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Trust Accounting. Trust Accounting Exercise Carol started a new paralegal practice. This exercise will go through the different scenario’s Carol will.

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Presentation on theme: "Trust Accounting. Trust Accounting Exercise Carol started a new paralegal practice. This exercise will go through the different scenario’s Carol will."— Presentation transcript:

1 Trust Accounting

2 Trust Accounting Exercise Carol started a new paralegal practice. This exercise will go through the different scenario’s Carol will encounter as a paralegal. You will need to record the necessary entries in your worksheets as we progress through each scenario. You will be required to use one or more of the following records: Trust Record Receipt Journal Disbursement Journal Client Trust Ledger Receipt Journal Disbursement Journal Client Trust Ledger General Record Fees Journal Receipt Journal Disbursement Journal Client General Ledger Fees Journal Receipt Journal Disbursement Journal Client General Ledger

3 Use the reference numbers provided in all journals and ledgers so that you can cross reference your answers. GST rate of 5% Reference numbers

4 1.On June 1, 2008, Carol started a paralegal practice and opened a practice bank account and a trust bank account at her local bank. She deposited her own money in the practice bank account using cheque # 175 for the amount of $25,000. Use reference # 1. Enter this transaction in the appropriate record. 1.On June 1, 2008, Carol started a paralegal practice and opened a practice bank account and a trust bank account at her local bank. She deposited her own money in the practice bank account using cheque # 175 for the amount of $25,000. Use reference # 1. Enter this transaction in the appropriate record. Trust Record Receipt Journal Disbursement Journal Client Trust Ledger Receipt Journal Disbursement Journal Client Trust Ledger General Record Fees Journal Receipt Journal Disbursement Journal Client General Ledger Fees Journal Receipt Journal Disbursement Journal Client General Ledger Deposit seed money Which records are used for this transaction?

5 GENERAL RECEIPTS JOURNAL – PRACTICE ACCOUNT Ref #Date Received from (source of funds)Amount Method of payment & details 1 June 1 Carol 25, Deposit Cheque # 175 SOLUTION

6 2.Carol's friend referred two new clients: Gloria and Beatrice. They will both pay a retainer. Create an account for Gloria and Beatrice in the appropriate records. Trust Record Receipt Journal Disbursement Journal Client Trust Ledger Receipt Journal Disbursement Journal Client Trust Ledger General Record Fees Journal Receipt Journal Disbursement Journal Client General Ledger Fees Journal Receipt Journal Disbursement Journal Client General Ledger Open trust and general client ledgers Which records are used for this transaction?

7 CLIENT GENERAL LEDGER Account: Gloria DateParticularsInvoice # Fees & disbursements billed Payments from client (including tax) Balance owed by client Account: Beatrice SOLUTION Client Trust Ledger Account: Gloria Ref # Date Particulars Receipts Disbursements Balance in account Account: Beatrice Ref # Date Particulars Receipts Disbursements Balance in account

8 3.On June 5, Gloria gave Carol a retainer of $2,000 (cheque # 230. Use reference # 2). Beatrice gave Carol a retainer of $4,000 (cheque # 352. Use reference # 3). Carol deposited the two cheques in the trust bank account. Trust Record Receipt Journal Disbursement Journal Client Trust Ledger Receipt Journal Disbursement Journal Client Trust Ledger General Record Fees Journal Receipt Journal Disbursement Journal Client General Ledger Fees Journal Receipt Journal Disbursement Journal Client General Ledger Deposit into the trust Which records are used for this transaction?

9 CLIENT TRUST LEDGER Account: Gloria Ref # Date Particulars Receipts Disbursements Balance in account 2 June 5 Legal fee retainer Cheque # 230 2, Account: Beatrice Ref # Date Particulars Receipts Disbursements Balance in account 3 June 5 Legal fee retainer Cheque # 352 4, TRUST RECEIPTS JOURNAL Ref # Date Funds received fromClient Amount Method of payment 2 June 5Gloria 2, Deposit cheque June 5Beatrice 4, Deposit cheque 352 SOLUTION

10 4.On June 15, Gloria telephoned Carol and spent one and one- half hours discussing her traffic violation. Carol bills Gloria $375 for her time on invoice #221. Use reference # 4. include GST of 5%. Trust Record Receipt Journal Disbursement Journal Client Trust Ledger Receipt Journal Disbursement Journal Client Trust Ledger General Record Fees Journal Receipt Journal Disbursement Journal Client General Ledger Fees Journal Receipt Journal Disbursement Journal Client General Ledger Billing Which records are used for this transaction?

11 FEES JOURNAL Ref #Date Invoice #Client Fees billed Disbursements billed GST billed Total amount billed 4 June Gloria CLIENT GENERAL LEDGER Account: Gloria Ref # DateParticulars Invoice # Fees & disbursements billed Payments from client (including tax) Balance owed by client 4June 15Billed fees SOLUTION

12 5.On June 16, Beatrice attended a meeting at Carol's office and discussed some issues she was having with her import-export business. The meeting lasted four hours. That evening Carol spent an additional hour researching Beatrice's issue. Carol bills Beatrice $1,000 for her time on invoice #222. Use reference # 5. Include GST of 5%. Trust Record Receipt Journal Disbursement Journal Client Trust Ledger Receipt Journal Disbursement Journal Client Trust Ledger General Record Fees Journal Receipt Journal Disbursement Journal Client General Ledger Fees Journal Receipt Journal Disbursement Journal Client General Ledger Billing Which records are used for this transaction?

13 FEES JOURNAL Ref #DateInvoice #Client Fees billed Disbursements billed GST billed Total amount billed 5 June Beatrice 1, , CLIENT GENERAL LEDGER – PRACTICE ACCOUNT Account: Beatrice Ref #DateParticularsInvoice # Fees & disbursements billed Payments from client (including tax) Balance owed by client 5 June 16Billed fees 222 1, SOLUTION

14 6.Since you have recorded the bills to Gloria and Beatrice, transfer the funds from the trust account to the general account. Gloria’s funds are transferred using cheque # 15, reference # 4. Beatrice’s funds are transferred using cheque #16, reference # 5. Then record the deposit in the practice’s general bank account. Record the appropriate entries in the trust account and general account dated June 17. Trust Record Receipt Journal Disbursement Journal Client Trust Ledger Receipt Journal Disbursement Journal Client Trust Ledger General Record Fees Journal Receipt Journal Disbursement Journal Client General Ledger Fees Journal Receipt Journal Disbursement Journal Client General Ledger Which records are used for this transaction?

15 Trust Disbursements Journal Ref #DatePaid ToClientAmountMethod of payment / Reference # 4June 17CarolGloria Paid Inv # 221, Cheque # 15 5June 17CarolBeatrice 1, Paid Inv # 222, Cheque #16 CLIENT TRUST LEDGER Account: Gloria Ref # Date Particulars Receipts Disbursements Balance in account June 5Retainer for legal fees 2, June 17 Paid invoice # 221 for services rendered. Cheque # , Account: Beatrice Ref # Date Particulars Receipts Disbursements Balance in account June 5 Retainer for legal fees 4, June 17 Paid invoice # 222 for services rendered. Cheque # 16 1, , Solution continued on next slide. SOLUTION

16 CLIENT GENERAL LEDGER – PRACTICE ACCOUNT Account: Gloria Ref #DateParticulars Invoice # Fees & disbursements billed Payments from client (including tax) Balance owed by client 4 June 15Billed fees June 17Transferred from trust Ref #Account: Beatrice 5 June 16Billed fees 222 1, June 17Transferred from trust 222 1, GENERAL RECEIPTS JOURNAL – PRACTICE ACCOUNT Ref #Date Received from (source of funds)AmountMethod of payment & details 4 June 17 Gloria Transfer from Gloria’s trust for fees. Cheque # 15 - Invoice June 17 Beatrice 1, Transfer from Beatrice’s trust for fees. Cheque # 16 - Invoice 222 SOLUTION CONTINUED

17 7.The following expenses are paid from the practice’s general bank account. Record the expenses in the appropriate journal. Trust Record Receipt Journal Disbursement Journal Client Trust Ledger Receipt Journal Disbursement Journal Client Trust Ledger General Record Fees Journal Receipt Journal Disbursement Journal Client General Ledger Fees Journal Receipt Journal Disbursement Journal Client General Ledger Which records are used for this transaction? Date 2008Cheque #DescriptionAmountNotes June 1901Rent 1,200.00Fairview Properties June 10902Telephone Paid to Bell $100 of long distance recoverable from Gloria. June 16903Photocopies Paid to Xerox. $20 recoverable from Gloria June 20904Insurance 1, Royal Insurance company June 30905Salaries 6,000.00Paid to employees June 30906Courier $20 recoverable from Beatrice. Total9,500.00

18 Carol GENERAL DISBURSEMENTS JOURNAL – PRACTICE ACCOUNT DatePaid toUse of fundsAmountMethod of payment & details June 1Fairvew Properties Rent 1, Cheque #901 June 10 Bell Telephone Cheque # 902 Disbursements recoverable ($100.00) June 16Xerox Photocopies Cheque # 903 Disbursements recov’ble ($20.00) June 20 Royal InsuranceInsurance 1, Cheque # 904 June 30EmployeesSalary 6, Cheque # 905 June 30CourierCourier charges Cheque # 906 Disbursements recov’ble ($20.00) SOLUTION There is no need to repeat this on your records

19 8.Record the billing of expenses to clients, and transfer funds from the trust bank account as of June 30, Gloria - invoice # 223, reference # 6, cheque # 17 Beatrice -invoice # 224, reference 7, cheque # 18 Date 2008Cheque #DescriptionAmountNotes June 1901Rent1,200.00Fairview Properties June 10902Telephone400.00Paid to Bell $ of long distance recoverable from Gloria. June 16903Photocopies500.00Paid to Xerox. $20.00 recoverable from Gloria June 20904Insurance1, Royal Insurance company June 30905Salaries6, Paid to employees June 30906Courier200.00$20.00 recoverable from Beatrice. Total9, Trust Record Receipt Journal Disbursement Journal Client Trust Ledger Receipt Journal Disbursement Journal Client Trust Ledger General Record Fees Journal Receipt Journal Disbursement Journal Client General Ledger Fees Journal Receipt Journal Disbursement Journal Client General Ledger Which records are used for this transaction?

20 FEES JOURNAL Ref #DateInvoice #ClientFees billed Disbursements billedGST billed Total amount billed 4 June Gloria June Beatrice 1, , June 30223Gloria June 30224Beatrice SOLUTION – Step 1 CLIENT GENERAL LEDGER – PRACTICE ACCOUNT Account: Gloria Ref #DateParticulars Invoice # Fees & disbursements billed Payments from client (including tax) Balance owed by client 4 June 15Billed fees June 17Transferred from trust June 30Billed Fees Ref #Account: Beatrice 5 June 16Billed fees 222 1, June 17Transferred from trust 222 1, June 30Billed Fees

21 Trust Disbursements Journal Ref #DatePaid ToClientAmountMethod of payment / Reference # 4June 17CarolGloria Transfer - Invoice 221 5June 17CarolBeatrice 1,050.00Transfer - Invoice 222 6June 30CarolGloria Transfer - Invoice 223 7June 30CarolBeatrice 21.00Transfer - Invoice 224 CLIENT TRUST LEDGER Account: Gloria Ref # Date Particulars Receipts Disbursements Balance in account 2 June 5 Retainer for legal fees 2, June 17 Transfer invoice , June 30 Transfer invoice , Account: Beatrice Ref # Date Particulars Receipts Disbursements Balance in account 3 June 5 Retainer for legal fees 4, June 17 Transfer invoice 222 1, , June 30 Transfer invoice , SOLUTION – Step 2

22 GENERAL RECEIPTS JOURNAL – PRACTICE ACCOUNT Ref #Date Received from (source of funds)AmountMethod of payment & details 4 June 17 Gloria Transfer from Gloria’s account for fees. Cheque # 15 - Invoice June 17 Beatrice 1, Transfer from Beatrice’s account for fees. Cheque # 16 - Invoice 222 6June 30Gloria Transfer from Gloria’s account for fees. Cheque # 17- Invoice # 223 7June 30Beatrice Transfer from Beatrice’s account for fees. Cheque # 18 – Invoice # 224 SOLUTION – Step 3

23 General client ledger (Step 3, cont) CLIENT GENERAL LEDGER – PRACTICE ACCOUNT Account: Gloria Ref #DateParticulars Invoice # Fees & disbursements billed Payments from client (including tax) Balance owed by client 4 June 15Billed fees June 17Transferred from trust June 30Billed Fees June 30Transferred from trust Ref #Account: Beatrice 5 June 16Billed fees 222 1, June 17Transferred from trust 222 1, June 30Billed Fees June 30Transferred from trust

24 9.On June 30, the bank deducted $50 from the practice’s general account for bank fees related to the trust account. Record payment in the appropriate journal. Trust Record Receipt Journal Disbursement Journal Client Trust Ledger Receipt Journal Disbursement Journal Client Trust Ledger General Record Fees Journal Receipt Journal Disbursement Journal Client General Ledger Fees Journal Receipt Journal Disbursement Journal Client General Ledger Which records are used for this transaction?

25 Carol GENERAL DISBURSEMENTS JOURNAL – PRACTICE ACCOUNT DatePaid toUse of fundsAmount Method of payment & details June 1Fairview Properties Rent 1, Cheque #121 June 10 Bell Telephone Cheque # 122 June 16Xerox Photocopies Cheque # 123 June 20 Royal InsuranceInsurance1, Cheque # 124 June 30EmployeesSalary6, Cheque # 125 June 30Bank Bank Charges50.00 Deducted directly SOLUTION This cost is not recoverable by the trust. It is part of the cost of doing business and therefore must be an expense that the practice pays.

26 10. On June 30, an old friend contacted Carol and discussed a legal problem. Carol spent 3 hours related to the problem, and billed Robert Vaughan $750. Because Robert was an old friend, Carol did not require a retainer. Use invoice #225, reference # 8 to bill Robert Vaughan. Trust Record Receipt Journal Disbursement Journal Client Trust Ledger Receipt Journal Disbursement Journal Client Trust Ledger General Record Fees Journal Receipt Journal Disbursement Journal Client General Ledger Fees Journal Receipt Journal Disbursement Journal Client General Ledger Which records are used for this transaction?

27 CLIENT GENERAL LEDGER – PRACTICE ACCOUNT Account: Robert Ref #DateParticulars Invoice # Fees & disbursements billed Payments from client (including tax) Balance owed by client 8 June 30 Billed fees Carol FEES JOURNAL Ref #Date Invoice #Client Fees billed Disbursements billed GST billed Total amount billed 8 June Robert Vaughan SOLUTION

28 11.On June 30, Robert paid one-half of the amount owing. Continue this record using reference # 8 and cheque # 19. Trust Record Receipt Journal Disbursement Journal Client Trust Ledger Receipt Journal Disbursement Journal Client Trust Ledger General Record Fees Journal Receipt Journal Disbursement Journal Client General Ledger Fees Journal Receipt Journal Disbursement Journal Client General Ledger Which records are used for this transaction?

29 CLIENT GENERAL LEDGER – PRACTICE ACCOUNT Account: Robert Ref #DateParticulars Invoice # Fees & disbursements billed Payments from client (including tax) Balance owed by client 8 June 30 Billed fees June 30 Partial Payment Cheque # GENERAL RECEIPTS JOURNAL – PRACTICE ACCOUNT Ref #Date Received from (source of funds)Amount Method of payment & details 8 June 30 Robert Vaughan Cheque # 19 SOLUTION

30 Client Transactions when Funds in Trust Account (Services rendered and/or disbursements recoverable) 3 – Step Process 1.Fees Journal – record the billing in the Fees Journal Clients’ General Ledger – record the billing in the client’s own ledger account 2.Trust Disbursements – record payment out of trust disbursements journal Trust Clients’ Ledger – record payment from client’s own trust ledger account 3.General Receipts – record receipt into practice's general cash receipts journal Clients’ General Ledger - record payment from client’s own general ledger account


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