It’s unlikely that anyone will have told you that the ability to add would be tested on the LPC. They probably won’t have mentioned the brief flirt with accountancy either. But both maths and accountancy principles are encompassed in Solicitors’ Accounts and some understanding of both is required to pass the exam at the end of the module.
Solicitors’ Accounts teaches LPC students the rules imposed by the SRA relating to the handling of money, particularly client money, by solicitors. A large amount of funds pass through solicitors’ hands, be it a mortgage advance or a multimillion merger payment and solicitors are trusted to make sure the money is kept secure and reaches its destination safely. The Solicitors’ Accounts Rules ensure this is done and that all solicitors comply by the same standards when it comes to client finances.
They also impose strict record keeping guidelines in that all financial transactions must be documented in a particular way. In practice, solicitors often employ cashiers and accounting staff to do this and the records are usually computerised. However, LPC students should still appreciate the principles as, when qualified, they will be accountable if the rules are not adhered to. The consequences of breaking the Solicitors’ Accounts Rules can be severe, from a fine to being struck off the roll.
The first thing that is required for Solicitors’ Accounts is a decent calculator! You will need to calculate percentages on top of keeping track of multiple additions and subtractions; the tiny calculator you win in this year’s Christmas cracker won’t cut it. In my opinion, a scientific calculator that shows you the calculation as well as the answer is the best option; it will allow you to see where you have made a mistake so you don’t have to start from the beginning. Before you spend any money, double check which models are permitted in exams by your institution.
After that, you will need to get your head around double entry book keeping. I am not going to attempt to explain this here; it is far too complicated for one post, as you will soon learn! It will seem strange to begin with and the method counterintuitive but if you accept the rules by which the accounting method works (debit means pay out, credit means pay in and each transaction must be written twice, somewhere) then eventually it will click. Some transactions will be recorded in a particular way because of the Accounts Rules and there are some things solicitors are not permitted to do, which you will learn in time.
It can get tiring to constantly draw ledgers but don’t let this stop you from practising. It helped me to make a template in Excel to print out but alternatively you could photocopy one you have drawn up. Repeatedly drawing the things will waste time and believe me, quickly becomes irritating!
You will also learn how to produce completion statements. A completion statement documents all money received from or on behalf of a client during a transaction (monies on account, mortgage advances, completion funds) and states how it has been spent (deposit cheques, search fees, your fees). The purpose is to calculate how much more money is required from the client to complete the transaction, or how much money should be paid to the client once the transaction has completed. They are fairly easy to produce but can become difficult if your maths isn’t up to scratch. In my experience, if your completion statement doesn’t add up, it’s because you have written something wrong or added it wrong somewhere. Check all your figures are correct, and then check all your maths is correct. At the beginning, there are often a lot of mistakes – so start in pencil!
Solicitors’ Accounts does give you useful skills for being a trainee. Although you won’t have to keep writing ledgers in practice, an understanding of the Rules will help you grasp your cashier’s processes. There will be a myriad of forms, colour-coded chits or procedures to follow in order to use money or pay in a cheque due to the Rules. If you understand why you have to pay in a cheque from a client into the client account first or which invoice should be paid from office account, you will save time dealing with cashiers! You will also be able to understand your firm’s accounting systems too, so you can check how much you have billed the client, when they last paid or if you need to ask for more money on account. Producing completion statements, however, is used in practice, as they are provided to the client at the end of transactions. You will probably be asked to draw one up at some stage of your training.
But first you need to pass the module. The exam will consist of a scenario and a series of questions on the Solicitors’ Accounts Rules. You are permitted a calculator and your copy of the Rules into the exam. Don’t forget them! You won’t be able to answer the questions without sight of the Rules. In the exam, you must answer the question and provide a ledger and completion statement for the scenario. There isn’t a lot of time so it may be worth answering the questions first. It is likely that the completion statement and ledger will interact; i.e. the completion statement will show you how much money you returned to the client, which will need to be recorded on the ledger. At the end, there should not be any money remaining in the client account and the office account should not be overdrawn.
It is worth leaving gaps between each entry in case you make a mistake. If you do make a mistake don’t panic. You won’t be doubly penalised for mistakes; if you calculate something incorrectly, you won’t be marked down again for the fact it throws the rest of your entries out. If you are near the beginning of the scenario, you have time to start again. However, if you are nearing the end or are running out of time, finish the scenario first and then go back. It is better to finish the entries on the basis of your mistake. You will only miss a mark for the first wrong calculation, from there on you will be marked taking your mistake into account. You will get more marks for a complete ledger with one or two mathematical errors than half a ledger perfectly added up.
In my opinion, the best way to get a handle on the accounts rules is to practise until you can do it in your sleep. The most important thing to learn is what to write and where; this is where you will pass or fail. If your maths skills aren’t great and you struggle to make it all balance, you may lose a few marks but if you get the recording wrong you will lose more. It will be tedious and not exciting (you will realise you get a little burst of happiness when everything balances first time – don’t worry, it happens to the best of us!) but it is necessary. Stick with it, in spite of the countless times you have to work out what percentage of a payment is VAT or have to write six entries just to pay your fees. Persevere after the fourth time it just won’t balance. It will be worth it to pass the exam and remember, after that you probably won’t EVER have to draw up a ledger again!
The next post will centre around two of the skills assessments; legal writing and drafting.