SQE1 Special Accounting Entries

Vocabulary and principles related to special accounting entries under the SRA Accounts Rules for SQE1 preparation, covering dishonoured cheques, abatements, bad debts, and petty cash.

Cheque made out to a third party

A cheque that cannot be paid into a firm's bank account because the firm is not the payee; it must be forwarded to the payee without delay and is not treated as client money.

Rule $8.1(a)$ of the SRA Accounts Rules

The requirement to record a transaction on the client ledger account and cash account when the firm receives client money.

Dishonoured cheque

A cheque paid into a client bank account that is rejected by the bank; if funds were drawn against it before clearing, it results in a breach of Rule $5.3$ because money belonging to other clients is effectively used.

Rule $5.3$ of the SRA Accounts Rules

A rule prohibiting a firm from taking more money from the client bank account than is held for that particular client.

Rule $6.1$ of the SRA Accounts Rules

The requirement that any breaches of the Rules must be corrected promptly upon discovery and any money improperly withdrawn from a client account must be immediately replaced.

Abatement

A reduction in the costs of a bill, often due to a client complaint, which requires a proportionate reduction in output tax and the issuance of a VAT credit note.

VAT credit note

A document a firm must send to a client when an abatement occurs to account for the reduction in VAT charged on a bill.

Bad debt

An amount owing for professional charges, VAT, or disbursements paid from the business bank account that a firm realizes will not be paid and must be written off.

VAT bad debt relief

A refund from HMRC for VAT on a bad debt, which becomes available once the debt has been outstanding for at least six months since the due date.

Petty cash

Business money kept on the premises to meet small cash payments; any payment made for a client from this fund is treated as a payment of business money.

Insurance commission

A financial benefit offered by insurance companies or financial product sellers that must usually be accounted for to the client under Paragraph $5.1$ of the SRA Code of Conduct for Firms.

Rule $4.2$ of the SRA Accounts Rules

A rule allowing a solicitor to either split a cheque containing mixed business and client money or pay the whole amount into one account and transfer the funds to the other account promptly.

Commission received account

A ledger account to which receipts are credited when a firm is entitled to retain commission.