Module overview 2023

FINANCIAL ACCOUNTING PRINCIPLES FOR LAW PRACTITIONERS

CONTENTS MODULE OVERVIEW

LEARNING UNIT 1 – The nature and function of accounting

LEARNING UNIT 2 – Cash transactions and credit transactions

LEARNING UNIT 3 – Sundry items (Inventory, depreciation, VAT and bank reconciliations)

LEARNING UNIT 4 – Recording of source documents in the books of first entry

LEARNING UNIT 5 – Ledger accounts, trial balances and financial statements

LEARNING UNIT 6 – The transfer of trust monies to the business account

LEARNING UNIT 7 – Trust investments, interest received and bank charges

LEARNING UNIT 8 – Correspondents

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 Module overview 2023

Dear student,

1. Word of welcome

We, as the lecturers for this module, would like to extend a sincere welcome to you as a student
in this challenging module. This module requires a great deal of dedication, time and practice if
you intend to pass, especially if you do not have a significant accounting related academic
background.

Why do students find it difficult to pass FAC1503 or to obtain the mark they are aiming for

Reason 1 Reason 2 Reason 3

Students do not allow themselves enough Students practice rote learning and
time to thoroughly cover the tutorial matter skip the critical theoretical preparation.
and revise the examples and learning
activities.

Accounting information is information that arises from business

transactions. The module is a practical module as the accounting
information is both measurable and quantifiable.

Deep learning occurs when Students must practice. The Rote learning is learning
a student actively way to study a practical by memorising facts
participates and engages module such as FAC1503 is rather than learning by
in their learning process. to practice. understanding

The theory forms A student must have a
the basis for the sound theoretical
infinite number of background it is likely that
possible practical you will experience
scenarios. problems with the practical
sections
Students who opt to prepare for
the examination by memorising
the feedback to the given
examples and activities, and
concentrating on working through
previous examination papers.

Improve your chances of success by:

• Being positive
• Being proactive – Practice the questions and examples as much as
possible
• Being interested in the module ̶ Ensure you gain knowledge and
skills which will be beneficial when you practice your profession.
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 Module overview 2023

2. Module objective

The objective of this module is to provide law students with a theoretical and practical
knowledge of the principles of financial accounting. A basic knowledge and understanding of
transactions is essential to complete the accounting records encountered in a legal practice.
This includes a thorough knowledge of the concept of trust money, including the applicable
legislation, rules and accounting treatment of trust money.

3. Why accounting?

The accounting processes of legal practices are governed by the Legal Practice Act, 28 of 2014
(hereafter referred to as the LPA), and the International Financial Reporting Standards
(hereafter referred to as IFRS). The aim of the LPA is to protect the interests of the clients of
the legal practice who hold trust monies. The LPA contains rules that must be adhered to
regarding the handling of trust monies.

The LPA stipulates that the Council of the Law Society may make rules, which are binding on
its individual members. The current Rules for the Attorneys’ Profession came into operation on
1 March 2016. Part V of the rules contains the accounting rules, namely rules 35.1 to 38.4.
These rules are discussed in the individual learning units to which they relate.

Rule 35.5 requires that a law practitioner keep in an official language of the Republic, proper
accounting records that relate to:
• His/her practice (business),
• money invested in a trust savings or other interest-bearing account on behalf of its clients,
• interest on the money so invested, and
• any deceased or insolvent estate or any estate placed under curatorship of which the
practitioner is the executor, trustee or curator or which he administers on behalf of the
executor, trustee or curator.

The practitioner must also prepare financial statements of the firm and be able to explain the
transactions and financial position of the firm.

QUICK Knowledge of accounting is necessary for law practitioners to understand the

NOTE
businesses and transactions encountered in litigation but it will not form part
of this module

Refer to the following websites if you wish to read further on the Acts mentioned above and the
Rules of the South African Legal Practice Council.

1) Legal Practice Act, 28 of 2014:

https://www.gov.za/documents/legal-practice-act

2) The Rules of the South African Legal Practice Council:

https://www.gov.za/documents/legal-practice-act-rules-20-jul-2018-0000

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 Module overview 2023

4. What to study for legal accounting

• Understand the aim, nature and usefulness of accounting.

• Understand the accounting equation:
A = OE + L
• Know how to categorise your accounts; that is, know your Asset, Liability, Income, Capital
and Expense accounts (Use the Acronym ALICE)
• Understand the double-entry principle.
• Know what a source document is and how to prepare the books of first entry.
• What is a T-account -
An account in the general ledger (either debit or credit) is a record of each
financial transaction that takes place during the lifetime of a business. A T-account is a
visual representation of an account and it is called a t-account because it looks like a T.

Dr ACCOUNT NAME (T-account for GENERAL LEDGER accounts) Cr

• Be able to post from the books of first entry to the ledgers.

• Know the difference between business and trust accounts and be able to process
transfers.
• Be able to discuss the relevant sections of the Legal Practice Act, 28 of 2014 and section
54 (Accounting Rules) of the Rules made under the authority of section 95(1) of the Legal
Practice Act, 28 of 2014.
• Understand the accounting of correspondent transactions.
• Be able to prepare a trial balance as well as a basic statement of financial position and a
basic statement of profit or loss and other comprehensive income.

5. How to study

You are advised to make use of a workbook designated for use with this module only, in which
you take down notes and enter responses to learning activities. If you heed this advice, the
workbook will prove to be a valuable resource when you prepare for the examinations.

This study guide contains a variety of learning activities.

• You should first study the theory and then work through the examples.
• Make sure that you understand the feedback before you attempt to do the comprehensive
learning activities on your own, without referring to the study material.
• You should then mark your answer against the answer provided in the study guide.
• Where your answer differs from that given in the study guide, ask yourself exactly where
you went wrong.
• If more than 10% of your answers are incorrect, study the section again and attempt the
learning activity/ties again, without referring to the study guide or your previous attempt.
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 Module overview 2023

• Accounting is a practical subject; the more you practise, the better you will become.
• This will enable you to absorb the knowledge content of the topic, to practise your
understanding and to direct your thoughts.
• This is essential because as you encounter these learning activities and actually perform
them, you will become directly involved in controlling the extent and the quality of your
learning experience.
• How much and how well you learn, will depend on the extent of your progress through the
study activities, and the quality of your effort.

6. Learning outcomes and self-assessment

Learning outcomes are presented at the start of each learning unit in the study guide. At the
end of each learning unit you must evaluate your knowledge of the learning content of each
learning unit and monitor your progress.

The learning outcomes are presented in the form of questions to which you must answer either
“yes” or “no”. If you have answered “yes” to all the questions you may proceed to the next
learning unit. If you have any “no” answers, you must study that particular section of the work
again.

Since a clear understanding of certain aspects in a learning unit may be essential for your further
understanding of the module, you are advised not to move on to the next learning unit until you
have resolved all your problems in the preceding one.

7. Interpretation of terminology

Outcomes are communicated and assessment criteria phrased in terms of what you should be
able to do. This involves the use of action words, describing what you must do in the learning
activity.

A clear understanding of the meaning of certain words is required and for the purpose of this
module the following interpretations are given:

WORD INTERPRETATION
Adjust To adapt to new conditions/environment; to put in order; add, change
Apply Use in a practical manner; use as relevant or suitable
Balance A balance is a total at any point in time. Calculate the total at a certain
time.
Calculate Ascertain by mathematical procedure/exact reckoning
Clarify Make clear the meaning of; explain the intention of; show by
reasoning/evidence
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 Module overview 2023

Compare Examine in order to observe resemblances, relationships and

differences …..
Complete Finish/add what is required; show the necessary detail
Define State precisely the meaning/scope/total character of; make clear
(especially the outline of); give a concise description of the
distinguishing features of ……
Describe Give clearly the distinguishing details or essential characteristics of…..
Discuss Examine by argument, debate, hold conversation about
Explain Set out in detail (interpret); the meaning of something; make
something understandable
List Record/itemise names or things belonging to a class
Mention/name/state Specify by name; cite names, characteristics, items, elements of facts
Prepare Make ready/complete for a particular purpose; to put together using
parts; compose, construct. Also meaning to compile or complete what
is required on the basis of prior knowledge
Reconcile To compare and adjust; to identify differences and adjust
Record Put in writing; set down for reference or retention
Show To make compatible or consistent with each other

8. Icons and the learning material

The following are examples of icons used in the learning units:

1. This icon indicates that there is a “Learn by Listening” (LBL) insert together with an
important statement to be remembered and understood by the student. The insert could
also be a LBLL insert, which is “Learn by looking and listening”. In this case the insert is a
video.

LBL
For every debit there must be a corresponding credit

2. This icon indicates that there is a “TIP”. TIPs are short important statements to assist
students.

TIP
Memorising the simple accounting equation will help you learn the debit and
credit rules for entering amounts into the accounting records.

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 Module overview 2023

3. This icon indicates that there is a “Quick Note”, including an important snippet of
information that has been highlighted in order for a student to take note of and remember.

QUICK
Knowledge of accounting is necessary for law practitioners to understand
NOTE
the businesses and transactions encountered in litigation but it will not
form part of this module

4. This icon indicates that there is a concept card available for the items listed. Concept cards
are summarises the

CONCEPT o Perpetual inventory method

CARDS
o Depreciation
o Straight-line depreciation method
o Reducing balance depreciation method
o VAT

5. Taking notes

Notes
The learning process brings together what is known and what is being learned. Learners learn
better when relevant information is placed close together in space and time. As part of this
learning process, it is suggested that students make notes for themselves.

The material provided for FAC1503 will have spaces left for note taking.

In addition, make use of coloured pens/pencils to highlight points as well as using different
forms of note taking.

Note taking can provide a high-level overview of what you need to learn whereas the learning
material provides an in-depth detail of the material included in the curriculum.

TIP If you are taking notes please apply the following steps to maximise your
benefit from your note taking:
1. Review and review – You should review your notes within 24 hours of
making them. This should fix what you learnt in your brain.
2. Try and review a portion of your notes every day. It is never a good idea
to cram your material before an assessment. Reviewing your material
(notes) over the period of the semester will facilitate your memory recall.

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 Module overview 2023

See below for some different formats of note taking and choose one that appeals to your
learning method.

(a) Sketch-noting

As a student, another form of note-taking which may assist students who prefer to learn visually
is sketch-noting. Sketch-noting is a visual style of capturing and documenting ideas and the
brain retains information better if it is taken in both visually and verbally. An example of sketch-
noting is as follows:
.

(b) Mind maps

Mind maps can be more effective than other note-taking methods for a number of reasons:

 A mind map is a visual representation of your ideas.

 Mind maps link and group concepts together through natural associations.
 This helps generate more ideas, find deeper meaning in your subject, and
 Prompt you to fill in more or see what you are missing.

Refer to the following page for an example of a mind map.

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 Module overview 2023

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 FAC1503/102

(c) Schematic overview

 The following schematic overview of legal accounting is another version of a how a student
can summarise notes:

Financial accounting for Law Practitioners

Business Bank Account Trust Bank Account

Income and expenses to run the Transactions with clients

practice

Practice income: Trust investments:

Fee income
Interest received • LPA – Section 86(2)
Practice expenses: • LPA – Section 86(3)
Advertising • LPA – Section 86(4)
Audit fees
Credit losses Client accounts
Depreciation
Finance costs – Interest paid Trust creditors
Insurance
Office rent paid Transfer procedures
Prepaid expenses
Repairs and Maintenance Correspondents
Salaries and wages
Telephone expenses
Water and electricity

Accounted for in terms of the Accounting Cycle (see below)

Prepare the trial Adjusting journal entries At the end of the financial
balance may be needed at the end year financial statements are
of the financial year prepared

– Accrued expenses
– Prepaid expenses
– Income received in advance
– Accrued income
– Adjustment for inventory if using the periodic inventory system

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 FAC1503/102

 The following schematic overview of the accounting cycle is another version of a how a
student can summarise notes:
The accounting cycle is summarised as follows:

Source documents
Source documents
Transactions take place are recorded in
are completed
books of first entry

Analysis and Accounting General ledger (T-

interpretation of financial
Cycle accounts) is updated
statements take place

Financial statements are Prepare adjusting

Trial balance is
compiled at the end of journal entries at the
compiled
the financial period end of the period

 The following schematic overview of financial accounting is another version of a how a

student can summarise notes:

Debit Financial Credit

(Left) Accounting (Right)

Assets Equity Liabilities

Non-current assets Non-current liabilities

Land and buildings Long-term loans
Equipment
Furniture and fittings
Current liabilities
Investments
Bank overdraft
Current assets Trade creditors
Inventory Trust creditors
Trade debtors Clients control
Clients control Trust creditors
A Acer A Ant
Trust bank account B Bolt
Business bank account B Ball
C Camm……. C Camm…….

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