Mixed Money ,dishonoured cheques,

abatement, bad debt

1
 Mixed client/business money

• See SRA rules 4.1- 4.3 how to deal with

– Either:

• Pay all into client account and transfer business money out
promptly ( likely to be 14 days)
• Pay all into business account and transfer client money out
promptly(likely to be within 14 days)
• Ask bank to split cheque: business money to business
account and client money to client account
2
 Dishonoured Cheques

• Treat dishonoured cheque as opposite of paying

cheque in, i.e. make entries to cancel receipt
• Client ledger: Debit client account
• Cash ledger: Credit client account

3
 Dishonoured Cheques

• There is nothing in the rules to prevent a solicitor

drawing against a cheque which has been paid
into the client bank account but which has not yet
cleared.
• BEWARE: If that cheque is then dishonoured,
there will be a breach of rule 5.3 as more money
has been taken from client account than is held
4 for that particular client.SRA 6.1 any breaches
of the rules must be corrected promptly upon
 Abatement

• Decide to reduce bill so:

– Profit costs
• Credit client ledger business account
– details: “Profit costs: abatement”
• Debit profit costs ledger business account

– VAT
• Credit client ledger business account
– Details: “VAT: abatement”
• Debit VAT ledger business account
5
 Bad Debts

• Bad debts are expense of business

• First see if debt is more than 6 months old:

– If less than 6 months old must write off VAT inclusive
amount as expense
– If older than 6 months can receive relief against
original VAT charged
6
 Bad Debts

• If less than 6 months old

• Client ledger: credit VAT inclusive amount business account
• Bad debts ledger: debit VAT inclusive amount business
account

7
 Bad Debts

• If more than 6 months old:

• Client ledger: credit VAT exclusive amount
• Bad debts ledger: debit VAT exclusive amount

• Client ledger: credit VAT amount

• VAT ledger: debit VAT amount