Legal Practice Course (LPC) Solicitors' Accounts Syllabus

Solicitors' Accounts syllabus — full chapter and topic list

Expand any chapter to see its topics and sub-topics. This is the whole examinable outline for Solicitors' Accounts in Legal Practice Course (LPC), not a summary of it.

1. 1

   The SRA Accounts Rules Framework

   4 topics

   • Purpose and scope of the Accounts Rules
   • Client money and the definition of client money
   • Keeping client money separate and the client account
   • Obligations of compliance and the accountant's report
2. 2

   Recording Client and Business Transactions

   4 topics

   • Double-entry bookkeeping for solicitors
     • Client ledger and business ledger columns
     • The cash account and journal entries
   • Receipts and payments of client money
   • Transfers between client and business account
   • Mixed receipts and the treatment of split payments
3. 3

   Specialist Accounting Situations

   5 topics

   • Interest on client money
   • VAT on professional fees and disbursements
   • Accounting for disbursements and the agency method
   • Bridging finance, conveyancing and probate entries
   • Breaches, corrections and reporting

Solicitors' Accounts flashcards for Legal Practice Course (LPC)

25 of 50 cards from the Solicitors' Accounts deck — real questions with worked answers.

1. What is the primary purpose of the SRA Accounts Rules?

   To keep client money safe by ensuring that money held on behalf of clients and third parties is kept separate from the firm's own (business) money, available on demand, and properly accounted for. They protect client funds rather than regulate the firm's profitability.

2. Which set of rules currently governs how solicitors in England and Wales handle client money, and when did they take effect?

   The SRA Accounts Rules 2019, which came into force on 25 November 2019. They are shorter and more outcomes-focused than the previous 2011 rules.

3. Define 'client money' under the SRA Accounts Rules 2019.

   Money held or received by a firm: (a) relating to regulated services delivered to a client; (b) on behalf of a third party in relation to regulated services (e.g. counsel's fees, stamp duty); (c) as a trustee or holder of a specified office or appointment (e.g. donee under a power of attorney); or (d) in respect of fees and unpaid disbursements if held before delivery of a bill.

4. How are the two principal columns/ledgers in solicitors' accounting classified?

   Money is classified as either 'client money' (belonging to the client or a third party, held in the client account) or 'business money' (the firm's own money, held in the business/office account). The two must never be mixed except as the Rules expressly permit.

5. Under Rule 2.3 of the SRA Accounts Rules 2019, what may a firm do with certain client money instead of holding it in a client account?

   Where the only client money is in respect of fees and unpaid disbursements for which a bill or written notification of costs has been given, and the client has been told the money will not be held as client money, the firm may keep that money out of the client account (i.e. treat it as business money).

6. What is the general rule on when client money must be paid into a client account?

   Client money must be paid into a client account 'promptly' (Rule 2.3). There is no longer a fixed time limit such as two business days; promptness is judged on the facts.

7. What is the core requirement of Rule 4.1 (keeping client money separate)?

   You must keep client money separate from money belonging to the firm. Client money must be held in a client account at a bank or building society in England and Wales, and the account name must include the word 'client'.

8. What two features must a client account have under the SRA Accounts Rules?

   (1) The account must be at a bank or building society in England and Wales, and (2) the account name must include the firm's name and the word 'client' so it is identifiable as a client account.

9. When must a firm normally return client money to the client?

   Promptly, as soon as there is no longer any proper reason to hold those funds (Rule 2.5). Failing to return idle client balances is a common breach picked up by accountant's reports.

10. What is the rule on using one client's money for another client's matter?

    You must not use client money held for one client to pay another client or for any purpose other than that client's matter. Client money is held on trust and may only be used for the matter for which it is held.

11. What is the fundamental principle of double-entry bookkeeping as applied to solicitors' accounts?

    Every transaction is recorded twice — one debit (DR) and one equal credit (CR) — so that total debits always equal total credits. For solicitors, entries are split across separate client and business columns, and the two sides of a single transaction may sit in different ledgers.

12. In solicitors' accounting, on which side is a payment OUT recorded and on which side is a receipt IN recorded?

    Payments out (money leaving the account) are recorded as DEBITS (DR); receipts in (money coming in) are recorded as CREDITS (CR), in the cash account. The corresponding entry goes to the client's ledger.

13. What does a CREDIT balance on a client ledger account represent, and what does a DEBIT balance signify?

    A credit balance on the client ledger means the firm holds client money for that client (a liability owed to the client). A debit balance on the client ledger column would mean the firm has paid out more client money than it holds for that client — a breach (overdrawn client account).

14. Why must a client account never be overdrawn?

    Because an overdrawn client account means the firm has used one client's money to fund another's matter (or its own), breaching the rule that client money must always be available and kept separate. Each client ledger must never show a debit balance on the client side.

15. Describe the double entry when a firm RECEIVES £5,000 of client money from a client.

    DR Cash account — client column £5,000 (money in); CR Client ledger (client's account) — client column £5,000 (liability to client increases). The firm now holds £5,000 client money.

16. Describe the double entry when a firm PAYS OUT £2,000 of client money on the client's behalf.

    CR Cash account — client column £2,000 (money out); DR Client ledger — client column £2,000 (liability to client reduces).

17. What is a 'mixed receipt' (mixed payment) in solicitors' accounting?

    A single payment that contains both client money and business money — for example a cheque that covers both the firm's professional charges/VAT (business money) and money to be held on the client's behalf or for disbursements (client money).

18. Under Rule 4.2, what are the two permitted ways to deal with a mixed receipt?

    Either (1) allocate the funds promptly to the correct client and business accounts (i.e. split the payment, banking each part into the right account), or (2) pay the whole sum into the client account and then promptly transfer the business-money element out to the business account.

19. A firm receives a single cheque for £1,200: £1,000 is the client's settlement money and £200 is the firm's costs already billed. Using the 'split' method, where is each part banked?

    $£1{,}000$ is banked into the client account (client money); $£200$ is banked into the business account (business money). Total $£1{,}000 + £200 = £1{,}200$.

20. What is the rule about transfers from client account to business account to pay the firm's costs?

    A firm may transfer money from client to business account to pay its own properly incurred costs only once a bill of costs or written notification of the costs incurred has been given to the client. The transfer must be for the specific sum identified in the bill (Rule 4.3).

21. What must happen before a firm can take its costs out of money held in the client account?

    The firm must first deliver a bill (or written notification of costs) to the client. Only then may the billed amount be transferred from client account to business account; taking costs without a bill is a breach.

22. Describe the double entry for an inter-account transfer of £300 from client account to business account in respect of the firm's billed costs.

    Client side: CR Cash (client column) £300 and DR Client ledger (client column) £300 — reducing client money held. Business side: DR Cash (business column) £300 and CR Client ledger (business column) £300 — recording receipt of the firm's money. The transfer is recorded in both columns.

23. What is the rule against using the client account as a banking facility?

    Rule 3.3: you must not use a client account to provide banking facilities to clients or third parties. Payments into and out of the client account must relate to an underlying legal transaction or service the firm is delivering — not merely passing money through.

24. What governs whether a firm must account to a client for interest on client money held?

    Rule 7: a firm must account to the client for a fair sum of interest on client money held, but only where it is fair and reasonable to do so in all the circumstances. The firm may have a written interest policy, and may keep interest actually earned beyond the fair sum.

25. Where money is held in a GENERAL client account, who keeps the bank interest and what is owed to the client?

    The bank pays interest to the firm on the pooled general client account; the firm keeps that interest but must account to each client for a fair and reasonable sum of interest under its interest policy (Rule 7).

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