Solicitor's client accounts outside double entry

Solicitor's client accounts outside double entry

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I'm setting up a solicitor on Xero. Can I confirm that I shouldn't include bank feeds for the client account as it's not part of the double entry?

I did the bookkeeping for a previous client but I seem to have just kept the client account on Excel and analysed it by client.

Luckily, the solicitor I am putting on Xero doesn't have a lot of transactions on the client bank account.

Replies (20)

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By Wanderer
26th Aug 2021 14:42

Well, virtually every part of accounting is based on the first principles of double entry.

Solicitor's client accounts are no different.

Probably best to set up a robust system for the client account from day 1. Particularly whilst the entries are so few.

Whether you could / should be doing this in XERO is questionable. Long time since I did (what was) SAR reports but when I did those that used software only used very bespoke solutions.

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Replying to Wanderer:
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By Paul Crowley
26th Aug 2021 17:26

Same here
The bespoke software warned against individual negative balances.
The very last sole trader I dealt with had a paper card handwritten system that really consumed time just to extract the balances.
All I have dealt with have been significant conveyancing so Software helped particularly with extractions of balances

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paddle steamer
By DJKL
26th Aug 2021 14:51

The client accounts and the client bank accounts will be critical to the solicitor meeting his/her law society obligations re ensuring the client creditor balances are covered by the client funds held, would bespoke software for the solicitor not be more appropriate?

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By Paul Crowley
26th Aug 2021 15:20

Just a quickie
The client account needs to be dealt with by a firm which is a registered auditor, which I think means Statutory Auditor

https://www.sra.org.uk/solicitors/standards-regulations/accounts-rules/

12.5

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Replying to Paul Crowley:
By petersaxton
26th Aug 2021 18:46

Paul Crowley wrote:

Just a quickie
The client account needs to be dealt with by a firm which is a registered auditor, which I think means Statutory Auditor

https://www.sra.org.uk/solicitors/standards-regulations/accounts-rules/

12.5


Not if the average balance is less than £10k. The solicitor is an employment lawyer so no audit report is needed because the average balance is less than £10k.
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Replying to petersaxton:
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By Paul Crowley
26th Aug 2021 21:40

Off hand I think I have dealt with probably no more than a dozen in my career
None would have been below £10,000 as a total of all client account balances held for the practice as an average.

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Replying to Paul Crowley:
By petersaxton
27th Aug 2021 07:53

Paul Crowley wrote:

Off hand I think I have dealt with probably no more than a dozen in my career
None would have been below £10,000 as a total of all client account balances held for the practice as an average.


I've only had two solicitor's since I set up my own practice. One was a commercial property lawyer and had many transactions which had millions flying around and this employment lawyer who now has less client bank account transactions.
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By CJaneH
26th Aug 2021 16:48

To Paul Crowley.
A Registered Auditor is required to do the Certificate for compliance with SRA rules, not to do the bookkeeping.

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Replying to CJaneH:
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By Paul Crowley
26th Aug 2021 17:17

I agree
But as it is called an accountants report, not audit report, people have taken these things on without realising.
The last solicitor I took on was on that exact basis. Prior new accountant was not an auditor.
That was over a decade ago.
I have given up auditing mainly because I arranged things so that clients that were previously audited no longer needed to be audited.
Getting rid of that status was at the time a lifting of the burden and reduction in costs and stress that could not possibly be matched by the end of CJRS

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By The Dullard
26th Aug 2021 20:50

General client account should be on the balance sheet with a corresponding indebtedness to clients shown. Designated client accounts don't go on the balance sheet, but you would probably still want to keep them within the double entry and have a control account for reconciliation purposes. I think the rules still require controls to be in place irrespective of the level of balance.

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Replying to The Dullard:
By petersaxton
26th Aug 2021 21:28

I'm going to have the client bank account as part of the double entry so I will get the bank feed. The other side of the entries will be posted to a client control account which is a mirror of the client bank account. The client bank account and client control account would not be included in any balance sheet I prepare. I'll analyse the client bank account by client using Excel.

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Replying to petersaxton:
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By johnhemming
27th Aug 2021 09:35

What you have to watch is overdrawing an individual client account and effectively lending the money from other clients to that client.

The specialist software generally acts to stop this from happening. That can, of course, be done in excel, but it is a regulatory requirement.

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Replying to johnhemming:
By petersaxton
27th Aug 2021 10:34

johnhemming wrote:

What you have to watch is overdrawing an individual client account and effectively lending the money from other clients to that client.

The specialist software generally acts to stop this from happening. That can, of course, be done in excel, but it is a regulatory requirement.


That's why I analyse the account by client.
Isn't that why the client account rules were introduced?
Good luck getting any small client using specialist software.
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Replying to The Dullard:
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By Bobbo
27th Aug 2021 12:01

The Dullard wrote:

General client account should be on the balance sheet with a corresponding indebtedness to clients shown.

Really, why?

Whilst not designated to a specific client, a general client account (I would hope) is still classified by the bank as a client account, and not an asset of the solicitor's business and as such has no place on the solicitor's balance sheet?

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By jon_griffey
27th Aug 2021 10:00

I have heard of solicitors using Xero for the office side and setting up Xero separately for the client side.

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By Calculatorboy
29th Aug 2021 14:57

It should be within double entry otherwise you are wrongly netting off and why someone set up 2 xero accounts is beyond me

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By Jaine
20th Jul 2022 17:44

Hi there, I am faced with the reverse of this issue. We pay money to our lawyers to settle legal bills on our behalf.

I have tried to do it by setting up a client account in the balance sheet to make the payments from when the proper VAT bills come in BUT the initial payment made to the lawyers is still showing.

I thought I could deal with it via a prepayment but it is linked to our lawyers who, often, end up settling bills from other lawyers. Any ideas on the best way to do it, please?

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Replying to Jaine:
Stepurhan
By stepurhan
21st Jul 2022 08:11

Why are your lawyers settling your bills at all?

My experience is that laywers paying bills then include them in their bills, usually as a disbursement. If that is not what is happening in your case, you need to be clearer why your lawyers are paying bills on your behalf.

You would also almost certainly be better creating your own question. Your question is not about client accounts at all, and is likely to be missed entirely.

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Replying to stepurhan:
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By Jaine
21st Jul 2022 08:38

Thanks for your reply. The rationale is not in question although you may be right in that I ought to post as a separate topic due to the query being more of an "accounting for" issue from the other side of a client account, ie that of the client rather than the lawyer.

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By Grayson Moore
21st Jul 2022 07:51

Peter,

Where solicitors are using Xero for the bookkeeping we tend to see them also utilising a separate package for the office and client matter side of affairs such as Leap or Actionstep which will link to Xero. This will make it much easier to ensure compliance with the accounts rules and I'd recommend this even if the level of client money transactions is low.

Where the client account is recognised within Xero to facilitate the practical day to day tracking of the transactions there should be a matching client funds nominal account and the accounts should always mirror one another. These then cancel one another out when you come to use the Xero data for the year end accounts preparation.

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