Course
Trust Accounting Questions and Exercises Booklet
(Q&E Booklet)
Queensland Law Society | QLS Practice Management Course: Managing People / Page 51 of 66
Revision status
Revision No / Author/Editor / Description / Date1.0 / Giles Watson / Initial draft / 16/06/14
2.0 / Michael Drinkall / Substantial redraft / 04/03/16
2.1 / Michael Drinkall / Minor amendments / 03/06/16
2.2 / Michael Drinkall / Minor amendments / 06/06/16
2.3 / Michael Drinkall / Minor amendments / 10/06/16
2.4 / Leane Middleton / Removal of prescribed account section / 22/02/17
3.0 / Michael Drinkall / Review and substantial amendments / 24/04/17
3.1 / Leane Middleton / Formatting / 15/05/17
Table of contents
Introduction 5
Section 1: Recognising trust and other money 6
1.1 Recognising trust money 6
1.2 Recognising types of trust funds 7
1.3 Dealing with trust money 9
1.4 Maintaining records 10
1.5 Answers 11
Section 2: Completing primary records 14
2.1 Primary records 14
2.2 Writing trust account receipts 15
2.3 Trust account deposit form 16
2.4 Writing receipts and bank deposit records 17
2.5 Writing trust account cheques 18
2.6 Trust transaction list for July 20
2.7 Answers 21
Section 3: Understanding secondary records 27
3.1 Secondary records 27
3.2 Trust account receipts cash book 27
3.3 Trust account ledger 29
3.4 Trust account payments cash book 30
3.5 Trust account ledger 31
3.6 Trust account transfer journal 32
3.7 Answers 34
Section 4: Office accounts 35
4.1 General records 35
4.2 Office (Debtors) ledger accounts 35
4.3 Monthly reports 36
4.4 Payment of fees from trust account 36
4.5 Answers 37
Section 5: Charging legal fees, paying from trust, preparing statements 38
5.1 Preparing accounts 38
5.2 Preparing bills of costs 39
5.3 Recording costs 40
5.4 Payment from trust to office account for legal costs, disbursements and outlays 40
5.5 Trust account statement 41
5.6 Answers 42
Section 6: Maintaining records of other trust money 44
6.1 Categories of trust money 44
6.2 Transit money 44
6.3 Investment money 44
6.4 Answers 46
Section 7: Preparing monthly reports 49
7.1 End of month – Three way reconciliation 49
7.2 Balancing the trust account cash books 49
7.3 Reconciliation to trust account ledger 50
7.4 Transaction list for August 20xx 51
7.5 Trust account bank reconciliation 51
7.6 Investment money 54
7.7 Office account 55
7.8 Monthly reports 55
7.9 Answers 56
Section 8: Complying with further statutory requirements 59
8.1 Conclusion 59
8.2 End of month checklist 60
8.3 Answers 61
Section 9: Additional documents 62
9.1 Blank trust account primary records 62
9.2 Blank office (debtors) ledger 63
Queensland Law Society | Practice Management Course: Trust Accounting Workbook Questions and Exercises Booklet / Page 4 of 64Introduction
All Practice Management Course (PMC) participants are required to complete a Trust Accounting Workbook (your Workbook), which involves completing appropriate trust accounting records for different scenarios.
In addition to this Questions and Exercises booklet, you have also been provided with a Workbook of blank records.
You are required to work through this Questions and Exercises booklet and:
· answer the questions in each section;
· complete the separate Workbook as indicated.
At the end of each section, there will be an opportunity to check your answers and completed records.
To demonstrate completion of the task, you are required to submit your completed Workbook document to within 15 working days of the final PMC workshop day (you are not required to submit this Questions and Exercises booklet).
In addition to this document, PMC participants are required to read Queensland Law Society Trust Accounting Guide and are urged to review the additional trust accounting guidance and resources on QLS website.
http://www.qls.com.au/For_the_profession/Practice_support/Resources/Trust_accounting_resources
NOTE: The trust accounting materials presented here are in a manual format. It is acknowledged that a vast majority of law practices now utilise a computerised accounting package to maintain their trust accounting records. By completing the trust account records in manual form, you will gain a far better understanding of the trust accounting process. You will also be able to apply this universal knowledge to all of the different trust accounting software packages available.
Section 1: Recognising trust and other money
1.1 Recognising trust money
To recognise whether trust money has been received, you must know and understand the relevant provisions of the Legal Profession Act 2007 (the Act).
You will need to refer to s 237 of the Act as you work through this section.
Look carefully at the definition of ‘trust money’ in s 237(1) of the Act. To decide if certain money is trust money, you must ask four questions:
- Has ‘money’ been entrusted to a law practice?
- Has money been ‘entrusted’ to a law practice?
- Has money been entrusted to a ‘law practice’?
- Has money been entrusted to a law practice ‘in the course
of or in connection with the provision of legal services’?
See the table below for guidance:
Money / The term ‘money’ is not defined in the Act, but its dictionary definition includes cash and cheques.Entrusted / The term ‘entrusted’ is not defined in the Act, but its use reinforces that trust money is placed in a law practice’s ‘care and protection’: Queensland Law Society Trust Accounting Guide, page 9.
Law practice / The term ‘law practice’ is defined in Schedule 2 of the Act to mean:
· an Australian legal practitioner who is a sole practitioner
· a law firm
· an incorporated legal practice; or
· a multidisciplinary partnership.
The term ‘law firm’ is defined in Schedule 2 and the term ‘Australian legal practitioner’ is defined in s 6.
A law practice is deemed to have received money when the law practice obtains possession or control of it directly, or indirectly, as a result of its delivery to an associate of the law practice s 242.
Associate is defined in s 7(1) and includes an employee of the law practice.
Legal services / The term ‘legal services’ is defined exhaustively in Schedule 2 of the Act as work done, or business transacted, in the ordinary course of legal practice.
If a practitioner is treasurer of a local sporting club and receives money as such, the money is not received ‘in the course of or in connection with the provision of legal services’. If the practitioner is instructed to act for the club, and receives money as practitioner, that money would be entrusted to a law practice ‘in the course of or in connection with the provision of legal services’.
In order to determine whether money received is trust money and how it should be dealt with, a useful resource is the Trust Money Decision Flowchart on page 11 of Queensland Law Society Trust Accounting Guide.
1.2 Recognising types of trust funds
There are different types of trust money, as outlined in the table below:
Trust money / ‘Trust money’ is defined as money entrusted to a law practice in the course of or in connection with the provision of legal services by the practice. It includes money received in advance of providing legal services, transit money, controlled money and power money.Trust money received in the form of cash must be deposited to the trust account or a controlled money account. All other trust money must be either deposited to the trust account as soon as practicable or dealt with according to whether it is written direction money, controlled money, transit money or power money. / s 237(1) LPA
s 255(1) LPA
s 255(3) LPA
s 248(1) LPA
Transit money / ‘Transit money’ is defined to mean money received by the law practice subject to instructions to pay or deliver it to a third party, other than an associate of the law practice. The law practice must pay or deliver the money within the time period specified in the instructions or, if no time is specified, as soon as practicable after its receipt. eg. Cheque received at a conveyancing settlement payable to the Office of State Revenue for stamp duty.
Cash cannot be treated as transit money. Rather, the cash must be deposited to the trust account or a controlled money account.
The law practice must keep brief particulars of the transaction and the purpose for which the transit money was received. It is best practice to retain copies of the transit money cheques received and any directions in respect of them. / s 237(1) LPA
s 253(1) LPA
s 255(3) LPA
s 255(4) LPA
s 52(2) LPR
Controlled money / ‘Controlled money’ is defined as money received or held by the law practice for which it has a written direction to deposit the money in an account, other than a trust account, over which the law practice has or will have exclusive control, eg An interest bearing account. / s 237(1) LPA
s 255(3) LPA
Power money / Power money refers to trust money that is the subject of a power given to the law practice or an associate. Such money must be dealt with only under the power relating to the money. Examples include a power of attorney, guardianship order or an authority to sign on a person’s bank account.
Trust money that is received in the form of cash and is the subject of a power must be deposited in the trust account or a controlled money account before the money is deposited to an account maintained by the practice or associate pursuant to the power.
The law practice must keep a record of all dealings with the money to which the law practice or associate is a party, together with all supporting information. It must also maintain a Register of Powers and Estates in respect of which the law practice or an associate is acting, either alone or jointly with the law practice or one or more associates, in relation to trust money.
A separate trust account statement must be furnished for each record. It will contain particulars of the information required to be kept in relation to the power money account and the balance (if any) of the money. / s 254(1) LPA
s 255(5) LPA
s 56(2) LPR
s 57(1) LPR
s 53(4) LPR
Written direction money / Money received subject to a written direction from an appropriate person must be dealt with in accordance with the direction within the time period specified in the direction or, if no time specified, as soon as practicable after it is received. An ‘appropriate person’ is defined as a person legally entitled to give the law practice directions in relation to dealings with the trust money.
Cash cannot be treated as written direction money. Rather, the cash must be deposited to the trust account or a controlled money account.
The law practice must keep a written direction for seven years after finalisation of the matter to which the direction related. / s 248(1) LPA
s 248(2) LPA
s 248(4) LPA
s 255(2) LPA
s 255(3) LPA
s 36 LPR
Q1/1 A client is going overseas and adds the practitioner as a signatory to their bank account so that the practitioner will have quick access to their funds when needed for settlement of a purchase.
Has trust money been received? If so, which type?
- Trust money has not been received.
- Transit money has been received.
- General trust money has been received.
- Investment money has been received.
- Power money has been received.
Q1/2 A client, purchasing a new home, gives a cheque for the deposit, drawn in favour of the agent, to the practitioner to forward it immediately to the agent as provided in the contract.
Has trust money been received? If so, which type?
1. Trust money has not been received.
2. Transit money has been received.
3. General trust money has been received.
4. Investment money has been received.
5. Controlled money has been received.
Q1/3 Mary is executor and trustee of her late father’s estate. She is an employed practitioner in a law practice. Is money received by her for the estate trust money?
1. The money will never be trust money.
2. The money will always be trust money – as she is a practitioner and receiving money.
3. The money may be trust money – if the practitioner is acting as a private individual but her firm is acting for the estate.
4. The money will only be trust money if Mary is acting as practitioner for the estate.
Q1/4 John is a partner in a law practice. A client gives John a cheque to cover anticipated professional fees in a matter. Is it trust money?
1. Yes
2. No
1.3 Dealing with trust money
At 4pm, a practitioner receives a cheque from a client for $15,000 on account of stamp duty ($13,000) and other anticipated disbursements ($2,000). The next day, the practitioner banks the cheque into the trust account of the law practice, in which the practitioner is a partner.
Q1/5 Which of the following statements is correct?
1. Provided the necessary records have been completed, the practitioner has handled the cheque appropriately.
2. Even if the necessary records have been completed, the practitioner has not handled the cheque appropriately.