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Accounting Concepts and Principles for the credit card payment

Question:

Discuss about the Accounting Concepts and Principles for the credit card payment.

Answer:

1.a

It is noted that most of the attorneys indicate that they offer the client full credit for the credit card payment and thereby absorb the fees. Whenever a client pays money retainer through the help of credit card they must deposit the money into the IOLTA account. This account is commonly known as Interest on “Lawyer Trust Accounts” and with the inception of the IOLTA account, lawyers who deals with nominal or short term client funds does not have the audacity to earn net interest (Rounds, 2016). It is made for the clients who usually place these funds in pooled, interest bearing accounts and the interest earned on such accounts are generally remitted to the state IOLTA program for charitable interest.

It is noteworthy to denote that these accounts were non-interest bearing as because the federal law from paying interest on demand deposits accounts prohibited the commercial banks. Because of this, lawyers were unable to earn interest on such accounts as because it is unethical for the attorneys to derive any monetary gains from the those funds which belongs to their clients.

1.b

Source documents that reflects all transactions in and out of the IOLTA account consist of the following (Rounds, 2016).

  1. A copy of the deposit ticket, deposit receipts or bank credit memorandum
  2. Statement obtained from bank showing the credit of funds deposited
  3. Checkbook stub or checkbook register acting as a source documents
  4. Check or bank debit memorandum
  5. Bank statement illustrating the debit of the disbursed funds

It should be noted that records relating to the handling of the clients trust funds must be maintained for a period of at least five years subsequent to the termination of the following representations.

1.c

Books and records that are used to record the transactions are as follows

Cashbook trust registry: When a fund is received under which a client or third party have a significant amount of interest, the lawyer is under the obligation to inform and contact the client or the any third party concerned should attain the essential endorsement. Then the lawyer should make an entry in the checkbook account registry or the receipt book and subsequently in client subsidiary ledger books (Parker & Evans, 2013).

Monthly reconciliation: The lawyer should maintain the monthly reconciliations books of their trust accounts records. This helps in balancing all the trust receipts and disbursements is reconciled to the total of all individual client ledger balances.

1.d

Records relating to the handling of client books of accounts and records must be maintained for a period of five years following the termination of representations.  

2.a

According to Gallant, (2013) “By Law-9” the procedure for recovery of money is laid down. A licensee may recover its money from the account in the following ways

Money adequately required for payment to a specific client may be recovered from a person on behalf of the client.

Money, which is required for the purpose of reimbursement on behalf of the client, can be recovered for incorrectly incurred on behalf of the client.

Money which is adequately necessary for or towards the payment of fees for services performed by the client for which wrong or miscalculated billing has been delivered can be recovered.

Money that has been indirectly transferred into the another trust account which is held on behalf of the other client can be recovered

Money which under this law should not have been paid into to a trust account but was paid through inadvertence into another trust account (Gallant, 2013).

A licensee may recover the money from a trust account other than the money that is mentioned in the subsections (1) of the By-law 9 if he or she has the authority to do so as prescribed under the law.

2.b

It is understood misunderstanding regarding the expenses and disbursement result is disputes over recovery of bills from the unhappy clients. Since it seriously reflects on the paralegal profession and the administration of justice, it is very important that the paralegal must discuss with their clients regarding the amount of fees and disbursements that will most likely be charged (Gallant, 2013). The guidelines further provide the process of recovery regarding the expenses and disbursement, which are as follows;

Recovery on hourly, charging for the definite time used up on the client matter

Fixed or flat charge: recovering a fixed amount for performing a exact task

Contingency recovery of fees: Where a specific part or all of the paralegal fee depends upon the successful completion of matter and the amount may be expressed as a percentage of client’s recovery in the matter.

Recovery of fees by stages: recovering the fees by charging for a matter, which is broken by into several stages, and an estimated recovery amount for each of the stages are given.

3.a

It is evident that lawyers on regular basis receive payment from clients, which must go into their trust and not into their operating account. As it has been noticed that in most of the specialized area, payment made through credit card has its own terminology (Parker & Evans, 2013). A lawyer who accepts the credit card is known as the merchant and the accounts into which the payment of invoice is deposited is known as the merchant account . The bank that who issues the credit card to the clients or the customers is known as the issuing bank.

The reason behind this is that, it is noticed that clients usually advances their fund, which is to be used in the future, prospects to pay for the expenses associated with the representations like filing fees, fees relating to deposition cost etc. In addition to this, when the client gives the lawyer a deposit against the invoices incurred for the attorney fees, such fees may be based on the hourly basis.

3.b

The offset to the expenses entered for payment made through credit cards is recorded in the accounts payable account. A cheque is payment made through the help of account payable account once the statement is recorded. The transfer of funds is then removed from the statement and it is attached to the cheque book which is finally mailed to the processor of credit cards.

3.c 

Books and records used to record the transactions are as follows

  1. record of transfers and transactions between the clients and the trust ledger accounts
  2. general accounting receipts and invoice journals
  3. fees books or chronological files relating to the bills of the clients
  4. books of invoice receipts in duplicate copies

4.a

It is necessary to have an audit trail for keeping the record of each step and preserving original and supporting documents before the invoice is delivered to the clients. Below listed is the financial records described manually relating to the transactions are as follows

Maintaining trust receipts journal

Date of receipt of money

Method through which the money is received for instance certified cheque, bank draft and money order etc.

Name of the client for whom the money is received.

Trust disbursement journal:

Date on which payment was made

Methods adopted to make the payments such as electronic trust transfer, certified cheques etc.

Person to whom the payment is made

Amount reflecting the payment

Purpose for which the amount of money is disbursed

Name of the client on behalf of whom the payment was made

4.b

The information is that is convey from the client owing is that the client incurred an invoice of $1200 for the appropriate fees and disbursements in the ongoing matter. In addition to this, there was $1000 in the trust account to the credit of the client matter. In the aforesaid transactions, money was paid through using electronic trust transfer. The remaining balance is $200 which should be appearing in the invoice.

4.c

Books and record used to record the invoice are as follows

A book of original entry recognizing each and every date on which such money is received in the form of invoice. It must also record the methods through which money is received, the person to whom such money is received and the reason behind such receipts.

A book relating to original entry representing the entire amount of disbursements arising out of invoice and recognizing each and every date on which such invoice is disbursed. It must also record the method, which is used to discharge the invoice including the number and document used to disburse the money.

There must be a separate book, which should be recording the client trust ledger accounts and explaining the reasons for which each of the transfer is made.

A book of original entry, which shows all the disbursement money arising out of invoice other than the amount of money which is held by the client in the form of trust. This consists of the number of invoices which is disbursed and the also the record of person to whom such disbursement was made.

4.d

The books of records which is used to record the payment are as follows

Bank statement or the passbooks, cashed cheques and the details of the duplicate deposits slips for the payments made

Electronically signed trust transfer requisitions along with the signed printed confirmations of the electronic payments of invoice (Whitehead, 2014)

Signed authorizations of “Teranet” and signed copies of invoices confirming the confirmation of “Teranet”

4.e

With reference to the trust balance following issues relating to money has been given below

Money which belongs to the licensee or to any other licensee of the firm in which licensee is an active partner (Whitehead, 2014)

Money that is received by the licensee in the form of payment of fees for the services for which billing has been delivered and no reimbursement has been made for the immediate delivery of money received

A licensee who does not pay for the trust account regarding the handling of records which is required to be maintained by the law.

5 a

Preliminary steps required on the settlement of funds which was required to be paid by clients are as follows

A copy of the completed report on the investment made for the settlement of funds

A completed investment authority which is signed by clients before the first advance of money is made on behalf of the borrower

If payment is not made on behalf of the lender than there should be an original declaration of trust

Any other supporting documents which the suppliers provide (Whitehead, 2014).

5.b 1

According to By-Law 9 it requires an individual to deposit trust money immediately into the trust account. In addition, record should be maintained on all the copies of trust deposits slips in the following ways

Recording the date on which such deposits was made

Name of the firms if it is not appropriately printed

The details of the bank account number if it is not printed

Recording the sources of each receipts

5.b 2

Books and records that is used to record the transactions are as follows

Trust receipts journal

Trust disbursements journal

Clients trust ledger

General receipts journal

General disbursements journal

5.c

When a clients provides a written record providing a directions of payment, the licensee under the form 9B shall authorize the payment be made from the trust account describing in the subsections (1) regarding the amount of money to be paid relating to the clients transactions (Gallant, 2013).. Additional requirements stating the necessary records, which should be maintained, are as follows;

Copy of confirmation of written records relating to the authorization of payment of the transactions

Indicating on paper the copy of confirmation and the name of client to whom the money was paid

Reference List:

Parker, C., & Evans, A. (2013). Inside lawyers' ethics. Cambridge University Press.

Rounds Jr, C. E. (2016). IOLTA: Interest without Principle. Democracy.

Gallant, M. M. (2013). Lawyers and Money Laundering Regulation: Testing the Limits of Secrecy in Canada. Available at SSRN 2336219.

Whitehead, G. M. (2014). Book-keeping: Made Simple. Elsevier.

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