger for each client, you have a general ledger on which you record the details of each client and the costs received. Is this a breach of the SRA Accounts Rules?

  • Yes
  • No


Although these tend to be one-off transactions which do not involve the solicitor holding client money, rule 8.1 (a) and rule 8.1 (a) (ii) require all dealings with business money relating to any client matter to be recorded on the business side of the appropriate client ledger account, in respect of that client.

Ledger accounts should include the name of the client or other person or trust for whom the money is held and contain a heading which provides a description of the matter or transaction, for example, Client: Mr A Nother: Matter: sale of 1 Property Road, London.


You have paid a disbursement from the business account and now have sufficient money held in the client account towards it. Are you required to send the client a bill or other written notification of costs prior to transferring the money from the client account to the business account?

  • Yes
  • No


SRA guidance ‘Taking money for your firm’s costs’ states:

Some firms have asked us whether they need to deliver a bill or written notification of costs incurred if they are looking to move money from the client account to reimburse themselves for disbursements which have already been paid on behalf of the client. For example, where the firm has paid for Land Registry search or court fee using their own money (often by a direct debit from the firm’s business account).

Rule 5.1(a) of the Accounts Rules allows money for paid disbursements to be transferred from the firm’s client account to the business account as the money is being used for the purpose for which it is being held.

We would expect you to explain to your client how and when payments might be made on their behalf from your business account and that you will then be seeking a reimbursement from the client account in accordance with Rule 5. You could do this in your client care letter, terms of engagement or in other communication with your client.

Providing your client understands how their money will be used and has confirmed their instructions, we see no risks to the client in your reimbursing your firm for payments you have already made.

This is different to the scenario where disbursements have not yet been incurred or have not been paid by your firm.


What is the definition of ‘costs’ within the SRA Glossary?

  • The firm’s fees
  • The firm’s disbursements
  • The firm’s fees and disbursements
  • The firm’s fees and VAT


The definition of ‘costs’ within the SRA Glossary is:

“means your fees and disbursements”


I no longer need to consider time frames when transferring costs (fees and disbursements) to the business account?

  • True
  • False


You must manage the movement of mixed money promptly. 

Rule 4.2 of the SRA Accounts Rules states:

“You ensure that you allocate promptly any funds from mixed payments you receive to the correct client account or business account.”

You need to decide what time frame you will transfer costs to the business account and that needs documenting within your accounts policy.

It’s good practice to document all of your decisions.

Expect to be challenged on your decisions by both your external auditors and the SRA during monitoring visits.

Ensure you regularly review such decisions as things change and evolve.


What does MLRO stand for?

  • Money Laundering Reporting Officer
  • Money Laundering Recording Officer
  • Means Legalising Recording Officer
  • Means Legal Recording Official


The petty cash tin is another form of business/office bank account?

  • True
  • False


The Petty Cash tin is an extension of the business/office bank account.

What is petty cash?

Petty cash is a small amount of cash that is held on the business premises to use for small, business related, day-to-day spending. 

These items are often purchased in local shops and therefore will not need to go through the purchase ledger system. In most cases the value of these times are £25 or less, however the maximum amount of a petty cash purchases allowed varies from firm to firm.

What is a petty cash book?

A petty cash book is a book where you enter all receipts and payments going in and out of petty cash. A petty cash book can be purchased from a stationery shop or website. 

Fields in your petty cash book should typically show:

  • purchases
  • date of purchase
  • amount of purchase

A running balance showing how much money is in your petty cash should also be included and this will need to be recalculated each time money is taken out or added to the petty cash tin. The amount recorded in your petty cash book should also match the amount of money in your petty cash tin.

What records should I keep?

You need to keep all of your receipts, petty cash vouchers (to fill in when payments are made from the tin) and a record of the ‘top ups’ i.e. the amount to top petty cash up at the end of a period.

How do I keep my petty cash safe?

It is important that you have tight controls over petty cash.

You should only give suitable people access to petty cash and ensure the box is locked and stored in a locked cabinet and the key is kept safely.

Vouchers should be filled in each time a payment is made and these should be entered into the petty cash book. The vouchers should be checked against receipts and you should have controls to check that the amount was spent for a business purpose e.g you haven’t reimbursed the receptionist for her own postage stamps she’s bought for personal use.


What is the definition of disbursement within the SRA Glossary?

  • Means your own charges or profit costs (including any VAT element)
  • Means your fees and disbursements
  • Means any costs or expenses paid or to be paid to a third party on behalf of the client or trust (including any VAT element) save for office expenses such as postage and courier fees
  • Anything that debits the office side of the client’s ledger


The definition of ‘costs’ within the SRA Glossary is:

“means your fees and disbursements”


A client bank account must contain the word ‘Client’ within the account name?

  • True
  • False


The account must be opened using the correct name of the authorised body with the word “client” to distinguish it from any other type of account held or operated by the authorised body, in accordance with rule 3.2.

In order for the protection afforded to clients under section 85 of the Solicitors Act 1974 to apply, it is essential that the word ‘client’ appears in the title of the account and must not be abbreviated.