Accounting for Attorneys

COALA1-B44

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Higher Education Act, 101, of 1997. Registration Certificate number: 2001/HE07/008
Week 5: Lesson 1
Introduction: Transfer procedures

Discuss the transfer procedures in the attorney’s practice.

Understand the purpose of transfer procedures.
Know the transfer requirements.
Be able to apply transfer procedures.
 What will be covered
in today’s lesson?
The transfer procedures in attorney’s
practice will be discussed and how to
account for this in the business and trust
records.

Week 5 Discuss transfer

Lesson 1 requirements

Discuss and apply transfer

procedures

Recording of transfers
Transfer requirements
Before a transfer is made from trust to business account, should
meet the following requirements:
• Client should owe an amount to practice on business account and
funds should be simultaneously available on trust account.
• Amount owing in business account > Amount available in trust
account – limited amount to available in trust creditors account.
• Amounting owing in business account < Amount available in
trust account – limited to amount owing in business account.
• Client should give necessary consent that funds be transferred
from their trust creditor’s account.
• Trust funds may not be transferred if funds were earmarked for
another specific purpose.
Transfer procedures
• Clients’ business and trust creditor ledger accounts should be
compared on regular basis, to determine amounts to transfer from
trust creditors account to the business account.
• According to Legal Practice Council Rules, the transfers should
be done at least once a month.
• Transfer is recorded in transfer journal as book of prime entry.
• Transfer is recorded in respective cash books.
• If clients account still reflect debit balance after transfer, client
should settle account as a business debtor.
Recording of Transfers
Recording of Transfers
Recording of Transfers
• Example 1 comments:
• On day of transfer, 10 March 20.2, Govender Attorneys is entitled
to levy fees.
• The exact amount owing on the business account of the client
should be transferred. The practice of transferring rounded
amounts is not recommended.
• When transfers are made for more than one client on a specific
day, only one trust cheque or EFT, representing the aggregate of
individual transfers for the day, is recorded in the trust cash book
and deposited in the business bank account.
• “(T)” - Trust creditors
• “(B)” – Business client/debtor
Recording of Transfers
Recording of Transfers
Recording of Transfers
 Class Question
The following information is obtained from the records of Simelane Attorneys as at 30 November
20.3:

Business cash book (dr) R20 000

Trust cash book (dr) R38 000
Client's control R36 000
Trust creditors control R38 000
Balance of clients:
J Jordan (B) R10 000 (cost incurred)
T Twala (B) R12 000 (fees charged)
J Jacobs (B) R14 000 (fees and costs)
Prepare the following: Balance of trust creditors:
1. Books of prime entry: J Jordan (T) R10 000 (collection matter)
T Twala (T) R20 000 (conveyance of property)
Business cash book
J Jacobs (T) R8 000 (contracts drafted)
Trust cash book
Transfer journal All trust funds are deposited for the purpose of future fees and costs with regard to the respective
client’s matters.
2. Ledgers: All the appropriate transfers are made on 30/11/20.3 and one cheque is drawn on the trust bank for the
General ledger total of the transfers.
Outstanding balances on the business accounts are paid by the clients on the same day. Balance due to
Clients' ledger trust creditors are paid on 30/11/20.3.
Trust creditors ledger
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• Class solution comments:
• First step is to evaluate each client’s position and to determine the
amounts to be transferred from the trust accounts to the business
accounts of the various clients.
• Only one trust cheque is drawn on the trust bank account for the
total transfer (R10 000 + R12 000 + R8 000 = R30 000). This
amount is recorded in the trust cash book as a payment and the
business cash book as a receipt.
• After the transfer in respect of T Twala there is still R8 000 in
trust. This amount is paid to him per trust cheque and recorded in
the trust cash book.
• After the transfer in respect of J Jacobs she still owes R6 000 to
the practice. The receipt is recorded in the business cash book.
What Happens Next?
•In The next lesion we will discuss correspondent accounts.
Week 5: Lesson 2
Correspondent Accounts

Explain the difference between instructing and instructed attorney.

Explain the importance of a correspondent.
Draft the account statement
Interpret the account statement received from the instructed attorney.
Show an understanding of the correspondent allowances.
Record the transactions in the books of the instructed attorney.
Explain how jurisdiction correlates to the principle of appointing a correspondent.
 What will be covered
in today’s lesson?
Define a correspondent and differentiate
between instructing and instructed attorney.

Week 5 Jurisdiction relating to the principle

of appointing a correspondent.

Lesson 2 Correspondent allowance and

collection commission.

Drafting of the correspondent

account statement.

Books of the instructed attorney

Introduction
• Attorney’s practice issuing instructions – instructing attorney
• Attorney’s practice carrying out the instructions – instructed
attorney.
• The instructing attorneys are treated as clients in the books of the
instructed attorneys.
• Amounts received on behalf of a correspondent – treated as trust
receipts, while a fee charged to a correspondent is dealt with as a
business transaction.
Correspondent
• A correspondent is another attorney’s firm that regularly renders
services for other attorneys in a jurisdiction, which they do not
have access to.
• The components of this definition are identified as:
• Rendering services
• To another
• In a jurisdiction
• The other does not have direct access to.
• Instructing attorney – practice issuing instructions
• Instructed attorney – practice receiving the instructions
Correspondent allowance
and collection commission
• The one-third (1/3) allowance:
• May be granted by the instructed attorney to the instructing
attorney.
• A maximum of 1/3 of fees (professional and collection) charged
may be granted.
• The allowance may only be granted between practitioners.

• Be able to calculate allowance with or without VAT. (see page

232)
Correspondent allowance
and collection commission
• Collection commission:
• Is available in cases where an instruction was given to collect
debt.
• Practitioner is entitled to collect 10% of the capital amount
(excluding VAT) for each payment.
• From time to time, limits can apply to collection commission, but
these limits can change and should be confirmed.

• Calculations to be done with or without VAT (see page 233).

Drafting of correspondent
account statement
• An account statement, drafted by the instructed attorney,
outlining the transactions executed by them, is sent to the
instructing attorney.
• The following items normally appear on the correspondent’s
statement of account:
• Collections received
• No collection received
• Fees charged
• Expenses incurred in executing an instruction
• One-third allowance (1/3)
Drafting of correspondent account statement
Drafting of correspondent account statement
 Books of the instructed attorney
Required for example 1:
The following in the books of
F Franc Attorneys for Apr20.8:
1. Books of prime entry (fees journal)
2. General ledger
3. Clients' ledger
4. The account statement
• NO COLLECTIONS:
• Often happens that an instructed attorney deals with a case for an instructing attorney,
where no trust monies are involved.
• The instructed attorney is responsible to the instructed attorney for the full amount of
the account
Example 1:
The following information was obtained from the books of F Franc Attorneys:
April 20.8
20 Receive an instruction from E Eiffel Attorneys to register a company for N Nice under
the name of Nice Ltd.
30 The company is registered.
F Franc Attorneys levy the following fees:
1. R1660 for services rendered
2. A correspondence fee of R50 and
3. For registering the company, R90.
Books of the instructed
attorney
Example 1 Solution:
Books of the instructed attorney
Example 1 Solution:
 Books of the instructed attorney
Example 1 Solution:
 Books of the instructed attorney
Required for example 2:
The following in the books of
R Rupee for Mar20.5:
1. Books of prime entry
2. General ledger
3. Clients' ledger
4. Trust creditors ledger
5. The account statement
• TRUST MONIES RECEIVED:
• Instructing attorney acts on behalf of a client and collections made by instructed attorney are
eventually paid over to the client of the instructing attorney.
• Collections are made on behalf of a third party; trust funds are involved and imply that trust
creditors accounts should be opened in the books of the instructed attorney.
Example 2:
The following information was obtained from the books of R Rupee Attorneys:
March 20.5
5 R Rupee Attorneys receive an instruction from their correspondent D Delhi Attorneys to collect
R3 300 from C Calcutta. C Calcutta owes this amount to M Madras, a client of D Delhi Attorneys.
15 The following fees are levied:
1. Receiving of instruction, R80
2. Collection of commission of 10%
R Rupee Attorneys collects the amount of R3 300 and deposits the amount in the trust bank.
They prepare an account statement and remit a trust cheque of R3 027 attached to the statement to
D Delhi Attorneys.
 Books of the instructed attorney
Example 2 Solution:
 Books of the instructed attorney
Example 2 Solution:
 Books of the instructed attorney
Example 2 Solution:
 Books of the instructed attorney
Example 2 Solution:
 Books of the instructed attorney
Example 2 Solution:

Required:
The following in the books of
D Mark Attorneys for May
20.5:
1. Books of prime entry
2. General ledger
3. Clients' ledger
4. Trust creditors ledger
5. The account statement
Class Question
D Mark Attorneys receives an instruction from Duitsche Attorneys to
collect R9 000 from M Munster on behalf of K Kriel on 14 May 20.5
May 20.5
16 The following expenses are incurred by D Mark Attorneys:
1. Sheriff costs, R200 on credit
17 R8 500 is collected from M Munster
18 The following fees are levied for:
1. Receiving of instruction, R500
2. Preparing of summons, R120
3. Correspondence, R25
4. Preparing of admission of guilt, R50
5. Collection commission of 10%
On 19 May an account statement is sent to Duitsche Attorneys.
Class Question Solution
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What Happens Next?
•Next week we will conclude this subject with the topics of Conveyancing and Partnerships.