Double-entry bookkeeping and ledger postings — SQE1 Accounts question
A worked single-best-answer question on double-entry bookkeeping and ledger postings, with why each wrong option is wrong — the way SQE1 traps candidates.
Arden Solicitors has just been instructed by Mr Kaur on a commercial lease. Before any work is done, Mr Kaur sends £2,000 generally on account of costs, which the firm pays into its client account. The firm keeps a separate ledger for each client, with office and client columns, and separate office and client cash accounts. The trainee asks how to record the receipt.
Which entries should be made to record the receipt of the £2,000?
- ACredit the client cash account and debit the client column of Mr Kaur's ledger.
- BDebit the office cash account and credit the office column of Mr Kaur's ledger.
- CDebit the client cash account and credit the profit costs account.
- DDebit the office column of Mr Kaur's ledger and credit the client column of his ledger.
- EDebit the client cash account and credit the client column of Mr Kaur's ledger.
Show answer and reasoning
Rule: A receipt of client money is recorded by debiting the client cash account and crediting the client column of the client's ledger.
- A These entries are reversed; they would record a payment out of client account. (wrong rule)
- B The money is client money and must be recorded on the client side, not as office money. (right rule, wrong facts)
- C No bill has been delivered, so nothing can be credited to profit costs. (wrong rule)
- D A receipt of cash must involve the cash account; these entries record no money coming in. (wrong rule)
Source: SRA Accounts Rules 2019, rr 2.1(d) and 8.1