Accounting Entries, Mixed Receipts and Bills

Introduction

This chapter is the **practical heart** of Solicitors Accounts. Having learned in earlier chapters *what* client money is and *which* SRA Accounts Rules govern it, you now learn how to **record transactions** using **double-entry bookkeeping** and how to make the correct ledger entries for the situations the SQE loves to test: **mixed receipts**, **dishonoured cheques**, **abatements**, **bad debts**, **petty cash**, **cash and inter-client transfers**, **deposits held as stakeholder or agent**, and the conveyancing complexities of **mortgage advances, mortgage redemptions and bridging finance**. The golden thread is simple: **every debit has an equal and opposite credit**, and **client money must never be used as another person's money**.

Assessment focus

For SQE1 FLK2 (Solicitors Accounts), this is the most **calculation- and entry-heavy** topic. Questions are single best answer (SBAQs): you will be given a short scenario and asked which **ONE** set of ledger entries (DR / CR, business or client column, which ledger) is correct, or which payment must be recorded on the client columns. You must be fluent in the **DR = money out / CR = money in** convention as applied to the **dual cash and client ledgers**. High-yield areas are **mixed receipts and prompt allocation (Rule 4.2)**, **rectifying a breach caused by a dishonoured cheque (Rules 5.3 and 6.1)**, **VAT on abatements and bad debts**, **stakeholder v agent deposits**, and **mortgage advance / redemption transfers**. This is a closed-book assessment — you must be able to construct the entries from memory.

Study tips

1) Burn in the convention: **DR = money out (or a debt owed to the firm); CR = money in**; for **every CR on the client ledger there is a DR on the cash ledger and vice versa**. 2) For a **mixed receipt**, the firm must allocate **promptly** to the correct account (**Rule 4.2**); 'promptly' is undefined but the old 14-day benchmark is a useful guide. 3) A **dishonoured cheque** that has been drawn against breaches **Rule 5.3** (using one client's money for another); correct it **promptly** by a business-to-client transfer (**Rule 6.1**). 4) On an **abatement**, reverse the profit-costs and VAT (HMRC) entries to the extent of the reduction **and issue a VAT credit note**. 5) **Bad debt VAT relief** is now available once the debt is **at least six months overdue** (from the later of the date payment was due and the date of supply). 6) **Inter-client transfers** touch **no cash ledger** — money never leaves the firm. 7) **Stakeholder = held jointly (buyer + seller); agent = held for the seller alone** — only the stakeholder deposit needs special labelling or a separate ledger.