Hello and welcome to this, the uh third film in the series of films on solicited accounts for the sqe. Uh This film is gonna deal with receipts transfers as well as some accounting issues that you're going to see potential that may come up uh as Mc Qs in the exam. So, right, first thing you need to be aware of the difference between what a cash transfer is and also an inter client transfer, two different uh elements there I I'll do into current transfers in a moment. So I've dealt with a um a cash transfer. So cash transfer is basically the movements of one element of cash um from one account to to another. So for example, that is payments of your firm's professional fees and disbursement. So once the bill's been issued, um a firm can then transfer money uh which is held in the client's account over to the business account in order to settle um that uh invoice house. So it works as we saw from earlier films. Of course, if you're holding money on client accounts, you can't actually transfer the money over to the business account to settle that invoice. Uh until such time as you've sent that bill, of course to the client. Other exception, of course, is in relation to maybe you need uh paid out for disbursements and your client's aware that you're holding the money in your client's account for the purpose of obviously paying these disbursements. And then what you can do, of course is as long as can't where that's where the money is held there, make a payment direct from the client's account. Or alternatively, you can make the payment from your business account and then make a cash transfer, which is the money from client's account is moved into the business account to, in essence reimburse the firm for the, uh the sum they paid for that disbursement. Uh So some of the reasons for that other reasons in relation to cash transfers is when there's been a breach and you've taken too much money, uh out of clients accounts, you need to replace that money. That would be then transferring your business money uh over through to the, the client's account to reimburse that account for some you've taken, which you shouldn't have done. Uh Also, we looked at sums allowed in, in lieu of interest. We'll look at interest specifically as a separate film uh later on in this series. So if we look, then at the nature of the entries required and we're looking at a cash transfer, so we're looking at a transfer from the client's account over to the business bank account. Of course, there's a couple of transactions there that you need to be aware of. The important thing is, of course, when you look in and we saw it earlier films and I said to you before that money going out is AC R entry, money coming in is a BR entry. So what you're looking at in this situation is from the current account, the money is going out and of course, you don't need to receipt that into the uh the business section. But there will be two entries end up in the client section. You correspond with cr and your dr and alternatively, again, the same way when you get that money in two entries within the business um section of your account as well. So if we look at that in two parts, so when you've got the sum of money in clients account that you are now sending to settle your bill over to the, the business account. So the client section first where the money's coming from, either the cr on the cash account to show that money going out. And you then Dr the client's Leisure account in the client section. But then of course, what you need to then do is receipt that cash transfer into your business account in your business section. You do that, of course, with money coming in is AD R in the cash account. And then of course, you cr the currents leisure accounts always that corresponding um cr entry when you've got Dr and Drcr and vice versa. Also, we have elements of inter client transfers. These are a little bit different. A little unusual I would say uh in general terms, but as you know, sq like test elements which are not particularly common things that maybe and this could be something which is quite evidence and it could come up as A, as an MC Q. So you may have is that at some point you're holding money for one client, say client A and then you stop holding that money for client A and you begin to hold the money for client B, but of course, that money is in your general client account. So in essence, there's no cash transfer is there because you're not sending the money out only to then put it back in exactly the same account. But you need to of course, record the fact that you are now holding money for client B that you were previously holding uh money for client A for. So that's the, the difference there. So when might that come up? And it may be that uh you have a situation where um, client A owes client B money and he asks the firm to pass those that money to um to client B is A, is an example of that. Or alternatively, you've got um a, a father who is the client and he's selling the property and then the daughter separately is another client of the firm and she's purchasing a property and the clients, uh the father, when he gets the money into the client's account for the sale of his property, he decides to give his daughter a sum to um help towards the deposit for her purchase. And that could then be another version of an inter client transfer. So it goes from the dad held for the dad and then it's now um held for the uh the daughter. So are those all in the same client? Again? There is no um money going out. It just has to be recorded as an inter client transfer. Inter transfers sometimes referred to as paper transfers. But I think inter client transfer is probably the, the terminology I'd ask you to remember in your readiness for the, the SQ A. So then of course, uh in relation to what you do, you need to record all the entries in relation to this interrent transfer. So as I said before, no entries in the cash account cos it in a sense, there's no cash going anywhere. It's all still stats in the, in the same place. So what you need to do, you need to record that you were holding money for one client and are now holding money for uh another client. That's an important thing. So what you do is you make a BR entry in the client ledger account of the first client, the money, who you were holding the money for and AC R entry in the client ledger account of the second client. So the monies that you are now holding um the the money is for. So, although these are going to be two separate, in essence, client ledger accounts, what you also need to do in the detail section on these ledgers accounts, you need to actually record where the other corresponding double entry is made. So for example, in that father daughter scenario, uh in the father's account, we're only gonna have ad R entry to show that the money's gone from him. There won't be any corresponding cr entry. So what you need to ensure you do in the detail section is record where the corresponding cr entry is, which of course is in the daughter's account and vice versa. You need to in the daughter's client ledger account rec record where the corresponding Dr entry is looking at mixed receipts as well. We talked about business and client money. We looked at split checks and we talked about this uh in a, in an earlier film. But when we have as, as you know, a a mixture of seats. So it's a mixture of client money and extra business money. So it could be money that is paid on account of cost by your um your clients um but also incorporates a uh a disbursement that's been paid. So part of that money would be the money on account plus, and the other part would be for business money for the paid disbursement. The rules are, as we saw in the first film, you can pay that money into any account you like by any account, the clients account or the business account, your choice completely what you decide to do. But of course, the monies need to be transferred to the correct account promptly. That's a cash transfer moving those monies from one account to the other. I did mention passing. We didn't go into much detail on a previous film about the fact that you can on occasion split a check. Um It's not particularly common. Banks don't like doing it because it is a bit of an administrative nightmare. But what that means is when you have a check which is made up of business money and client money and what can happen is the bank can split it at source. So the check comes in. So the example I've given here, you get a check for 4000 pounds and 1500 pounds of that is an account of cost from the client to your firm. And 2500 pounds of that is to refund you for disbursement that you have already paid. So the 1500 is client money, tell them account of costs. The 2500 pounds is a disbursement which you pay. So it's a refund to you. So it's business money what would happen if the check were to be split is the 1500 pounds would go direct into the client account and the 2500 pounds would go direct into the business account. So there's none uh no, there's no entry. Like for example, the whole sum goes into one account and then a portion is moved over, it's split and it goes in its directions as it should go. Um at source, in essence, so what the entries look like if we're gonna be splitting your check makes sense. Of course, in relation to how that works. So what you look at is the business section, you er the business section, cash account. So when I said before money comes in, it's ad R, it's a business section for the sums for you, which is the reimbursement of that disbursement, your dr and the uh business portion of your cash account, the business section and you cr the client ledger and in relation to the client section at 1500 pounds, which is held on account of costs. Same rules apply to money coming in. So you dr the cash accounts and you cr the client's ledger. So it's always important to remember that I've said in earlier videos, cr is money going out dr is money coming in? Um I mentioned before about banks not willing to really to split checks. It's a rarity that it happens. It's because effectively if you're entitled to an enable, just pay that sum into one account and then just move it over as long as you move it over promptly, then you know, why would banks give you the option to split it at source and create some sort of ad initiative problems for themselves? They rarely do. Um But the main thing I'd ask you to remember is that were promptly. So if you do pay all of those monies into the one account, so it means that part of those monies is in the wrong account, you need to move those monies out promptly to the correct account. So that's important. So if we're looking, then at how it works with uh paying that money into one account and then the cash transfer out. That was the example I gave you earlier at 4000 pounds where we've got the 1500 pounds accounts of costs and the 2500 pounds for paid disbursements. Again, client section, if you make the decision to um, pay that money all into client's account, which is generally what you would do. Um You generally put it all into client's account and then move out the sum for the business uh account afterwards. So as you've seen before, money coming in, it's AD R entry. So it's a client section, dr the cash account and then you see R the client ledger. So that's the corresponding double entry there. And then you're thinking about time to transfer that money out transfer it promptly. That's the 2500 pounds that you need to move to the business um account. So what you need to look at then is firstly, that money is set in clients account. So the client section needs to have AC RM who to show the money's going out cr the cash account. Of course, corresponding Dr and the client ledger. And of course, in the business section, you need to show that money coming in. So it's ad R the cash account entry in AC R the client ledger. So the money is going out cr from the client's account. And then in Dr to the business section, uh there, that's how you transfer the, the money over, um, receipts of checks can sometimes prove problematic. Um, if you receive a check, which is made out not to the firm, but is made out to your clients or a third party, you can't pay that check into a firm bank account because you aren't the pee. Uh, your only obligation, of course is to then send that check to the payee which supplies whoever or the third party. And the idea is you, um, you haven't received quite money because the check isn't money. It's as far as you're concerned, a, a piece of paper that can't be transferred or turned into money. Cos you, you're not able to cash cos you're not able to, to bank it because it saves no payable to your, um, to the client and not your firm generally as a precaution. And this is the sr a recommends as well. You have, uh, the firms need to have a system which records the fact that check has been received from what's happened to it. And the fact that it's been sent over to the client uh, after it's been received by the firm, but that's the general rules in relation to checks. Complications arise when we have what's called a dishonored check. We heard it when checks bounce is probably the sort of colloquial way of actually, um using the phraseology, a dishonored check is basically where uh a check hasn't cleared. So the funds aren't there for those uh those monies to go into the accounting clear, satisfactorily complications can arise. Um if you decide to draw down on a check, which has not yet cleared and then that check is subsequently dishonored. So there's nothing in the rules that actually prevents you from doing that. And if your clients paid you a check and you pay it into your client's account, but then you decide to draw down on those monies before that check is cleared, that is permissible. That is allowed. There's no problem in relation to that, but it does cause problems because then if that check is dishonored, you're in breach of all 5.3. What you've done is you've used monies from other, from other clients on behalf of that client because those funds haven't cleared. And then that's a breach of the rule. And as we've seen before, it means those monies need to be replaced immediately. Um, the, the, the rules tend to state that it must be correct, the, the area must be corrected promptly. And then, but then it goes on to say that the money's replaced immediately but just be aware of the, the, um, that different wording Bromley is, tends to be the fail-safe approach. But when you're looking at the fact that you've actually utilized um client money is that you shouldn't have done because it belongs to another client. And you use it for that client immediate action is required. Generally, that's where the firm will utilize their own money from the business account to uh make up the uh the deficit that's been taken from the client account. What you will see as well is generally a lot of firms will have a system that they can't draw down on a check until it clears the reason being because it creates all these sort of problems about, you know, breach of 5.3 and utilizing client money each or from another client for that client. Um But you do tend to see that. So the, that these procedures in place, so you can't until that sum is cleared. But as I say, it can happen and some firs may not be diligent in relation to that. And certainly you could easily get it as part of a multiple choice question. Um uh For the sqe as well, let's work through an example bent in relation to the sort of entries and the processes you need to be aware of for a dishonored check. What I would say is the example I'm gonna go through now in its totality, it's probably too much for any sort of sqe style question. But um any of these particular specific steps which I'm going to go through could easily form part of a question for sqe so just be aware of the whole process, but the whole process will come as a question, but it's only one specific part of that mate. Um um It's part of uh multiple choice rescuing. So example, then, so first of, may you receive a check for 1000 pounds on account of costs from a client called cham. Second of, may you pay a court fee of £200 out of the client bank account on behalf of Chan? So what you've done, you've got a sum of money on account of costs, you paid that into your client's account and then you've utilized the uh the sum which is held in clients account to pay a disbursement, which is permissible. That's fine. You can pay directly out of clients account. Of course, alternatively, you make the payments out of business account and then you reimburse yourself by a cash transfer. When this situ example, what we've done is simply paid the 200 pounds out of the client bank account. Fourth of May, the bank informs the firm uh that chan's check for 1000 pounds has been dishonored. So then you must uh make entries to reverse the apparent apparent receipt on the first of May because of course, what you've done recorded receipt of those funds on the first of May. Now it's dishonored, you need to reverse that, ok? Because obviously that money doesn't exist. So it's an immediate reversal of those who will look at this in the example. In a moment, you then have to deal with the consequences of the payment from the current bank. Guess because obviously what you've done, you haven't had funds for Chan because the check has been dishonored. So when you've made the 200 pound payment out of the bank account, you've utilized monies from other clerks in order to pay that sum and you're not allowed to do that. It's a breach of 5.3. So therefore, what you need to do is immediately transfer 200 pounds from the business bank account to the current bank account to remedy your breach of the rules. So let's look at those um steps in turn as we're going through that example, right? So first off first and Nate, uh you receive the money from Chan, which is the check. Money is client money. It's money paid on account of costs. So, therefore, on the client section and you sort money coming in in is AD R entry, you dr the cash accounts and then you see R Chan's Ledger account to record the. So that's been received. Next step, you make a payment from the client's account in order to satisfy that disbursement. So client section, because you're making the payment direct from the client's account again, money going out. So it's AC R entry cr the cash account cos that money's going out and then you make the corresponding Drn Chan Chan's Ledger account to show that money's gone from his account. Fourth of eight, you record the dishonoring uh of the check by reversing those entries you made when you receive the check. So as you saw before in the client section, when we're receiving money, it said er, entry. So when we're reversing that you do the opposite case, you'd see r the cash account look like money's going out. It's not just a reversal of the original entry and you'd be R chas ledger account. So literally, it's a complete opposite to what you did when you received the money in for the client's account, you then have a uh a balance of uh dr balance of £200 on Chan's Ledger account. You're in breach of rule 5.3. And of course, you've used money for Chan which uh uh hadn't cleared. So effectively, you've used monies of other clients with a general client bank account to pay something for chan and you're not allowed to do that. So what you then need to do is make an immediate transfer of 200 pounds from the business bank account to the client bank account to rectify the breach. So while the entry is there, so again, we're looking at this as a cash transfer, ok? So the business section for the money that coming from the business section over to the client section, you see r the cash account cos that's money going out and Dr trans Ledger accounts and to receipt that into the client's account, you dr the cash account that's money coming in and you see our trans ledger account then, so that's how it works. Don't forget, always remember that cr money going out, er money coming in on the seventh of May channel then tells you that there are no sufficient funds to meet the check. He asks you to repent the check. So you do so on the seventh of May and it's fine, it's met it clear. So the check is now cleared. Those monies now exist. So when you represent the check in this example, the client now owes you the firm 200 pounds because you've utilized 200 pounds of business money to pay that disbursement by refunding to the client um account. So the receipt you have then for that check is now a mixture of business and client money. 800 pounds of that 1000 pounds is um, channel on account of costs. It's held on the client's account and 200 pounds is a refund of a paid disbursement. It's that business money again, same rules apply as we saw before. You can either split the check if the bank would allow it or generally all the money goes into one account and there will be the current account and then you transfer out the appropriate sums to the business account to refund that disbursement, which is the 200 pounds. So how does that look when the check is represented? Um So you pay all your whole amount into one piece of the bank account or split it. Um If you split it, what you have, of course, is that 200 pound business money straight to the business section. So it's money coming in the art, the cash account and the art channels ledger account and the 800 pounds which is held on active cost, that's client money. So if you're splitting it, of course, you know, client section collect money. B are the cash accounts and C are trans ledger accounts. That's if you split that, what you're looking at is two separate entries going in different directions. When you're splitting that check, be aware of a couple of issues in relation to accounting matters. One is abatement and one is when you write off a bad debt and how the entries differ in relation to that. So abatement is basically the result of com you know, one of the the primary um elements that clients tend to complain about is a size that bill. Yeah, abatement is in essence a result of that client complains about the bill and you as a firm decide to reduce your bill accordingly to allow for some reduction for early settlements. It could be, the client has got um valid points to make in relation to duplication of work, et cetera, et cetera. And so then a reduction is appropriate on the bill that's being produced. Um HMRC allows the output tax charged on the bill to be reduced proportionately. So what you would then originally record, of course, is your uh the sum you due to pay HMRC by way of the VA T elements. But of course, if now that's been reduced because of this abatement, of course, that would that liability reduce as well. So that's what you do. Um in order to record this abatement, that's the phrase you use, you reverse the entries made on the profit costs and HMRC accounts when the bill was sent to the extent of the abatements, you also send a clients a, a va credit note. It's important with abatements. What you're doing is you're reducing the bill by the uh so you're reducing it by the sum that you're reducing the bill by. Yeah, so you're not not to the sum it's due uh to, for arguments sake, you've raised a bill for 1000 pounds plus V 80 of 200 pounds. You agree for a 10% reduction, uh an abatement of 10% on that bill. So that means of course, that then 100 pounds is uh reduced off the profit cost elements and uh 20 pounds off the um the et elements. That's the abated sum of the 120 not the uh summit down to which would be the 900 the corresponding sum for the 80. So you, the abatement is the sum of the bill is reduced by not two. So the entries, so with the reduction, so there's some that the bill is reduced by not to you d are the profit cost account and they are the HMRC account. That is in essence, um uh a reversal of what you would have seen in a previous film in relation to how the entries are recorded in relation to when you raise a bill case, we'd have your corresponding to CRS on your profit cost account. And cr and your HMRC accounts, you know, dr it to reverse it um by the summit, reduce two and then corresponding to that uh business section. You see our professional child and cr the va T when those were originally when you produced the bill, the ar so in essence, you re you're reversing exactly what you'd done previously to produce that bill some bad debts from time to time. A firm will realize, realize a client's not gonna pay the amounts owing a bunk or they're just refusing and it's not commercially viable um to actually pursue them for maybe a, a low sum of money for the, the bill that's raised uh firm enough to write it off the amount owing for its professional charges. In va you are then allowed VA T relief, which is available once the debt has been outstanding for at least six months since the date payment was due. That's an important qualification. Ok. So um va T relief, you can get that six months since the date payment was due. If your invoice allows maybe for a 28 day period before which the the sum is due. Of course, then it will start running from the end of that 28 day period here, not the day the bill was raised and that's an important distinction there. And in that case, then the solicitors will be entitled to a refund from HMRC in relation to that. So what happens in relation to the accounting entries for bad debts? So when the debt is written off on the business section, you see R the client's ledger account with the full amount owing and you dr the bad debts account with the full amount owing that includes the element of VA T and when VA T release becomes available six months after the bill can be due, then you see R the bad debts account with the amount of VA T and BR HMRC account with the amount of the va T essence. You're reversing the previous entries made to get that credit for that va T be aware of petty cash as well. How petty cash interacts with um clients and how you can utilize petty cash for various different things. So obviously, a firm will sometimes make a payment from petty cash on behalf of a client. A good example of that is uh when you're doing things like statutory declarations for um property work, um you have to do that a process to sign that on oath in front of a solicitor. Generally, the payment made to a solicitor for um being there for the earth to be sworn is five pounds. Of course, there's a transfers made. It's, it's five pound, isn't it? Generally money is taken out of the petty cash tin given to the solicitor who is actually witnessing the oath and then they walk away with that five pounds in their pocket. And of course, then you have to make the requisite entries from the petty cash account, but also record that on the client ledger to show the fact you've made that payment for the client. So the client owes you that sum of money. So the cr entry will be made on the petty cash account, not the main cash account if you're utilizing petty cash, of course, that's money going out. That's AC R entry on the petty cash account. And the firm will want to dr the client ledger to show the client now owes the firm for the the expense inc incurred. And that's the corresponding entry there, that five pound example I I gave you the dr you must be made on the business section of the client ledger. Even if client money is held for the client because petty cash is business money. And that's what you've utilized. You've used business money to pay and that sum of the money on behalf of the clients. So any firm will need petty cash on the premises to make small cash payments. Uh When cash is withdrawn from the bank for petty cash, then of course, the various entries are going to be on the business section. You're cr in the cash account, so you're moving cash from the business cash account over to the petty cash account. So that's money going out cr and of course, the petty cash account is then pr with uh the sum that's tr the petty cash account. And when a payment is made, for example, if we're not looking at anything client related, maybe we're looking at, I don't know the purchase of some doughnuts for someone's birthday or a jar of coffee is the example I've given here. If money is going out from that petty cash account, you cr a petty cash account and then you dr the appropriate ledger account, which for example, for a jar of coffee could be called sundries or something along those lines. Still the same rules apply cr money going out dr um piece of corresponding entry there, right? Let's have a look at a couple of practice questions in relation to this area then to act on behalf of Mr Samuel in relation to a personal new claim he has made against his employer. The matter proceeded to a joint settlement meeting where the client's employer agreed to settle the claim for the sum of 75,000 pounds. This took into account an element of contributing negligence at the joint settlement meeting. Your costs were also agreed in the sum of 25,000 pounds inclusive of va T and disbursements. You've just received a check for 100,000 pounds and intend on paying this into your client's account before transferring the cost element to the business account, which of course you're entitled to do. This is a mixed receipt after all, which of the following best reflects the entries needed when you're banking the check. So a the client section, you dr 100,000 pounds to the cash account and then you see R 100,000 pounds to the client ledger B on the client section, you see our 100,000 pounds to the cash account and dr 100,000 pounds to the client ledger. See on the business section, you dr 100,000 pounds to the cash account and cr 100,000 pounds to the client ledger D on the client section, you dr 75,000 pounds to the cash account and cr 75,000 pounds to the client ledger and E on the client section again, you dr 25,000 pounds to the cash account and cr 25,000 pounds to the client ledger, correct answer is a and this one. So it's important that you're aware of. Of course, when we're getting money paid into the client's account, you're looking at money coming in or it's going to be your dr ent money coming in in the dr it's the client section because we've worked out. We know it's been, um, paid into the client bank account because we're told in the example, that's the intention. That's what's gonna happen when you've got your br entry for the 100,000 pounds to the cash account. You then cr the same figure onto the client ledger. So why were the others not correct? Um, B have a look, it starts off with AC R entry. That's when you go out. That's right. Of course, money is coming in. So it's gonna be AD R entry there. Um, c it's not the business section you're told it's the client section, uh, that the money's going into. So that's why that one would be incorrect. Um, d basically just have the wrong figures because the idea is that all of that money is going into the uh current account. And then later on what your plan is to transfer out the sum for the business uh section. So the 25,000 pounds promptly at a later date. So therefore, the wrong uh figures are there important to be aware of. Of course, that whole amount is paid into the one account. Unless you're splitting the check, if you're splitting the check and you've got two entries and the sums going to the corresponding client's account and business account. With this one, the whole sum would go to the one account. Let's have a look at another question then so you act on behalf of Doctor Johansson in relation to a relatively simple debt recovery matter matter concluded quite quickly. When the debtor paid the sum due upon receipt of the initial demand, you raised a bill for 1000 pounds plus va T which you sent to the client. The bill did not include any disbursements. Your standard terms and conditions allow for payment to be made within 28 days of the bill being presented. You've chased Doctor Johansson for payments of the bill on several occasions by email, letter and telephone. Your letters are now being returned by royal mail stating dressy gone away. Telephone number no longer connects when you call it and your emails have bounced back stating that's an invalid email address. You've discussed the matter with your team leader and have agreed to write off the 1200 pounds as a bad da bad debt. That's the 1000 pounds plus V 80. The 1200 pounds, you'd like to seek va relief from HMRC for the 200 pounds for the V 80. Which of the following best reflects the position. A va relief is available once the debt has been outstanding for at least six months. B VA relief is available once the debtor has been outstanding for at least three months since the date payment was due. CV. 80 relief is available once the debt has been outstanding for at least six months since the date payment was due. DV. 80 relief is available once the debt has been outstanding for at least 12 months since the date of payment was due. The VA T relief is available whilst the debt has been outstanding for at least six months since the bill was raised. So the answer is C VA T relief is available once the debt has been outstanding for at least six months since the date of payment was due. That's important. Ok, so six months is the period but also since the date payment was due, um A is largely correct but it's not the single best answer as a six months runs from the date the payment was due. So you need that to show when the six months starts from the six month period is correct. B and D are incorrect in relation to the time period. So B mentions three months and SD mentions 12 months, both of which are the wrong time period. Six months is the correct time period and e is incorrect as the time does not run. Um From the day the bill was raised. Um The, the example you've given is a 28 day period which the client can pay the, the bills to the due date. And therefore you have to wait for the expiry of that period to the date the paper is due. So since the bill raised was uh not correct there. Yes. Thank you very much.
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