Accounting Exam Notes

Rules about the CR and DR in a ledger

When the receipt of money is recorded in a clients ledger account, the client owns (is owed) the money so the client is shown to be in credit in relation to your law firm. In the ledger, receipts are shown in the right-hand or credit column of the ledger account for that matter (whereas in cash books receipts are recorded on the left). When you make a payment from money in the law firms general trust account to a third party, for example, the Office of State Revenue, your law firms liability to repay money to the client is reduced by the amount or debited to the clients ledger account. In the ledger, payments are shown in the left-hand or debit column of the ledger account for that matter (whereas in cash books payments are recorded on the right). Under s255 running totals must be credit or nil and NEVER debit. The client cannot owe money as this would breach 255.

Steps for certain Transactions

Table of Contents
Steps for certain Transactions ............................................................................... 2
Contribution of Capital to firm ....................................................................................................................... 2 First Petty Cash Float - Drawing a cheque for your (made payable to cash) .................................. 3 Rent, Secretarial, Reception and Clerical .................................................................................................... 3 Purchases of office sundries with Petty Cash [NOTE will also use petty cash for TRUST matters] ................................................................................................................................................................. 3 Receive cheque on A/C of C/D for MATTER ............................................................................................... 4 Receive cheque on A/C of C/D for MULTI MATTERS ............................................................................... 4 Paying for matters immediately using office funds (NOT Petty Cash) .............................................. 5 Payment for matters immediately using OFFICE FUNDS + MULTI MATTERS.................................. 5 Payment for matters immediately using Petty Cash............................................................................... 5 Paying for counsel (or anything else agreed to or directed to) from Trust Account .................... 6 Preparing a memo of costs (for a/c and d/c say for an urgent matter) ............................................ 6 Being Paid for the above out of cash ........................................................................................................... 6 Being paid out of Trust money (for services youve rendered) ........................................................... 7 Transfer of Moneys from Trust to Trust...................................................................................................... 7 Controlled Money (Money in another account)....................................................................................... 8 Power Account .................................................................................................................................................... 8 Dishonoured Cheque......................................................................................................................................... 8 Daily Banking (Remember to do every time date changes in qst)...................................................... 8 Monthly Banking ................................................................................................................................................. 8

Bank Reconciliation Statement ........................................................................... 10

Contribution of Capital to firm

1. Go to Office Account Receipts fill out for each person who contributes money. a. Remember to note the Office Account Private Ledger number DO NOT USE PL1 because this is the Control Ledger for the Monthly Accounting. b. Take note of receipt number. 2. Go to Office Account Receipts Cash Book and fill out, noting down the cheque number and the ledger number (DO NOT USE PL1) a. In description note that it is a capital contribution b. If there are 2 or more receipts it is 2 separate entries (rows) 3. Go to Office Account Private Ledger DO NOT USE PL1 (lets say PL2) a. Note the capital contribution as a credit CR b. Remember if there are multiple contributions then it will be multiple ledger entries (say PL2 and PL3)

First Petty Cash Float - Drawing a cheque for your (made payable to cash)
1. Go to Office Account Cheques (At page 26 of test-book) a. Fill out the cheque remembering to pay to Cash b. On the cheque stub fill out the Office Account Private Ledger Number (it may already have been assigned by the lecturer) and note Petty Cash Float c. Take note of cheque number 2. Go to the Office Account Payments Cash Book and fill out a. Note the cheque number (first 6 digits) and ledger number 3. Go to the Petty Cash Book and fill out noting ledger number a. In payments column leave blank 4. Go to relevant Office Account Private Ledger (Say PL4) a. Fill in cheque number b. Purpose is PC Float c. This is a DR

Rent, Secretarial, Reception and Clerical

1. Go to Office Account Cheques or just Cheques (At page 26) a. Fill out the cheque to Pay Law Office P/L b. Note here that even if there are multiple payments list the total in one the cheque c. On the cheque stub write: i. PLX Law Office Rent - Rent to (date) (and dollar amount) and; ii. PLX+1 Law Office Clerical Services (etc) - to (date) (and dollar amount) d. Take note of cheque number/s (first 6 digits) 2. Go to the Office Account Payments Cash Book and fill out a. Note the cheque number (first 6 digits) and ledger number/s b. In this case it will VERY likely be a MULTI AMOUNT c. Fill out 2 rows d. Paid to Reasons will be Law Offices: 1) Rent, next row 2) Clerical etc e. Remember you have 2 or more PLs to fill out f. In multi amount column split the values g. In cheque amount total them with the total on the lower of the 2 rows 3. Go to relevant Office Account Private Ledgers (Say PL6 and PL7) a. Fill in cheque number for each b. Received from is Law Offices c. Purpose is as above e.g. rent d. These are DRs

Purchases of office sundries with Petty Cash [NOTE will also use petty cash for TRUST matters]
1. Go to Petty Cash Voucher a. Note that this will mean a NEW ledger entry called Office Refreshments or whatever b. Purpose is the things you buy with it

2. Go to Petty Cash Book a. Note PC Number b. Note Ledger Number 3. Go to Office Account Private Ledger a. Paid to whoever b. List as a DR

Receive cheque on A/C of C/D for MATTER

1. Go To Trust Account Receipts Cl61 see notes pg7 for requirements a. Remember if cheque is received by ANOTHER person (i.e. not the person you represent) the only difference is that in the Received from field you write the name of the person you received from. b. In field For and on behalf of write the TL number (NOT TL1) c. Next to the TL number write the full name of the matter i.e. Party 1v Party 2 and the court on A/C C/D d. Received from TLX Party 1 Nature of Matter, on A/C D/C e. Take note of receipt number 2. Go to Trust Accounts Receipt Cash Book Cl67 see notes pg8 a. Must be completed within 5 days b. In column 3: Remember to write Receipt number + that it was received as cheque or cash or whatever c. Write in Received from column the ACTUAL person you received from d. Ledger noMatter description will say who the client is. 3. Go to Trust Account Ledger TLX a. A new ledger per matter (retainer) cl70 b. Fill in all fields c. It doesnt matter who the cheque was from the Name/Address should be of the client d. The Recd from field is populated by the person who gave you the money and the paid to reason e. Because its a receipt it is a CR

Receive cheque on A/C of C/D for MULTI MATTERS

1. Go to Trust Account Receipts Cl61 see notes pg7 for requirements a. Fill out only 1 receipt b. List the total as normal (number & written) c. In the field For and on behalf of i. Separate the TLs from each other per matter e.g. 1. TLX Party 1 Purpose (e.g. Incorporation of Company) on a/c d/c $3000 2. TLX + 1 Party 1 Purchase of home from Party 2 a/c c/d, stamp duty, deposit $100,500 d. Take note of receipt number 4. Go to Trust Account Receipts Cash Book Cl67 see notes pg8 a. Must be completed within 5 days b. Fill in as multi amount c. Remember to take a row per matter and to list multiple TLs 4

2. Go to Trust Account Ledgers a. A new ledger per matter (retainer) cl70 b. There will be X number of ledgers to fill out depending on matters c. This will be a CR

Paying for matters immediately using office funds (NOT Petty Cash or TRUST MONEY)
1. Go to Office Cheques and fill out (As above Rent, Secretarial, Reception and Clerical) a. Note - as above - for drawing a cheque you need to fill out the stub with the Office Account Client Ledger number, and split multiple matters, noting the TLX/s. b. Note Cheque number 2. Go to Office Account Payments Cash Book a. Note the code for the Client ledger number is CL (You can use CL1) 3. Go to Office Account Client Ledger a. List as a DR

Payment for matters immediately using OFFICE FUNDS + MULTI MATTERS

1. Draw Cheques and fill out (As above Rent, Secretarial, Reception and Clerical) 2. Go to Office Account Payments Cash Book a. Fill out each matter separately noting paid reason (say obtaining s149 cert and Land & Prop. Office info) b. In Ledger No column separate by matter and note CL numbers (say for 2 properties for the same person) c. Fill in multi-amounts (see page 31 in filled out book) d. Remember to fill in total column 3. Go to Office Account Client Ledger a. Remember e.g. the purchase of 2 homes are 2 matters, so require 2 ledgers. b. So the name of the person might be the same in each ledger, but the address would be different c. Anything that happens with respect to the one home should go in the same CL d. Fill out completely noting the Cheque numbers e. List as DR

Payment for matters immediately using Petty Cash

1. Go to Petty Cash Voucher a. Note down the CL number 2. Go to Petty Cash Book a. If a multi matter Make sure to separate each in the purpose column based on the CL it will go into b. Note the CL numbers that they relate to 3. Go to the Office Account Client Ledger a. If multi matter remember to fill out both CLs b. This will be listed as a DR

Paying for counsel (or anything else agreed to or directed to) from Trust Account
1. Go to Trust Account Cheques a. DO YOU have instructions? Is it in the cost agreement? b. Note cl 65/66 and page 7/8 of notes fill out stub, must be by cheque or EFT only/ signed by principal etc. c. Note Cheque number 2. Go to Trust Account Payments Cash Book (required by cl69) a. It will relate to a matter, and hence a TL, so get the number and note it down b. Paid to reason field is name of payee and reason c. Ledger No is TL and Matter 3. Go Trust Account Ledger a. Go to TL for the matter b. This will be a DR c. Fill out the Balance

Being paid/billing
1. Paying yourself is subject to s261(1)(b) of LPA and Part 8 of LPR particularly cl88 2. Pages 5/6 of the notes Preparing a memo of costs (for a/c and d/c say for an urgent matter) Relates to matters not covered by Trust money and for matters where you have given advice and will receive payment later. 3. Go to Costs Journal a. This is a book of first entry of costs and bills for professional fees only not disbursement b. Note client ledger number (you may have to start a new one) 4. Go to the relevant Office Accounts Client Ledger a. Note in column 2 (Chq/Rec/Fol) that it is from CJ1 (Cost Journal) b. Received from: To costs rendered c. Purpose: Costs d. This is a DR 5. NB: you can be paid out of trust moneys later or out of cashyou would record that as another transaction as per above. Being Paid for the above out of cash 1. Go to Office Account Receipts a. Note the Client Ledger Number 2. Go to the Office Account Receipts Cash Book a. Remember it is Cash in this case so note as much b. Remember to note the CL numbers 3. Go to Office Account Client Ledger a. This is a CR b. If the amount covers total costs just draw a line in Balance

Being paid out of Trust money (for services youve rendered) This applies to things youve paid for out of your own pocket (see CL1 for example incurred 1750 + 20 so can charge both with permission) Note s261(1)(b) LPA and cl88 LPR (page 5/6 of notes) DO YOU have instructions? Is it in the cost agreement? 1. Go to Trust Cheques cl65 (or if by electronic funds dont do this step cl66) a. Draw on Trust Account at UTS Bank, Haymarket Branch 2. Go to Trust Account Payments Book a. In Paid to Reason: YLF (Your Law Firm) Office Account for A/C C/D b. Remember there may be more than one payment - check appropriate client ledger (where out-goings from the Office Account are recorded) c. Remember in Dawn Fraser example incurred expenses for 2 reasons ($1750 and $20 payments see CL1) d. Note the Cheque number and put CP (for cash payment book) 3. Go to Trust Ledger Account a. In reason put YLF Office a/c c/d b. This is a DR c. Update balance 4. Go to Office Account Receipts a. Remember to Note the CL number b. Write CLX and Reason 5. Go to Office Account Receipt Cash Book a. Note down payment method and receipt number 6. Go to Office Account Client Ledger a. In column 3: YLF Trust A/C b. Purpose on c/d c. This is a CR

Transfer of Moneys from Trust to Trust

1. Ensure you have written authority/instruction (cl70) and authorisation from a partner or two associates (cl71) 2. Go to Trust Account Transfer Journal a. Journal Reference is TATJ (Number) b. In column 4 have to write the following (in separate rows) i. TLX (origin of money) Party1 v Party 2 (THIS IS A DEBIT) ii. TLX (destination of money) Party (say for purchase of home) (THIS IS A CREDIT) iii. Transfer on Instruction (cl 71 of LPR) 3. Go to Trust Account Ledger a. Each of the above ledgers (origin and destination) must be updated b. For origin ledger i. Note in column 3 TATJ(X) ii. In purpose TLX (origin) description iii. This is a DEBIT c. For destination ledger i. As above however it is a CREDIT

Controlled Money (Money in another account)

1. Go to Controlled Money Account Receipts o Note here that the ledger number is RCMXXX 2. Go to Register of Controlled Money o In Account name write: YLF in trust for Party and Party o The bottom party under security held is about the bank

Power Account
1. Go to Register of Money the Subject of a Power a. Remember in Matter: Power to operate personal bank A/C Elise

Dishonoured Cheque
1. Go to Trust account receipts book a. Under dishonoured cheque no. put the same number but in brackets b. Same reason followed by dishonoured cheque c. Same ledger no. d. Same amount on receipt except in brackets

Daily Banking (Remember to do every time date changes in qst)

Remember that in the bank statement each deposit will show up per date 1. Go to Trust Bank Deposit Slip a. Fill out each of the cheques and total 2. Go to Trust Accounts Receipt Cashbook a. In Column Banking total on deposit slip write in the total from the Bank Deposit slip. b. Highlight so it sticks out 3. Go to Office Bank Deposit Book a. Write out totals (In our case it will probably just be the Capital contribution) b. Under particulars of cheque write each cheque received. 4. Go to Office Account Receipts Cash Book a. In Banking Total on Deposit Slip Column write total and date next to it b. Highlight this section so it sticks out

Monthly Banking
1. Complete entries arising from Office Account Bank Statement a. Important to note that fees are a charge we have to pay b. Note the DR column is Cash Payments c. Note that CR column is Cash Receipts d. If there is anything missing it will probably be CHEQUES 2. Fees and Charges are all put into the Cash Payments book a. Go to Office Account Cash Payments i. Column 2 Bank Statements ii. Column 3 UTS Bank Fees + Charges iii. Column 4 PL (Private Ledger) X Bank Statements) b. Go to Office Account Private Ledger

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4.

5.

6.

7.

i. This is a DR Total the TRUST Cash Receipts Book a. In column 4: Total Receipts (Month) b. In Column 5: TL1 UTS Cash Book Control Account c. In Column 7 (or column with Banking Total on Deposit Slip) sum total Total the TRUST Cash Payments Book a. Go to trust account payments cashbook b. Column 3: write Total Payments June c. Column 4: write TL1 UTS Cash Control Account d. Total the Cheque amount column e. SUMMARY: Skip one row i. Column 3: Cash Book Summary (Month) ii. Opening Balance 0.00 iii. Add receipts June $Total from end of step 3 above (i.e Total Receipts from the Trust Accounts receipts Cash Book) iv. Subtotal as above at (iii) v. Less payments Total at 4c (i.e the payment total from the Trust Account Payments Cashbook) vi. Closing Cash Book Balance (iv v) Repeat steps 3 and 4 for OFFICE ACCOUNT a. In the Accounts receipt book i. Column 4 Total Receipts ii. Column 5 PL1 UTS Cash Book Control Acct iii. Total under the Banking Total Column b. In the Accounts Payment Cash book i. Column 3 Total Payments ii. Column 4 PL1 UTS Control iii. Total under the cheque amount c. SUMMARY Now under the Accounts payment Cash book copy from 4d above Close off and where necessary balance the Petty Cash Book a. Start new row under Ledger name Total Payments add payments together (say 69) b. Balance carried down Subtract payments from total (say 250) to give 181 c. Under receipts column: Total of petty cash (say 250) and under that total brought down (say 181) d. Next to the total brought down (say 181) write Balance brought down e. Go to PLX i. Column 2: PC1 ii. Colum 3: Total Payments iii. In CR column any money weve spent (say 69) iv. MARK AS DR Close off and where necessary balance the Cost Journal a. Under client column = total costs b. Ledger PL(whatever number)

c. Add the totals d. Go to a new Office Account Private Ledger i. Ref = CJ1 ii. Received from = Total Costs iii. CR the amount at (a) iv. List as a CR v. Balance is (a) 8. Make end of month entries in the Trust Account ledger a. Should be Ledger 1 b. UTS Bank is the name c. Column 4 Total Receipts Debit amount (as above) d. Column 4 Total Payments Credit amount (as above) 9. Make end of month entries in the Trust Account ledger a. In column 2: Total Receipts DR write total, then again with DR b. In column w: Total Payments CR write total, then again with DR 10. Preparing a bank reconciliation statement for the trust and office accounts a. Check all receipts and payments entered on cash books b. Total months receipts and payments on cash book c. Total Closing Cash Book Balance (shown on Payments Cash Book & TL1) d. Check Cash Book Balance with bank statement

YOUR LAW FIRM TRUST ACCCOUNT

Bank Reconciliation Statement

FOR MONTH ENDED 30 JUNE 20XX

Balance as per Bank Statement

$127, 230.00

(NOTE this is higher than the summary BY 3800 so look for a cheque you paid out) Add outstanding deposits

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Nil

$127,230.00

Less unpresented cheques

June 4, 2008 079001 $3,800.00

3,800.00

Balance as per Cash Book BOOK SUMMARY TOTAL)

$ 123,430.00 (THIS AMOUNT IS THE CASH

YOUR LAW FIRM OFFICE ACCCOUNT

BANK RECONCILIATION STATEMENT FOR MONTH ENDED 30 JUNE 20XX

Balance as per Bank Statement

$120, 302.00

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(NOTE this is higher by 260 bucks, look for cheques in the Office account summary) Add outstanding deposits Nil 120,302.00

Less unpresented cheques Jun 1 023003 $ 20.00 Jun 4 023004 $240.00 260.00

Balance as per Cash Book

$120,042.00

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