tle (uy ‘This Chapter wil give you some indicators as to what key areas a lavyer may need to know about accounting practices and the statutory requirements that entall good bbook keeping. Some aspects of Income Tax wil also be highlighted to enable you to have a working understanding of income tax from both a business overs as well as an ‘employer's porspective, As with any specialised area of law and business, both ‘accounting and tax require some (external) professional assistance. We recommend that when running your law practice you actively seek professional assistance especially with your accounts to ensure that you avold unnecessary stress, business and financial risks, GOVERNING LAWS AND RULINGS Rules have been made under Sections 78 and 79, LPA and ‘he following aro the Rules currorly applicable: 1. Solctors' Account Rules 1990 (’SAR") 2. Accountant's Report Rules 1990 (*ARR") 3. Sallitors’ Accounts (Doposit Intorest) Rules 1990 (SADIE) Herein, colectively referred to as the Rules, unless stipulated othorwiso. SETTING UP OF ACCOUNTS ‘The accounts must be set up properly when the practice Is first sot up. Thore aro two ways in wich ths is dono: computerised accounts or manual accounts. (2) Things you need to do: Seek assistance ofan acourtant when the pasties setup 1. Employ competent stat Ensure tha the books are entered conterporansousy; the mons received are baked in that eoups are promptly issued; that monthly bank statements ar accurato and alc al payments 1 Arange with the extemal auditors to send the stat to check te accounts peroccaly, atleast once in three months In this way any errors may be spotted and rectified quicklyACCOUNTING RECORDS Itis essential that there be some knowledge of what type of records are maintained, Client Account Receipt Books Day Book (Cash Book) Disbursement Record Client Ledger Receipt Books Your law practice must maintain consecutively numbered recaint books ‘These rocoint books should idontify the particulars ofthe client, the reference number and the particular matter for which payment was received, he amount that was paid and the purnose ofthe payment. he date i alsa important, Ifthe payment was by cheaue Identify the drawer bank and the cheque number. Itis ideal ifthe rocoipts are in triplicate, th: 1. Original goes tothe alient; 2. Second copy is in the fle; and 3. Third romains in tho receipt book haugh anyone whois authorised can sign a receipt, it should ideally be signed by a partner or legal assistant. (Once the payment s recewved. whether by cheque or by cash, and the receipt writen out, the amount ought to be entored in the Day Book and the Cheques Receipt book. IY more than one clint account is maintained then a separate book should be maintained for each account, Ia single book is maintained then there should be @ column to identity the bank at which the payment was banked into Tho Paying-tn Slip should be filed in with the particulars roquited by the bank. When the receipt by the bank is ‘machine-printed and returned; these should be fled separately It would also be wise to wr te on the back of the slp the rrame of the client, the fil reference number and the cent account receipt number, These would assist the dotoction of erroneous entos. ‘An entry's made in the Client Ledgor against a cllnt's name upon receipt of funds. DISBURSEMENTS Disbursements may be drawn in two ways: 1. Directly ftom the client account 2. From the ofice account first and then recouped. Payments would have been received from cllents, say for payment of stamp duty or to pay the vendor the balance of the purchase price. in such cases the payments can come Girectly out of the client account provided there are funds. Under no circumstances can a lawyer issue a client account's cheque if the particular client has no funds in the account. ‘A.voucher is drawn up for payment out ofthe cient account; the voucher is an authorisallon for payment, it should bear the Date; Namo ofthe tion Name of the payee; Purpose of the payment Signature of the person requisitioning Person authorising; and Recipient HReRRaag Tho choque number would also be inserted. The voucher, rhumbered, is always drawn in duplicate: one goes into the fle and the other kept together with the rest ofthe client account vouchers. This is an important document for purposes of auc ‘A cheque is then issued tothe payee. Itis useful in the counterfall or an the reverse of the caunterfll to record the cllont's reference number and voucher numbor.Cheques drawn out of client account/s must be made payable to the payee and, unless specially request shouldbe crossed "Account Payee Only" withthe marking "Non-Nogotiabl". IF itis to be paid to @ person who has no bank account then, it should be made payable to him with his identity card and the "or order or bearet” should be cancelled, This is to ensure that i isthe payee who receives the payment ‘A rocoipt from the payee shouldbe obtained, whorover possiblo, fr all paymonts. Howover, in the case of pay for stamp duty, a receipt is not available Prompt entries should le made in the Day Book as well as the Client Ledger. TRANSFER OF FUNDS Funds can be transfered trom client accounts tothe office account? Monias can be drawn out only by cheques. Whore monios are to be drawn out, there must be proper vouchers (as. explained above) ‘Apart trom payment to third partes on a client's behalf, 2 transfer can occur for any one for the following purposes: 1. Reimbursement to the lawyer for expenses: 2, Payment of foes due to the lawyer. ‘The lanyor, boing a trustoe, must exercise caution and careful judgment when exercising his discretion in this area to avoid potential disputes. Lawyers often incur minor expenciture out ofthe law practice's pelly cash or disbursement account (f any). If the sums are small the administrative time cost may not Justify an immediate transfer of, say AMO, fling foes. Periodically the lawyer, when they requite the funds, or ‘when they think it necessary may wish to reimburse themselves. They should delver tothe client a statement ofthe amount sought to be reimbursed and that tis being transferred This would be recordod by a vouchor or an internal transfor slip. The cheque would be made payable tothe office account Similarly fe28 might have been agreed in advance and ‘money might be paid into the client account for this, purpose. {As and whon the foos Is Incurred, a bills raised and the ‘sum transforred tothe office account. Where foes have not been agreed, then a bill ought to be sent tothe client withthe endorsement thatthe said sum is being transferred for work done, Iv the sum transferred is insufficient the bill would show a balance that is due, Of course, this does not prevent a Cllont from sooking an ordor for taxation ofthe bil DEPOSIT INTEREST RULES Under these rules lawyers who are in receipt of more than RMB,000 only and which is expected ta romain in their accounts for not lass than four months should deposit the rmonias in fixed deposit Rule 2, SADIR he interest Is tobe pald over to the client.