Accounting Exam Notes

Rules about the CR and DR in a ledger

When the receipt of money is recorded in a client’s ledger account, the client owns (is owed) the money so the client is shown to be in credit in relation to your law firm. In the ledger, receipts are shown in the right-hand or credit column of the ledger account for that matter (whereas in cash books receipts are recorded on the left).

When you make a payment from money in the law firm’s general trust account to a third party, for example, the Office of State Revenue, your law firm’s liability to repay money to the client is reduced by the amount or debited to the client’s ledger account. In the ledger, payments are shown in the left-hand or debit column of the ledger account for that matter (whereas in cash books payments are recorded on the right).

Under s255 running totals must be credit or nil and NEVER debit. The client cannot owe money as this would breach 255.

Trust Account Hierarchy Receipts (cl

61) Deposit Records(cl 62)

Cheques (cl 65)EFT Payment (cl 66) Authorities

Authorities

Cash Receipts Book Cash Payments BookTrust Transfer

Journal

Ledger – individual client records; each client/each matter has own ledger

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Steps for certain Transactions

Table of Contents

Steps for certain Transactions.................................................................................2Contribution of Capital to firm.........................................................................................................................2First Petty Cash Float - Drawing a cheque for your (made payable to cash)....................................3Rent, Secretarial, Reception and Clerical......................................................................................................3Purchases of office sundries with Petty Cash [NOTE will also use petty cash for TRUST matters].................................................................................................................................................................... 3Receive cheque on A/C of C/D for MATTER.................................................................................................4Receive cheque on A/C of C/D for MULTI MATTERS................................................................................4Paying for matters immediately using office funds (NOT Petty Cash)................................................5Payment for matters immediately using OFFICE FUNDS + MULTI MATTERS...................................5Payment for matters immediately using Petty Cash.................................................................................5Paying for counsel (or anything else agreed to or directed to) from Trust Account.....................6Preparing a memo of costs (for a/c and d/c say for an urgent matter).............................................6Being Paid for the above out of cash.............................................................................................................6Being paid out of Trust money (for services you’ve rendered)............................................................7Transfer of Moneys from Trust to Trust........................................................................................................7Controlled Money (Money in another account)........................................................................................8Power Account.......................................................................................................................................................8Dishonoured Cheque...........................................................................................................................................8Daily Banking (Remember to do every time date changes in qst).......................................................8Monthly Banking...................................................................................................................................................8

Bank Reconciliation Statement.............................................................................10

Contribution of Capital to firm1. Go to Office Account Receipts fill out for each person who contributes

money.a. Remember to note the Office Account Private Ledger number – DO

NOT USE PL1 because this is the Control Ledger for the Monthly Accounting.

b. Take note of receipt number. 2. Go to Office Account Receipts Cash Book and fill out, noting down the cheque

number and the ledger number (DO NOT USE PL1)a. In description note that it is a capital contributionb. If there are 2 or more receipts it is 2 separate entries (rows)

3. Go to Office Account Private Ledger DO NOT USE PL1 (let’s say PL2)a. Note the capital contribution as a credit CRb. Remember if there are multiple contributions then it will be multiple

ledger entries (say PL2 and PL3)

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First Petty Cash Float - Drawing a cheque for your (made payable to cash)1. Go to Office Account Cheques (At page 26 of test-book)

a. Fill out the cheque remembering to pay to Cashb. On the cheque stub fill out the Office Account Private Ledger Number

(it may already have been assigned by the lecturer) and note “Petty Cash Float”

c. Take note of cheque number2. Go to the Office Account Payments Cash Book and fill out

a. Note the cheque number (first 6 digits) and ledger number3. Go to the Petty Cash Book and fill out noting ledger number

a. In payments column leave blank4. Go to relevant Office Account Private Ledger (Say PL4)

a. Fill in cheque numberb. Purpose is ‘PC Float’c. This is a DR

Rent, Secretarial, Reception and Clerical1. Go to Office Account Cheques or just Cheques (At page 26)

a. Fill out the cheque to Pay ‘Law Office P/L’b. Note here that even if there are multiple payments list the total in

one the chequec. On the cheque stub write:

i. ‘PLX Law Office Rent - Rent to (date) (and dollar amount)’ and;ii. ‘PLX+1 Law Office Clerical Services (etc) - to (date) (and dollar

amount)’d. Take note of cheque number/s (first 6 digits)

2. Go to the Office Account Payments Cash Book and fill out a. Note the cheque number (first 6 digits) and ledger number/sb. In this case it will VERY likely be a MULTI AMOUNTc. Fill out 2 rowsd. Paid to Reasons will be ‘Law Offices: 1) Rent, next row 2) Clerical etc’e. Remember you have 2 or more PL’s to fill outf. In multi amount column split the valuesg. In cheque amount total them with the total on the lower of the 2

rows3. Go to relevant Office Account Private Ledgers (Say PL6 and PL7)

a. Fill in cheque number for eachb. Received from… is ‘Law Offices’c. Purpose is as above e.g. ‘rent’d. These are DRs

Purchases of office sundries with Petty Cash [NOTE will also use petty cash for TRUST matters]

1. Go to Petty Cash Vouchera. Note that this will mean a NEW ledger entry called ‘Office

Refreshments’ or whateverb. Purpose is the things you buy with it

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2. Go to Petty Cash Booka. Note PC Numberb. Note Ledger Number

3. Go to Office Account Private Ledgera. Paid to whoeverb. List as a DR

Receive cheque on A/C of C/D for MATTER1. Go To Trust Account Receipts Cl61 – see notes pg7 for requirements

a. Remember if cheque is received by ANOTHER person (i.e. not the person you represent) the only difference is that in the Received from field you write the name of the person you received from.

b. In field For and on behalf of write the TL number (NOT TL1)c. Next to the TL number write the full name of the matter i.e. ‘Party 1v

Party 2 and the court on A/C C/D’d. Received from ‘TLX Party 1 Nature of Matter, on A/C D/C’e. Take note of receipt number

2. Go to Trust Accounts Receipt Cash Book Cl67 – see notes pg8a. Must be completed within 5 daysb. In column 3: Remember to write Receipt number + that it was

received as cheque or cash or whateverc. Write in Received from… column the ACTUAL person you received

fromd. Ledger no…Matter description will say who the client is.

3. Go to Trust Account Ledger TLXa. A new ledger per matter (retainer) cl70b. Fill in all fieldsc. It doesn’t matter who the cheque was from the Name/Address should

be of the clientd. The Rec’d from… field is populated by the person who gave you the

money and the paid to reason e. Because it’s a receipt it is a CR

Receive cheque on A/C of C/D for MULTI MATTERS1. Go to Trust Account Receipts Cl61 – see notes pg7 for requirements

a. Fill out only 1 receiptb. List the total as normal (number & written)c. In the field For and on behalf of

i. Separate the TLs from each other per matter e.g.1. TLX Party 1 Purpose (e.g. Incorporation of Company) on

a/c d/c $30002. TLX + 1 Party 1 Purchase of home from Party 2 a/c c/d,

stamp duty, deposit $100,500d. Take note of receipt number

4. Go to Trust Account Receipts Cash Book Cl67 – see notes pg8a. Must be completed within 5 daysb. Fill in as multi amount c. Remember to take a row per matter and to list multiple TLs

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2. Go to Trust Account Ledgers a. A new ledger per matter (retainer) cl70b. There will be X number of ledgers to fill out depending on mattersc. This will be a CR

Paying for matters immediately using office funds (NOT Petty Cash or TRUST MONEY)

1. Go to Office Cheques and fill out (As above Rent, Secretarial, Reception and Clerical)

a. Note - as above - for drawing a cheque you need to fill out the stub with the Office Account Client Ledger number, and split multiple matters, noting the TLX/s.

b. Note Cheque number2. Go to Office Account Payments Cash Book

a. Note the code for the Client ledger number is CL (You can use CL1)3. Go to Office Account Client Ledger

a. List as a DR

Payment for matters immediately using OFFICE FUNDS + MULTI MATTERS1. Draw Cheques and fill out (As above Rent, Secretarial, Reception and Clerical) 2. Go to Office Account Payments Cash Book

a. Fill out each matter separately noting paid reason (say obtaining ‘s149 cert’ and ‘Land & Prop. Office info’)

b. In Ledger No… column separate by matter and note CL numbers (say for 2 properties for the same person)

c. Fill in multi-amounts (see page 31 in filled out book)d. Remember to fill in total column

3. Go to Office Account Client Ledgera. Remember e.g. the purchase of 2 homes are 2 matters, so require 2

ledgers.b. So the name of the person might be the same in each ledger, but the

address would be differentc. Anything that happens with respect to the one home should go in the

same CLd. Fill out completely noting the Cheque numberse. List as DR

Payment for matters immediately using Petty Cash 1. Go to Petty Cash Voucher

a. Note down the CL number2. Go to Petty Cash Book

a. If a multi matter Make sure to separate each in the purpose column based on the CL it will go into

b. Note the CL numbers that they relate to3. Go to the Office Account Client Ledger

a. If multi matter remember to fill out both CLsb. This will be listed as a DR

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Paying for counsel (or anything else agreed to or directed to) from Trust Account

1. Go to Trust Account Chequesa. DO YOU have instructions? Is it in the cost agreement?b. Note cl 65/66 and page 7/8 of notes – fill out stub, must be by

cheque or EFT only/ signed by principal etc. c. Note Cheque number

2. Go to Trust Account Payments Cash Book (required by cl69)a. It will relate to a matter, and hence a TL, so get the number and note

it downb. Paid to reason field is name of payee and reasonc. Ledger No… is TL and Matter

3. Go Trust Account Ledgera. Go to TL for the matterb. This will be a DR c. Fill out the Balance

Being paid/billing1. Paying yourself is subject to s261(1)(b) of LPA and Part 8 of LPR particularly

cl882. Pages 5/6 of the notes

Preparing a memo of costs (for a/c and d/c say for an urgent matter)Relates to matters not covered by Trust money and for matters where you have given advice and will receive payment later.

3. Go to Costs Journala. This is a book of first entry of costs and bills for professional fees only

– not disbursementb. Note client ledger number (you may have to start a new one)

4. Go to the relevant Office Accounts Client Ledgera. Note in column 2 (Chq/Rec/Fol) that it is from CJ1 (Cost Journal)b. Received from…: “To costs rendered”c. Purpose: “Costs” d. This is a DR

5. NB: you can be paid out of trust moneys later or out of cash…you would record that as another transaction as per above.

Being Paid for the above out of cash1. Go to Office Account Receipts

a. Note the Client Ledger Number2. Go to the Office Account Receipts Cash Book

a. Remember it is Cash in this case so note as much b. Remember to note the CL numbers

3. Go to Office Account Client Ledgera. This is a CRb. If the amount covers total costs just draw a line in Balance

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Being paid out of Trust money (for services you’ve rendered) This applies to things you’ve paid for out of your own pocket (see CL1 for

example – incurred 1750 + 20 so can charge both with permission) Note s261(1)(b) LPA and cl88 LPR (page 5/6 of notes) DO YOU have instructions? Is it in the cost agreement?

1. Go to Trust Cheques cl65 (or if by electronic funds don’t do this step cl66)a. Draw on Trust Account at UTS Bank, Haymarket Branch

2. Go to Trust Account Payments Booka. In Paid to Reason: ‘YLF (Your Law Firm) Office Account for A/C C/D’b. Remember there may be more than one payment - check appropriate

client ledger (where out-goings from the Office Account are recorded)c. Remember in Dawn Fraser example incurred expenses for 2 reasons

($1750 and $20 payments see CL1)d. Note the Cheque number and put CP (for cash payment book)

3. Go to Trust Ledger Accounta. In reason put YLF Office a/c c/db. This is a DRc. Update balance

4. Go to Office Account Receiptsa. Remember to Note the CL numberb. Write CLX and Reason

5. Go to Office Account Receipt Cash Booka. Note down payment method and receipt number

6. Go to Office Account Client Ledgera. In column 3: YLF Trust A/C b. Purpose on c/dc. This is a CR

Transfer of Moneys from Trust to Trust1. Ensure you have written authority/instruction (cl70) and authorisation from a

partner or two associates (cl71)2. Go to Trust Account Transfer Journal

a. Journal Reference is TATJ (Number)b. In column 4 have to write the following (in separate rows)

i. TLX (origin of money) Party1 v Party 2 (THIS IS A DEBIT)ii. TLX (destination of money) Party (say for purchase of home)

(THIS IS A CREDIT)iii. Transfer on Instruction (cl 71 of LPR)

3. Go to Trust Account Ledgera. Each of the above ledgers (origin and destination) must be updatedb. For origin ledger

i. Note in column 3 TATJ(X)ii. In purpose TLX (origin) description

iii. This is a DEBITc. For destination ledger

i. As above however it is a CREDIT

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Controlled Money (Money in another account)1. Go to Controlled Money Account Receipts

o Note here that the ledger number is RCMXXX2. Go to Register of Controlled Money

o In Account name write: YLF in trust for Party and Partyo The bottom party under security held is about the bank

Power Account1. Go to Register of Money the Subject of a Power

a. Remember in Matter: Power to operate personal bank A/C Elise

Dishonoured Cheque1. Go to Trust account receipts book

a. Under dishonoured cheque no. put the same number but in bracketsb. Same reason followed by “dishonoured cheque”c. Same ledger no.d. Same amount on receipt except in brackets

Daily Banking (Remember to do every time date changes in qst)Remember that in the bank statement each deposit will show up per date

1. Go to Trust Bank Deposit Slipa. Fill out each of the cheques and total

2. Go to Trust Accounts Receipt Cashbooka. In Column ‘Banking total on deposit slip’ write in the total from the

Bank Deposit slip. b. Highlight so it sticks out

3. Go to Office Bank Deposit Booka. Write out totals (In our case it will probably just be the Capital

contribution)b. Under particulars of cheque write each cheque received.

4. Go to Office Account Receipts Cash Booka. In Banking Total on Deposit Slip Column write total and date next to itb. Highlight this section so it sticks out

Monthly Banking1. Complete entries arising from Office Account Bank Statement

a. Important to note that fees are a charge we have to payb. Note the DR column is Cash Paymentsc. Note that CR column is Cash Receiptsd. If there is anything missing it will probably be CHEQUES

2. Fees and Charges are all put into the Cash Payments booka. Go to Office Account Cash Payments

i. Column 2 “Bank Statements”ii. Column 3 “UTS Bank Fees + Charges”

iii. Column 4 “PL (Private Ledger) X – Bank Statements)b. Go to Office Account Private Ledger

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i. This is a DR3. Total the TRUST Cash Receipts Book

a. In column 4: Total Receipts (Month)b. In Column 5: “TL1 UTS Cash Book Control Account”c. In Column 7 (or column with Banking Total on Deposit Slip) sum total

4. Total the TRUST Cash Payments Booka. Go to trust account payments cashbookb. Column 3: write “Total Payments June”c. Column 4: write “TL1 UTS Cash Control Account”d. Total the Cheque amount columne. SUMMARY: Skip one row

i. Column 3: “Cash Book Summary (Month)”ii. “Opening Balance” 0.00

iii. “Add receipts June” $Total from end of step 3 above (i.e Total Receipts from the Trust Accounts receipts Cash Book)

iv. Subtotal as above at (iii)v. Less payments Total at 4c (i.e the payment total from the

Trust Account Payments Cashbook)vi. Closing Cash Book Balance (iv – v)

5. Repeat steps 3 and 4 for OFFICE ACCOUNTa. In the Accounts receipt book

i. Column 4 “Total Receipts”ii. Column 5 “PL1 UTS Cash Book Control Acct”

iii. Total under the Banking Total Columnb. In the Accounts Payment Cash book

i. Column 3 “Total Payments”ii. Column 4 “PL1 UTS Control”

iii. Total under the cheque amountc. SUMMARY Now under the Accounts payment Cash book copy from

4d above6. Close off and where necessary balance the Petty Cash Book

a. Start new row under Ledger name… “Total Payments” add payments together (say 69)

b. “Balance carried down” Subtract payments from total (say 250) to give 181

c. Under receipts column: Total of petty cash (say 250) and under that total brought down (say 181)

d. Next to the total brought down (say 181) write “Balance brought down”

e. Go to PLX i. Column 2: PC1

ii. Colum 3: Total Paymentsiii. In CR column any money we’ve spent (say 69)iv. MARK AS DR

7. Close off and where necessary balance the Cost Journala. Under client column = total costsb. Ledger PL(whatever number)

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c. Add the totalsd. Go to a new Office Account Private Ledger

i. Ref = CJ1ii. Received from = Total Costs

iii. CR the amount at (a)iv. List as a CRv. Balance is (a)

8. Make end of month entries in the Trust Account ledgera. Should be Ledger 1b. UTS Bank is the namec. Column 4 Total Receipts Debit amount (as above)d. Column 4 Total Payments Credit amount (as above)

9. Make end of month entries in the Trust Account ledgera. In column 2: Total Receipts DR write total, then again with DRb. In column w: Total Payments CR write total, then again with DR

10. Preparing a bank reconciliation statement for the trust and office accountsa. Check all receipts and payments entered on cash booksb. Total month’s receipts and payments on cash bookc. Total Closing Cash Book Balance (shown on Payments Cash Book &

TL1)d. Check Cash Book Balance with bank statement

YOUR LAW FIRM TRUST ACCCOUNT

Bank Reconciliation StatementFOR MONTH ENDED 30 JUNE 20XX

Balance as per Bank Statement $127, 230.00

(NOTE this is higher than the summary BY 3800 – so look for a cheque you paid out)

Add outstanding deposits

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Nil $127,230.00

Less unpresented cheques

June 4, 2008 079001 $3,800.00 3,800.00

Balance as per Cash Book $ 123,430.00(THIS AMOUNT IS THE CASH

BOOK SUMMARY TOTAL)

YOUR LAW FIRM OFFICE ACCCOUNT

BANK RECONCILIATION STATEMENT

FOR MONTH ENDED 30 JUNE 20XX

Balance as per Bank Statement $120, 302.00

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(NOTE this is higher by 260 bucks, look for cheques in the Office account summary)

Add outstanding deposits

Nil 120,302.00

Less unpresented cheques

Jun 1 023003 $ 20.00

Jun 4 023004 $240.00 260.00

Balance as per Cash Book $120,042.00

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