SQE1: Transfers and Mixed Receipts

Practice flashcards covering the core principles of double entry bookkeeping and the SRA Accounts Rules regarding transfers and mixed receipts for the SQE1 assessment.

Rule 8.1(a)

The SRA Accounts Rule requiring firms to record on each client’s ledger account all client and business money receipts and payments made for that client.

Cash transfer

A transfer type where money is withdrawn from the client bank account and paid into the business bank account (or vice versa), typically to pay the firm’s professional charges, VAT, and disbursements.

Inter-client transfer

Also known as a 'paper' transfer, this occurs when a firm stops holding money in the client bank account for one client and starts holding it for another without any actual movement of cash between bank accounts.

Mixed receipts

Funds received from clients that are a mixture of business money and client money, which must be allocated promptly to the correct bank account under Rule 4.2.

Rule 4.2

The regulation requiring that funds containing both business and client money must be allocated promptly to the correct bank account.

Professional charges

The firm's own fees, including any VAT element, which can be transferred from the client to the business bank account once a bill or other written notification has been issued.

Disbursements

Costs incurred on behalf of a client; money received for a paid disbursement is considered the firm's own money, even if a bill has not been issued.

Rule 5.3

A rule regarding withdrawals from the client bank account; cash transfers may be used to replace money withdrawn in breach of this rule.

Recording a transfer from client to business (Stage 1)

To record the payment of money from the client bank account: $CR$ Cash account Client section and $DR$ Client’s ledger account.

Recording a transfer from client to business (Stage 2)

To record the receipt of money into the business bank account: $DR$ Cash account Business section and $CR$ Client’s ledger account.

Inter-client transfer recording procedure

Accounting entries made solely on the ledger accounts with no cash account entry; involves a $DR$ entry for the first client and a $CR$ entry for the second client.

Split cheques

A method of handling mixed receipts where the firm pays different portions of the cheque into different bank accounts (business and client) at the time of deposit.

Direct transfers (Mixed Receipts)

A method for handling mixed receipts by paying the whole amount into one account (usually client) and then promptly transferring the business portion to the business bank account.