Accounts Manual J Zowa

LAW SOCIETY
ACCOUNTING FOR LEGAL

PRACTITIONERS MANUAL
A REVISION GUIDE
LAW SOCIETY OF ZIMBABWE
2013
This manual serves as a general guide to aid in the revision of accounting principles and trust management for
legal practitioners. It is aimed at providing precise definitions and articulate examples for easier understanding
and for revision purposes. 1
CONTENTS
CHAPTER 1
GENERAL INTRODUCTION…………………………………………….…… 2
FUNDAMENTAL CONCEPTS…………………………………………………2
CHAPTER 2
DOUBLE ENTRY……………………………………………………………..…4
STRUCTURE OF AN ACCOUNT……………………………………………...4
CHAPTER 3
ACCOUNTING EQUATION………………………………………………..…..5
INFLUENCE OF TRANSACTIONS TO THE ACCOUNTING
EQUATION………………………………………………………………………6
CHAPTER 4
INCOME AND EXPENDITURE………………………………………………..7
STOCK OF GOODS FOR RESALE…………………………………………….7
GROSS PROFIT…………………………………………………………………..8
MARGIN OF SALES………………………………………………………….....8
PROFITS AND LOSSES…………………………………………………………9
PROFIT AND LOSS ACCOUNT………………………………………………..9
BALANCE SHEET…………………………………………………………...10
2
CHAPTER 5
SUBSIDIARY BOOKS
LEDGER………………………………………………………………………13
THE CASHBOOK…………………………………………………………….15
MODERN CASH BOOK……………………………………………………..17
DISCOUNT…………………………………………………………………….18
JOURNAL……………………………………………………………………...20
PETTY CASH…………………………………………………………………..30
IMPREST SYSTEM……………………………………………………………31
CHAPTER 6
TRIAL BALANCE………………………………………………………………32
COMMON ERRORS OF THE TRIAL BALANCE…………………………..33
CHAPTER 7
DOCUMENTS USED IN TRANSACTIONS…………………………………33
CHAPTER 8
BANK RECONCILIATION……………………………………………………34
CHAPTER 9
ADJUSTMENTS…………………………………………………….………..47
ACCRUALS AND PREPAYMENTS……………………………………….48
DEPRECIATION…………………………………………….………………49
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BAD DEBTS…………………………………………………….……………50
CHAPTER 10
GENERAL PARTNERSHIP PRINCIPLES……………………………….52
APPROPRIATION ACCOUNT……………………………………………54
ADMISSION OF A PARTNER…………………………………………….55
GOODWILL………………………………………………………………....56
CHAPTER 11
REEVALUATION AND REALISATION OF FIXED
ASSETS………………………………………………………………….….59
CHAPTER 12
REGULATIONS ON TRUST ACCOUNTS……………..……….……..60
CONTRAVENTION OF ACT AND REGULATIONS…………..…….63
ACCOUNTING FOR LEGAL PRACTITIONERS MANUAL

CHAPTER 1
General introduction
Accounting is a measurement and information system which has been defined as the art of recording,
classifying and summarizing in a significant manner and in terms of money, transactions and events
which are in part at least of a financial character and interpreting the results thereof.
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Accounting entails the analysis and systematic recording of the business transactions of undertaking,
information is classified and summarized by means of the accounting process. The business results and
financial position of the undertaking as summarized are disclosed in the financial statements.
Transactions are events which result in the transfer of money, goods or services and all entities
concerned with events of this type. An example would be if a university pays out a student $2000, this
is a transaction. Transactions affecting the business are identified and measured in terms of the
measuring unit, the dollar. The transaction is then analyzed into its elements so that a historical record
of it is kept in the books of account. This routine clerical task of correctly recording business
transactions in the books of account is known as bookkeeping. To facilitate the provision of
information, transactions have to be classified in a logical manner dictated by the nature of the
particular entity. Generally, every business requires a summary of its expenses, revenue, cash in the
office, at the bank, sums owed by customers, sums owing to lenders, value of property such as
buildings and last but by no means least, the profit or loss made during a particular period.
Accounting serves management by providing timely information which aids the basic functions of
planning.
FUNDAMENTAL CONCEPTS
Accounting principles are not fundamental truths implying acceptance everywhere as in the natural
sciences but rather conventions and rules evolved from years of observation and experience.
Accounting assumes that a business unit is distinct from its owners or managers. At times the law
makes the same distinction as in the case of a company. In the case of a partnership or a sole trader the
law does not make such a distinction. Even so, the books of account are kept so as to maintain that
distinction. All transactions are therefore recorded from the point of view of the accounting entity only.
When the business makes a profit, this profit, although generated by the business, will belong and
accrue to the owner and will be reflected in the books as such. In accounting terms, this original
injection of cash and the profit generated is known as the capital account of the owner.
The owner may of course claim repayment of these amounts owed by the business. Such repayments
will reduce the amount of money which the business owes the owner otherwise known as the capital
account.
It is important to remember when any bookkeeping entry is made, that the entry is in the books of the
business and not in the books of the owner.
The concepts to take note of are:
Going concern concept
Accounting practice assumes that the enterprise will be continued indefinitely unless there are valid
reasons to the contrary such as imminent liquidation or winding up. This going concern convention
assumes that the business will use its existing assets in the ordinary course of operating the business
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from day to day and that it does not intend to sell these assets at current prices in the market place. For
this reason fixed asset are recorded in the Balance Sheet at their realizable or current values.
Historical value concept
Conventional accounting records and reports of business transactions are in terms of historical dollars.
Price level changes are ignored. Dollars of different vintages have different purchasing power. The
1991 dollar would have bought far more commodities than it would today. Yet accounting reports treat
all these dollars of different vintages as homogenous aggregates.
Accounting reports are valuable if they are comparable with those of previous years. It is therefore
desirable and accepted that accounting principles should be applied on a consistent basis from one
period to another. Consistency is not to be slavishly followed at the expense of good sense but if a
change is made it is essential that this should be disclosed in the reports.
Conservatism concept
Conservatism requires that earnings should not be recognized unless sale and delivery have been
completed and all known liabilities and losses should be recorded irrespective of whether the actual
amounts are at the time capable of precise determination. Conservatism cannot be justified if it results
in deliberate understatement of material facts.
CHAPTER 2
THE DOUBLE ENTRY CONCEPT
Under this concept each transaction has two aspects:
a) Its effects on assets/ liabilities
b) Its effects on the profit
Each transaction must have two equal and opposite effects. In another sense it can be viewed as every
debit entry must have a corresponding credit entry. As can be seen the practice of bookkeeping is
articulated by the double entry concept. The accuracy of the recording procedure is proved by
comparing the debit balances to the credit balances of all ledger accounts. Debiting and crediting
should not be merely related to increase and decrease. The balance in certain types of accounts, for
example assets, is increased by additional debit entries, whereas the balances in other types of accounts,
for example creditors, are increased by credit entries.
The double entry system is reflected by means of accounts. An account can be seen as a means of
recording changes. The account is an accounting device, generally applied to observe the effect of
recording and summarizing increases and decreases in the elements of the accounting equation. This
requirement is essential since balancing the equation serves as a control on the accuracy of the entries.
Structure of an account
The T- account form is often used

6
Furniture account
Debit side Credit side
Transactions may be entered on the debit side or credit side depending on whether the balance of the
item concerned is to be decreased or increased. The verb to debit means making an entry in the left side
of an account and the verb to credit means making an entry in the right side.
CHAPTER 3
THE ACCOUNTING EQUATION
A proper accounting system safeguards the assets of the firm and protects the funds of an attorney’s
clients. The accounting equation is as follows:
ASSETS = CAPITAL + LIABILITIES
The elements of the accounting equation
Assets
The expression asset, in accounting refers to items of value owned by the undertaking. Among the most
common assets are cash, clients’ accounts, furniture and equipment.
Capital (sometimes referred to as Owners Equity)
Any rights or financial claims to the assets are called equities. The ownership of assets establishes a
right to such assets which is referred to as equity. Thus, if Ken Lowe is the sole supplier of assets to his
practice he is the only person with any rights or financial claims against the assets of the undertaking. If
he invested $10 000 cash in the practice, his capital in the practice is $10 000.
The relationship between the assets and the capital is expressed in the equation as follows:
ASSETS = CAPITAL
The accounting equation of Ken Lowe’s practice after the investment of $10 000 cash in the practice is
as follows:
7
ASSETS = CAPITAL
cash = capital
$10 000 = $10 000
The total monetary value of the practice’s assets remains equal to the total monetary value invested or
the capital. This fact is the underlying principle of the basic accounting equation. This fact is the
underlying principle of the basic accounting equation.
Liabilities
The supplier of goods on credit and the financial institution advancing money are creditors. Their
claims are called liabilities. Such liabilities are obligations to pay the amounts owed as agreed upon. On
payment of the amount on the due date the claim of the creditor against the assets of the practice
expires since the obligation has been honoured by application of the practice’s assets – cash.
The equation is thus expanded as follows:
ASSETS = CAPITAL + LIABILITIES
The value of the assets equals the capital of the owner and money borrowed from other institutions.
The influence of transactions on the accounting equation
Every transaction brings about a change in the equation. Below are some illustrations of how different
transactions affect the accounting equation.
Transaction assets capital and liabilities
Introduction of cash as capital +cash + capital
Purchase of asset for cash +asset no effect

-cash
Purchase of asset on credit +asset +liabilities
Payment of creditor -cash -liabilities
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Receipt from debtor +cash no effect
-debtor
Drawings by proprietor -cash -capital
Loan from bank +cash +liabilities
The above illustration shows that every transaction affects at least two items in the accounting equation
and that the accounting equation must always balance.
CHAPTER 4
INCOME AND EXPENDITURE
Income and expenditure for a period of time is summarized in the profit and loss account. However, the
term expenditure may also be used for any purchases made by the business.
These are examples of income or sales made by a trader and fees earned by a person providing a
service. A business may have income from more than one source e.g. dividends or interest received
from investments or profits on the sale of fixed assets.
Income should only be recognized in the profit and loss account.
Examples of expenditure are the purchase of fixed assets, stock for resale, wages, rent and rates. All
expenditure will eventually be charged against income in the profit and loss account but not necessarily
in the accounting period in which the expenditure is incurred in the form of accruals and prepayments.
Stock of goods for resale
A category of finished goods that are sold to a retailer by a manufacturer or distributer and are
eventually intended to be sold to consumers for profit are known as goods for resale or stock. These
are not considered end- user goods at the time of purchase because they are still in the distribution
phase. This is an important distinction because any sales tax paid by the retailer for these goods is
considered a cost of doing business and can qualify as a tax reduction.
Gross profit and its significance
Gross profit is the difference between sales and proceeds and the cost of goods sold. In contrast, net
profit is the gross profit less the expenses of the business.
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Gross profit is extremely important to a company when evaluating the business and sales, because it
tells whether the company has made money or lost money on its sales. This is one of the most
important aspects of evaluating a company.
Gross profit is used to understand how efficient a company is evaluating its gross profit compared to
other companies. If a company is producing more gross profit by lowering costs or raising sales than
another company, it is more efficient and has more money to reinvest to better itself.
MARGIN OF SALES
Gross profit percentage is calculated using the following formula:
Gross profit percentage = gross profit x 100

sales
An example would be, if we know that sales total $8000 and the gross profit percentage is 25%, the
following can be deduced.
Sales $8000 (given) 100%

less cost of sales $6000 75%
gross profit $2000 25% (given)
The gross profit percentage in the above example is also known as the profit margin. The percentage of
profit is given by reference to sales.
Alternatively information on the mark- up may be given.
Mark up percentage = gross profit x 100%

cost of sales
Thus if we know that the cost of sales is $6000 and the mark up is one third, we can set out the
following:
$ Ratio
sales 8000 4
cost of sales 6000 3
gross profit 2000 1
10
In ratio terms gross profit is one part to three parts costs. Sales are therefore four parts so total sales =
4 x $6000 = $8000
3
PROFITS AND LOSSES
Profits and losses are summarized in what is called a profit and loss statement. This can be defined as a
financial statement that summarises the revenue, costs and expenses incurred during a specific period
of time usually a fiscal quarter or year. These records provide information that shows the ability of a
company to generate profit by increasing revenue and reducing costs. The statement can be drawn up in
two forms. It begins with an entry for revenue and subtracts from revenue the costs of running the
business including cost of goods sold, operating expenses, tax expense and interest expenses. The
eventual outcome is the net profit or loss depending on whether or not the balance is positive or
negative respectively.
A profit and loss statement indicates how the revenues (money received from the sale of products and
services before expenses are taken) are transformed into the net income (the result after all revenues
and expenses have been accounted). The purpose of the income statement is to show managers and
investors whether the company made or lost money during the period being reported.
Conventional lay out of the profit and loss statement and the balance sheet
PROFIT AND LOSS ACOOUNT FOR THE YEAR ENDING 30 JUNE 2011
Dr
Cr
Opening stock Sales 45 000

2500
Purchases 15 000 less returns 5 000 40 000
Less returns 300 14 700
Carriage inwards 3200
Customs duty 800
21 200
Less closing stock 1200
Cost of goods sold 20 000
Gross profit c/d 20 000
40 000 40 000
11
Carriage outwards 800 gross profit b/d 20 000
Motor vehicle 1700 discount received 600
Discount allowed 400
Wages 12 700
Rent 1200
Net profit c/d 3800 20 600
20 600
BALANCE SHEET AS AT 31 JUNE 2011
Capital Fixed assets

buildings 6000
Capital 23 000 motor vehicles 4000 10
Add net profit 3800 26 000
800
Less drawings current assets

7000
stock 1200
19
800 debtors 5700
Current liabilities cash on hand 8900 15

800
Creditors
6000
25 800
25
800
12
Vertical layout of the trading profit and loss account and the balance sheet
Sales xxx
Less cost of goods sold
Opening stock xxx
Add purchases xxx
Xxx
Less closing stock xxx
Xxx
Gross profit xxx
Less operating expenses
Rent xxx
Wages xxx
Water xxx
Depreciation xxx
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xxx
net profit xxx
balance sheet as at 30 June 2011
Fixed assets xxx
Current assets
Stock xxx
Debtors xxx
Prepayments xxx
Bank xxx
Cash xxx
Xxx
Less current liabilities
Creditors xxx
xxx
financed by
capital xxx
add net profit xxx
xxx
less drawings xxx
xxx
CHAPTER 5
SUBSIDIARY BOOKS
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THE LEDGER
A separate account is required in respect of each asset, liability or expense. These accounts, each on a
separate sheet, are maintained in a special book called a ledger. The term ledger, however, applies to
the group of accounts in which the business transactions of an undertaking are recorded.
Recording transactions in the ledger is a simple and practical application of the double- entry system.
The double – entry system requires that each transaction recorded in two or more accounts must have
total debits equal to the total credits. Before any transaction is recorded, it is essential to
 Analyze the transaction
 Determine the appropriate asset, liability or capital which are affected
 Ascertain which element items are increased and decreased respectively
For each transaction it is not only necessary to identify the two effects of the transaction and therefore
the two ledger accounts to be used but also to decide which ledger account has the debit entry and
which has the credit entry.
Below are practice examples which help to illustrate the rules of double- entry as well as recording in
the ledger.
Three transactions will be considered:
Day 1 Avon commenced business by introducing $1000 cash
Cash account
Date details $ date details $
1 capital 1000
Capital account date

details $ date details $
1 cash 1000
Wherever a business receives cash there is a debit entry made in the cash book.
15
Day 2 Buys a motor van for cash $400
Cash account
date details $ date details $
1 capital 1000 2 motor van 400
Motor van account

2 cash 400
Wherever a business out cash there is a credit entry made in the cash account. An asset is always a
debit entry.
Day 3 Buys stock for $200 on credit
Purchases account date

details $ date details $ 3
creditors 200
Creditors account
3 purchases 200
A liability is always a credit entry.
THE CASH BOOK
As the business grows in volume and the transactions increase in number a greater demand is made on
the bookkeeper to keep the accounts entered day by day. Care must be taken to limit the opportunities
for theft and embezzlement. Some suitable scheme must be devised to sub-divide the work, but the use
of one ledger only for all accounts sets a limit to any scheme, as the ledger cannot be used by more than
one person at a time. A step in the direction of subdivision of duties is to place one person in charge of
the cash and the cash and the bank and to separate these two accounts from the other accounts in the
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main ledger. The cash and the bank accounts, in such circumstances, are kept in the cash book- a book
bound separately from the ledger purely as a matter of convenience in the internal organization of the
business. The cashbook is placed in the keeping of the cashier. The accounts are still ledger accounts
and the separation does not affect the double entry principles already discussed.
A second convenience is achieved by adapting the ledger ruling contained in the cash book. Instead of
the cash account and the bank account being opened in different parts of the books, the account
columns are placed together, enabling the cash and bank balances to be found on the same page.
Date Details Dis Cash Bank Date Details Dis Cash Bank
April1 Bal b\d 120 350 Apr2 Landlord 200
3 John Tom 68 3 Station 20
6 X.Z 54 5 Rates 100
7 A.B & Co 30 6 Tea & Milk 12
8 Cash 152 8 Bank 152

9 Sales 325 10 Bank 300
Balance c\d 113

Balance b\d
10 597 802 113 502
597
113 502 802
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All cash received is entered into the cash column on the debit side of the cash book. If items are paid
for in cash they are entered on the credit side of the cash book in the cash column and if paid through
the bank account (i.e. by cheque) they are shown in the bank column. At periodical intervals the cash is
paid into the bank and, on this occasion an entry is made showing a debit in the bank column on the
debit side an entry in the cash column on the credit side.
At any time the balance of the cash or the bank columns should equal the amount of cash held at the
business or at the bank respectively.
The Modern Type Two Column Cash Book
This form of cashbook is now widely used in business. All money received, whether coins, cheques,
are paid into the bank, and all payments are made by cheque. Certain small payments in cash, such as
messenger’s fares and telegrams, are necessary in any business, but where these occur they are reserved
for payment out of petty cash (as described later) a cheque being drawn weekly or monthly to cover
such payments. Each day cash and cheques received are entered in the bank deposit book prior to being
paid into the bank. The details of the cash received are entered in the cash book in the details column
on the debit side. These amounts are added up, and the total is carried to the bank column on the debit
side.
CASH BOOK- DEBIT SIDE
Date Receipt No Details Fol. Discount Details

Bank
Apr 1 - Balance
457,22
2 M234 Jones & Co J1 123,43
M235 T. Ess E5 2,50 47,30
- Cash Sales 105 250,09
M236 S.T Ltd S9 5,00 95,00

515,82
6 M237 Finance Co F8
2000,00
7 - Cash sales 101 320,00
M238 Miss T.J T2 126,00
18
446,00
You can see that cash is entered into the details column and totaled when paid into the bank so that the
total will be the same amount shown on the bank deposit slip.
The information given in the cash book on the receipts or debit side will shown the date, the receipt
number, details of the person from whom payment has been received, a reference folio for cross
reference when the item is posted to the other account in the ledger and also details of any discount
which has been allowed by the customer.
CASH BOOK- CREDIT SIDE
Date Cheque No Details Fol. Discount Details

Bank
Apr 3 12423 John Doe D1

521,60
3 12424 X suppliers Ltd X5 10,00

190,00
12425 Harare Council Re:
Rates 58 520,80
Services 44 115,16
635,96
6 12426 Wages 75
240,00
6 12427 Drawings 22
19
150,00
The credit side of the cash book shows a bank column for the entry of the cheques drawn, and a detail
column for use if one cheque is drawn to cover two or more payments which have to be debited
separately to the ledger account.
There is no actual cash column as no cash is kept in the office. The petty cash is treated separately. It
follows that there will be no cross entries of cash withdrawn from the bank for office use or for surplus
cash paid into the bank.
DISCOUNT FOR CASH OR PROMPT SETTLEMENT
Discounts are allowances made for the prompt settlement of account. The receipt is issued in the case
of a discount which the business has allowed to a customer will include particulars of the actual amount
paid and the amount of the discount. Both sums will be entered into the discount columns and both will
be posted off the customer’s ledger Account.
At the end of the month the cash book is rules off and the columns totaled. The balance on the cash or
bank Account will be carried down to the next period but the totals of the discount columns will be
posted to either the discount allowed or discount received account to complete the double entry.
The following examples show the entries required. Only one customer’s and the supplier’s account is
illustrated.
May Fol Dis Rece May Fol Disc Pay
2 AB & CO A1 2,50 50,00 1 CD & CO C1 4,00 80,00
3 EF & CO E3 195,00 2 GH & CO G1 7,50 165,00

IJ Ltd
4 E2 5,80 462,10 3 KB Ass K3 28,00
M.N.R
5 M5 4,80 96,05 4 P.Prtnrs P5 3,75 150,00
Q.S
6 Q1 321,00 5 Trade U T7 14,00
VW Ltd
V6 0,90 18,00 6 XYZ & Co X1 16,10 322,00
1142,15 Balance c/d 382,65
1 142,15
Dr Dis
14,00 Cr Discount 31,35
20
Allowed Received
LEDGER ACCOUNTS
(Customer) AB & CO
A1
Dr
Cr
April 30 Balance b/d 52,50 May 1 By Cash C.B.1 50,00
---- Discount C.B.1 2,50

--
52,50
52,50
(Supplier) CD & CO
C1
Dr
Cr
May 2 Cash C.B.1 80,00 April 30 Balance B/d 200,00
Discount C.B.1 4,00
DISCOUNT ALLOWED
Dr Cr
May 2 Cash C.B.1 14,00
DISCOUNT RECEIVED NL 5
Dr Cr
May 6 C.B.1 31,35
21
NOTE: Discount allowed is a business expense- discount received is income to the business.
JOURNALS
1. WHAT IS A JOURNAL ENTRY?
A journal is also a book of prime entry, wherein a financial entry originates and therefore it serves a
similar purpose as the cash-book (Chapter 2) and the petty cash-book (Chapter 3). A journal is a pre-
printed book which is normally prenumbered and, if not, numbered by the user of the journal.
A journal entry is prepared for all transactions entered into by a business which are not recorded in the
business cash-book. The cash-book and the petty cash-book record receipts as debits and payments as
credits and these entries are one leg of the transactions used to complete the double entry. In a journal,
every entry must have a debit entry (with a value) as well as a credit entry (with the same value). All
journal entries are made up of a debit entry with a corresponding credit entry.
A journal entry is processed in a journal which has a date column, a description column, a folio column
and a debit and credit money column and the entry is normally entered as follows:
Date Description Folio Debit Credit
1 /03/2009 Account 555 Dt 999, 99
Account 777 Ct 999, 99
(Reason for the entry i.e. narration)
 Note that the first entry is the debit entry and entered into the left money column of the journal;
 The second entry is the credit entry and entered into the right money column of the journal;
 The two amounts are the same; and
 There is a folio column (numbered 555 and 777 above) which is used to enter the reference
number of the account to which the entry has been posted (see paragraph 3 below). (Note: Folios
are not required for examination purposes)
 The reason (narration) for the entry is crucial- it explains why you have debited and credited the
respective accounts and usually refers to the source document from which the entry arises.
A journal entry therefore has two equal entries as a debit and credit, which ensures that with the double
entry system, all accounts will remain in balance.
2. WHEN IS A JOURNAL ENTRY REQUIRED?
A journal entry is normally required for transactions where there is no flow of cash. If a transaction has
a flow of cash, it will be recorded in either the cash-book or the petty cash-book. If the transaction
does however not have a flow of cash, it would not be possible to record such an entry in either the
cash-book or the petty cash-book. Such entry would therefore be required to be recorded in the journal.
If a computer is purchased by the practice for an amount of 7 000 and if the purchase price is paid in
cash, it will be recorded in the cash-book. The entry would be a credit entry in the cash-book (being a
22
payment) and to complete the double entry, a debit entry to an asset account called computers in the
general ledger.
If a computer is purchased by the practice for an amount of 9 000 and if the purchase price will only be
paid in the future, either by one or more instalments, the transaction cannot be recorded in the cash-
book. This entry will require a journal entry to be recorded in the financial records of the practice.
A journal entry may, under certain circumstances, be required for an entry or transaction where there
has previously been a flow of cash. If a payment has been processed in the cash-book and it is later
discovered that the entry was posted to the wrong ledger account, a journal entry will be required to
transfer the entry from the incorrect account to the correct account. Although the original entry did
involve the flow of cash, the correcting entry (the journal entry itself) does not involve a flow of cash.
The preceding paragraph will however not apply if an entry has been processed in the cash-book and it
later transpires that the value of the entry in the cash-book was incorrect. To correct an incorrect
amount entered in a cashbook, is a cash entry and should to be processed in the cash-book. If this entry
is not processed in the cash-book, the result will be that the balance of the cash-book will be incorrect.
Other non-cash entries that will normally require a journal entry are the following:
 Writing off of a bad debt. If a client is not able to pay his account and
the practice decides that the amount is not recoverable, the balance of this account must be
removed from debtors. This writing off is a non-cash entry and requires a journal entry.
 Depreciation written off on fixed assets. If the practice acquires a new

computer for 9 000 and the practitioner knows that the computer has an economic life span of
three years, the practice needs to write off this computer over three years, being 3 000 per year (if
calculated on the straight line method). The annual depreciation written off of 3 000 is a non-cash
entry and will require a journal entry.
 If interest is charged on overdue accounts of clients. The raising of the

interest against a client’s account increases the balance of the client’s account and it reflects that
the practice has an income known as interest received. But it is a non-cash transaction and will
require a journal entry. If the client should now pay the interest that would be a cash transaction
which will affect the cash-book and reduces the balance of the client’s account.
A debtor is a client of the practice that owes money to the practice. A creditor is an outside practice or
entity to whom the practice owes money. When the practice concludes a transaction which does not
involve cash flow, with a debtor or creditor, an asset or a liability is created - either the debtor owes the
practice money or the practice owes the creditor money. Certain assets may have been purchased or
sold, but there was no flow of cash. Journal entries are therefore necessary to create the debtors’ and
creditors’ accounts. It is only when the practice receives money from the debtor or pays the creditor,
that there is a flow of cash - which is recorded in the cash-book. Fees earned by the practice and
charged to a client, need to be recorded in a journal. This journal is known as a fees journal which is
discussed in paragraph 6 below.
3. HOW IS A JOURNAL ENTRY PROCESSED?
23
As mentioned in paragraph 1 above, all journal entries have debit entries and credit entries with
corresponding amounts. Journal entries must always be in balance.
All assets and expenses have debit balances and all liabilities and income have credit balances. This is
due to the double entry system used to post from the cash-book to the account in the ledger. The cash-
book reflects amounts received as a debit and these are posted to the income or liability as a credit in
the ledger. The cash-book also reflects amounts paid as a credit and these are posted to the expenses or
assets as a debit in the ledger. The reason for this is that the cash-book actually is the bank account in
the ledger but due to the volume of transactions recorded therein, a separate book, the cashbook is
maintained.
The journal entry caters for non-cash items, and records a transaction between two accounts which
exclude the cash-book or petty cash-book. A journal entry cannot be used to debit or credit a cashbook
or petty cash book. The journal records a double entry between two ledger accounts the origin of which
can be traced back to the underlying document by reference to the narration attached to the particular
journal entry. The debit entry in a journal will be recorded as a debit in the relevant ledger account to
which it is posted and a credit entry as a credit.
As the journal is a book of prime entry it is necessary that the source and reason for the journal entry be
fully explained. The creator of the journal entry knows why the journal entry was processed, but any
other person (either a practitioner, auditor or inspector) would not know why the entry was created.
This creator would also not remember after a few months why the journal entry was processed. All
journal entries therefore require a narrative in the line below the entry which explains in detail the
reason for the journal entry and would refer to the underlying documentation e.g. invoice number,
credit note number etc.
A journal entry reflects the transfer of a value between two accounts. If the transfer was a cash
transaction and recorded in the cash-book, it is easy to explain the nature of the transaction - there will
either be a receipt or a cheque available. If a transfer is a non-cash transaction, it is more difficult to
explain. Any person could very easily create a journal entry to transfer balances between two accounts.
It could be to correct errors, but it could also be used to create entries to hide unlawful acts including
theft and fraud. It is therefore important that any reader of a journal must be able to determine why the
journal entries were created and what the effect of the journal entry is on the two accounts involved. It
is vital that all journal entries have a narrative explaining in detail the reason for the journal entry.
Examples of journals are:
3.1 A computer was purchased by the practice for 9 000 from ABC Ltd to be paid in instalments of
450 per month. The journal entry will be as follows:
Computers (asset) Dt 700 9 000,00

ABC Ltd (liability) Ct 900 9 000,00
Purchase of computer on credit
Please note that the payments of R450 per month will be cash-book entries posted to account
number 900.
3.2 A computer was purchased by the practice for 9 000 and the cost must be written off over three
years as an expense known as depreciation. The journal entry will be as follows:
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Depreciation (expense) Dt 300 3 000,00
Computers (asset) Ct 700 3 000,00
Depreciation for the year at 33,3%
3.3 Cheque number 655 for the purchase of stationery account 301 amounting to 760 was posted
from the cash-book to account 310 (entertainment) by error. The journal entry will be as follows:
Stationery on hand (asset) Dt 301 760,00

Entertainment (expense) Ct 310 760,00
Correction of cheque 655 posted in
error to account 310 entertainment
3.4 The practitioner decided to add 2 500 interest on to the overdue account of her client, BB (Pty)
Ltd. The journal entry will be as follows:
BB (Pty) Ltd (asset) Dt 500 2 500,00

Interest received (income) Ct 150 2 500,00
Interest on overdue account at 15%
per annum – on instructions of
practitioner
4. VARIOUS TYPES OF JOURNAL ENTRIES
Journal entries are used to record a number of different types of transactions and it can be altered to suit
the specific use it is required for. Journal entries are often renamed to identify the specific transactions
that are recorded in these journals and these journals are often kept separately from each other. The
different journals include the following:
 Sales journal
 Fees journal
 Purchase journal
 Transfer journal
 Salaries journal
 General journal.
The types of journals used in a practitioner’s office, would normally be limited to a fees journal, a
transfer journal and a general journal.
The journal entries in the journals will be entered in a manner which is most suitable for the type of
entries that would be processed in each journal. The journals can be entered either as:
4.1 A SINGLE JOURNAL ENTRY PER TRANSACTION
This is the most common journal entry which will be the entries normally found in a general journal.
These type of journals are the journals listed as examples in 3 above.
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4.2 A COMBINED JOURNAL ENTRY FOR A NUMBER OF TRANSACTIONS
This is a journal for a number of same entries which could be combined into one journal entry covering
the transactions for a period of a day, a week or a month. Generally, these combined journal entries
would be recorded into separate journals. In a practice, the combined fees journal would appear as
follows:
Client A Invoice no 101 Dt 650 2 000,00

Client B Invoice no 102 Dt 651 1 500,00
Client C Invoice no 103 Dt 652 2 500,00
Client D Invoice no 104 Dt 653 2 000,00
Client E Invoice no 105 Dt 654 3 000,00
Fees earned (receivable) Ct 100 11 000,00
The entries in such a combined journal will normally contain similar entries and no narration may be
required as the relevant invoices have been recorded in the entry.
5. JOURNAL ENTRIES IN THE ACCOUNTING RECORDS OF PRACTITIONERS
Practitioners’ accounting records are unique when compared to other accounting records. The reason is
that practitioners’ accounting records have two separate sets of accounting records in one - business
accounting records and trust accounting records. These accounting records also have two banking
accounts - a trust banking account and a business banking account, see Chapter 2.
As it is important that entries in a trust banking account can only be posted to trust ledger accounts and
entries in a business banking account can only be posted to business ledger accounts, it is also
important that the same principle must apply to journal entries. Therefore, if one entry of a journal is
posted to a trust ledger account, the other entry must also be posted to a trust ledger account. No
journal entry can be posted to both business and trust ledger accounts.
6. FEE JOURNALS
Fee journals are the method of recording the fees that a practice has earned. The fee journals create the
amount owing by the client to the practice,[the effect is that the client is made a debtor of the
practice].and the fee income earned by the practice. The entries in the fee journal are therefore to debit
the debtor and credit fees with the amount of fees due.
Fees earned by the practice are the business conducted by the practice to earn income. It is therefore a
business transaction and has absolutely nothing to do with the practice’s trust accounts. The entries in
the fee journal are business account debits and credits and have nothing to do with transactions or
balances in the trust accounting records of the practice.
As mentioned in paragraph 4.2 above, a separate journal is used for recording the fees, i.e. a fees
journal. Normally a fees journal will have more columns than the example mentioned in paragraph 4.2
above and the columns may include some or all of the following:
 Date - The date when the fee was earned by the practice.
 Name - the name of the client, the debtor.
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 Description - details of the fees earned, which will be the information disclosed when the
practice accounts to the client in writing (at least within a reasonable time after the performance
or earlier termination of any mandate).
 Fee earner - the practitioner who attended to the client and who is the fee earner. This
information will be used by practices to measure the productivity of fee earners.
 Account number - the ledger account number of the debtor.
 Amount - the value of the fee charged.
 Value added tax - the value of the vat charged.
If a number of matters or transactions were handled for one client, or if the fee needs to be
divided into more detail, the entries in the fees journal may include more than one entry for a
client. A fee journal will normally not have separate money columns for debit and credit entries.
Everyone does know that the entries in the fees journal will be debited against the accounts of the
clients. Only one money column is used, which column is added to arrive at a total value of fees at
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7. OTHER JOURNAL ENTRIES IN PRACTITIONERS’ ACCOUNTING RECORDS
There are a number of journal entries which are unique to the accounting records of attorneys’
practices. The reason why these journal entries are unique is due to the dual accounting system
required to be applied by practitioners - business accounting records and trust accounting records. It is
important to ensure that if one entry of a journal is posted to a trust ledger account, the other entry must
also be posted to a trust ledger account and if one entry of a journal is posted to a business ledger
account, the other entry must also be posted to a business ledger account. No journal entry can be
posted to both business and trust ledger accounts. Some of the journal entries processed by
practitioners in their accounting records are discussed below.
8. PROVISION FOR AMOUNTS OWING TO CREDITORS
If a journal entry is prepared to provide for an amount owed by the practice to any of its creditors, it
will always be a business journal entry. Examples of such amounts owed are:
 an amount owed by the practice to a supplier of stationery to the practice, or

 an amount owed by the practice to an advocate for services rendered on behalf of a client of the
practice, or
 an amount owed by the practice to a correspondent practitioner for services rendered on behalf of
a client of the practice, or
 An amount owed by the practice to the sheriff for services rendered on behalf of a client of the
practice.
The four categories of creditors listed above can never be trust creditors of the practice in respect of the
amounts owed by the practice. The amounts reflect amounts which the practice now owes to a third
party. The reason why the journal entry will be a business journal entry and not a trust journal entry is
logical: The amounts relate to the business account and hence the business journal should be used.
Further, if you credit the amount owing to the creditor, to a trust creditor’s account, what other trust
account will you debit? The client? You cannot debit the client’s trust account, because a trust creditor
may not have a debit balance.
The journal entries, being all business journal entries, will be as follows:
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Stationery on hand (asset) Dt 301 500,00
Suppliers (Pty) Ltd (liability – business Ct 150 500,00
creditor)
Amount owed for stationery delivered on 30th of
this month – invoice 4356
Client A (asset – business debtor) Dt 510 3

500,00
Adv A Bee (liability – business creditor) Ct 930 3
500,00
Provision for account received - See copy of
account on client file
Client B (asset – business debtor) Dt 520 2

500,00
AB Attorneys (liability – business creditor) Ct 940 2
500,00
Provision for account received – See copy of
account on client file
Client C (asset – business debtor) Dt 530 100,00

Sheriff A (liability – business creditor) Ct 950 100,00
Provision for account received – see copy of return
of service/account on client file
If clients A, B and C in the examples above have paid the funds to the practice, in trust, in advance to
allow the practice to pay these accounts, the accounts may of course be paid directly from the practice’s
trust banking account - refer chapter 2 for more details. It would not be necessary to create the above
journal entries.
If clients A, B and C in the examples above pay the funds to the practice at a later date, the practice has
two options:
8.1 Either to receive these funds into its business banking account as payment of the debit balance
created against the client’s business account above (which will reduce this balance to nil and is
the preferred manner of dealing with this payment at this stage); or
8.2 To receive these funds into its trust banking account, which will have the effect that the client
will have a debit balance on her business account and an equal and opposite credit balance on her
trust account. These two balances can be corrected though a trust transfer - refer Chapter to 6 for
more details. The transfer from the trust to the business account must be made at least once per
month.
Both options are acceptable, but 8.2 may result in increased bank charges, lead to additional
bookkeeping entries and have a detrimental effect on the practice’s cash flow.
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9. JOURNAL ENTRIES OF COSTS INCURRED ON BEHALF OF CLIENTS
Practices do have expenses which they are entitled to recover from their clients. These expenses could
be direct expenses, e.g. a payment to a supplier, or indirect expenses, e.g. the cost of telephone calls,
photocopies or revenue stamps. A direct expense will be debited directly against the client’s business
account. In most instances it is however not possible for the practice to debit the indirect expenses paid
directly against the client, because within the expense are included a number of other similar items.
The practice will debit the client’s business account with these indirect costs incurred through a journal
entry and credit the expense item to which the original expense was posted. The original payments
which need to be recovered, were business expenses, e.g. telephone, stationery and revenue stamps
expenses. The journal entry will also be a business journal entry, which will be as follows:
Client A (asset – business debtor) Dt 510 200,00

Telephone (expense) Ct 330 200,00
Provision for calls made – See details on client file
Client B (asset – business debtor) Dt 520 500,00

Stationery used (expense) Ct 340 500,00
Provision for photocopies made – See details on
client file
Client C (asset – business debtor) Dt 530 100,0

0
Revenue stamps (asset) Ct 350 100,0
0
Provision for Revenue stamps used – See details on
client file
10. TRUST JOURNAL ENTRIES
The only entries that may be processed against a trust creditor’s account, are trust receipts and trust
payments (refer Chapter 2), trust transfers (refer Chapter 6) and trust journal entries. No other entries
from any prime book of entry may be posted to a trust creditors trust account .
The use of trust journal entries are limited. Trust journal entries may only be entries between two trust
ledger accounts and no entries to the business accounts can be processed using a trust journal.
Trust journal entries are limited to the following:
 To correct a posting error. If a trust receipt was posted to the incorrect

trust account, it can be corrected with a trust journal entry.
 A transfer on request of a client. If a client should have more than one

trust account with the practice, the transfer of funds from one trust account to the other trust
account may be affected through a trust journal entry. Further if a client who has trust funds lends
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these funds to e.g. the purchaser of a property this loan would be recorded by way of the trust
journal.
A client may instruct a practice to transfer the trust funds to his credit in the practice’s trust banking
account into a trust investment account for her benefit - refer chapter 8. It is important to note that such
a transaction is for accounting purposes merely a transaction between two banking accounts and that
this transfer does not affect the balance of the account of the trust creditor. No journal entries can be
processed which have an effect on the trust creditor’s account. The only trust journal entry to be
processed is for the provision for the interest earned on the investment - refer Chapter 8 for more
details.
e bottom of the page. The individual entries are then posted as debits to the accounts of the debtors and
the total value is posted to the credit of the fees earned (receivable) account. The total value of the debit
entries will agree with the total value of the credit entries, with the effect that the practice’s accounting
records will be in balance.
THE PETTY CASH AND THE IMPREST SYSTEM OF PETTY CASH
It is present day practice for business to pay all cash received intact into the bank, and to record in the
cash book only payments made by cheque. There are, however, numerous small payments for which
you would not dream of writing out cheques.
A separate “fund” is usually created to provide for the petty disbursements. This “fund” is recorded in
a petty cash book along with the petty cash amount paid out.
The petty cash book is really a subdivision of the cash book. In the same way that the cash book is in
effect a ledger account, so is “petty cash” a ledger account. Petty cash transactions may be conveniently
recorded in a columnar petty cash book, an example of which is given below. Receipts of cash are
entered in the receipt column (the bank column in the main cash book being credited), and payments
are entered first in a total payments column and then analyzed into subsidiary columns under
convenient headings. Supporting vouchers must be obtained for all disbursements. These vouchers
should contain a description of items purchased and should be numbered, entered in the petty cash
book and then filed. In the exercise and examination work, a petty cash book must be opened up where
the question specifically asks for it.
The petty cash book is periodically (usually monthly) balanced and posted to the ledger. The folio of
the petty cash book is shown in the ledger and the ledger folio is the petty cash book.
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The totals of the various analysis columns are posted to the debit of the respective nominal accounts,
with the exception of sundries or ledger column. This is for all items for which there is no specific
analysis column. These items are posted individually to the appropriated accounts.
A typical petty cash book is shown below:
Date Fol Date PVC Details Total Post Sta Car Tea
Recd Sundry
Jan 1 C1 Jan 1 Milk 4, 80 4,80

25,00
4 2 Stamps 1,40 1,40
7 3 Envelopes ,60 ,60
9 4 Petrol 8,50 8,50
10 5 Nails ,25 ,25
23 6 Tea 2,80 2,80
18,35
6,65
25,00 1,40 ,60 8,50 7,60 ,25
The whole idea of having a columnar petty cash book is to save postings as you then post the total of
the individual columns, instead of having to post each item separately.
THE IMPREST SYSTEM
By the “imprest system” it means a system by which each month is begun with exactly the same
amount as the month before i.e. the opening monthly balance is to remain constant. The cashier is
provided with a fixed sum and, at each balancing period (or when cash is running low), is given a
cheque for the amount of disbursement, thus restoring the petty cash balance to the original figure. The
amount of the periodical disbursements is thus kept prominently before the notice of the person who
signs the cheque- normally a senior person.
If it is decided, as in the above example, that 425, 00 will be sufficient for the monthly petty
disbursements, the system would be started with this amount. At the end of the month, the petty
disbursement amounted to $18, 35. A cheque for this amount would then be drawn in favour of the
petty cashier. She already had an unspent balance of $6, 65 in hand so that her balance to begin the
second month would be restored to $25, 00 the same as the commencing balance for the first month. In
31
other words, the petty cashier is reimbursed with the exact amount of her expenditure. The regular
balance is thus instance $25, 00, is known as the imprest amount. If petty cash imbursement are usually
high, it may be found necessary, of course, to reimburse the petty cashier during the month.
The balance of cash in hand of the petty cashier at any time, together with the value of the vouchers she
has received against disbursements since she was last reimbursed, must equal the imprest amount.
CHAPTER 6
THE TRIAL BALANCE
A trial balance is a schedule or list of balances both debit and credit extracted from the accounts in the
ledger. The objects of the trial balance are to reflect a summary of the ledger and to also be used as
material for preparing the Trading and Profit and Loss account and the Balance Sheet. It is also
important to note that under the double entry system, the total debits in the ledger must equal the total
credits and the trial balance is the recognized method of ascertaining whether this is so.
The Trial Balance is a proof only of the arithmetic accuracy of the postings and even so, it is only
prima facie evidence of such accuracy. Certain classes of mistakes are not shown by the Trial Balance
prepared of balance only. These are:
1. OMISSION ENTRIES
If both the credit and debit entries of a transaction have been omitted, the Trial Balance will not
be affected and will therefore not reveal the error.
2. COMPENSATION ERRORS
If one account has been under or over- debited with a certain amount, say $20, and another
account has been under or over- credited with the same amount, it will not prevent the
agreement of the Trial Balance. Hence, the error will not be revealed.
3. ERRORS OF COMMISION OR MISPOSTING OF ACCOUNTS

When an entry is made on the correct side but in a wrong account of the same class the error
will not be reflected by the preparation of a Trial Balance. For example, if $100 has been posted
to the credit of R Smith instead of F Smith, such an error does not affect the Trial Balance.
4. ERRORS OF RINCIPLE
If an item of revenue expense is debited to an asset account (or vice versa), the error does not
affect the agreement of the Trial Balance, and thus the error is not revealed. In an error of
principle, an entry is made on the correct side but in n account of the wrong class.
5. ERROR OF ORIGINAL ENTRY

If a transaction of $418 has both entries of $481 as the amount, this will not cause the balance to
differ.
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COMMON ERRORS OF THE TRIAL BALANCE
The reason why the totals of many Trial Balances cannot be agreed at the first attempt is very often due
to one or more of the following errors:
1. Debit balances in the ledger having been entered in the credit column of the Trial Balance, and
vice versa.
2. Balances missed in extracting lists of debtors or creditors.
3. Errors in calculation
4. Transposition of figures e.g. $12 for $21 or $34 for $43
NB: Assets, losses and expenses are debit balances whereas liabilities, gains and profits are credit
balances.
CHAPTER 7
BASIC DOCUMENTATION – DOCUMENTS USED IN TRANSACTIONS
Every business will have its own peculiarities and will use forms designed to meet its own needs. The
following documents are, however, in general use.
Sales Invoice
The invoice states the quantity, price and value of goods supplied usually on credit. It is the basis from
which the sales records are written up. In some cases a simple till slip may be sufficient in which case
the total of such slips will give the cash sales for the particular period.
Receipt Book
When a debtor makes payment, he is issued with a receipt giving details which include his name,
discount if any and whether payment was in cash or by cheque. The duplicate of the receipt remains in
the book and is used together with the bank deposit book to write up the debit side of the cash book.
Debit Note
A seller uses a debit note if for any reason; the amount stated on one of the invoices is understated. He
will not send a new invoice but merely a debit note for the difference. Similarly, a purchaser who
returns goods to the seller may send a debit note with them to show that he expects the seller to bear the
charge.
Credit Note
The credit note is sent by a seller when the amount stated on his invoice is overstated.
33
Statement
Most businesses send out monthly statements to debtors. It shows the value of goods invoiced, plus
debit notes, minus credit notes and amounts of cash paid and the balance owing.
CHAPTER 8
BANK STATEMENTS AND BANK RECONCILIATION STATEMENTS
In the books of account generally there will be a cash book and a bank statement. The cash book will
record all transactions with the bank whilst the bank statement is a record, sent by a bank to its
customer, listing transactions since the date of the previous statement.
A moment’s thought will suggest that the cash book entries will correspond with those of the bank
statement. However, timing differences must inevitably occur. A cheque payment is recorded in the
cash book when the cheque is dispatched. The bank only records such a cheque when it is cleared,
which may be several days later. The bank statement therefore serves the purpose of reconciling what
may have been done at the bank account not yet reflected in the cash book. The reconciliation takes the
form of a bank reconciliation statement.
Bank reconciliation statement
A bank reconciliation statement is a detailed statement reconciling, at a given date, the cash balance in
an entity’s cash book with that reported in a bank statement. The reconciliation is carried out at
frequent intervals.
How is the reconciliation carried out? Two types of items must be identified:
a) Those which appear in the bank statement but which have not yet been entered in the cash
book;
b) Those which have been entered in the cash book but which have not yet appeared on the bank
statement.
Items not yet entered in the cash book
These may include:
a) Bank charges
b) Bank interest (on overdrafts)
c) Standing orders and direct debits
d) Credit transfers- where a receipt has been paid into the firm’s bank account.
34
All of these items must be eventually entered in the cash book because they relate to cash transactions
of the business. This will then bring the cash book in line with the bank statement.
Items not yet on the bank statement
These will be timing differences that include:
a) Outstanding or unpresented cheques
Suppose a cheque relating to a payment to a supplier of Poorboy Ltd is written and posted on 29
March. It is also entered in the cash book on the same day. By the time the supplier has received
the cheque and paid it into his bank account, and by the time his bank has gone through the
clearing system, the cheque does not appear on Poorboy’s statement until, say 6 April. Poorboy
would regard the payment as being made on 29 March (and the creditor balances reduced) and
its cash book balance as reflecting the true position at that date.
b) Outstanding deposits
In a similar way, a trader may receive cheques by post on 31 March, enter them in the cash
book and pay them into the bank on the same day. Nevertheless, the cherubs may not appear on
the bank statement until 2 April. Again the cash book would be regarded as showing the true
position.
Outstanding deposits are also known as outstanding bank lodgments.
To prepare a bank reconciliation statement by commencing with the balance per the bank
statement as at the last day to which we are reconciling.
i. Mark off all deposits from the current bank statement on the previous
month’s reconciliation statement and the current month’s cash-book.
ii. Identify deposits on the bank statement not reflected in the cash-book and
decide if they are entries within the period of the cash-book you are
preparing, if so, enter them into the supplementary cash-book on the debit
side. If the deposits are bank errors enter them in the bank reconciliation
statement only.
iii. Mark off all cheques and payments appearing on the bank statement to
the previous month’s reconciliation and the current month’s cash-book.
iv. Identify payments and charges on the bank statement not reflected in your
cash-book and decide if they are entries within the period that should be
reflected in the cash-book, if so, enter them on the credit side of the
supplementary cash-book. If the items appearing on the bank statement
are bank errors, first advise the bank and request them to correct the error
35
thereafter enter the error, appropriately described, in the bank
reconciliation statement.
v. Identify errors of the firm if cheques or deposit amounts in the cash-book

and the bank statement do not agree, accept the bank statement figure as
being correct, reverse the incorrect entry and record the correct entry in
the supplementary cash-book.
vi. Once all entries on the bank statement have been marked off and
accounted for either in the supplementary cash-book or bank
reconciliation statement, go through the previous month’s reconciliation
statement and the current month’s cash-book to identify any entries that
remain unmarked. These are outstanding cheques or deposits and must be
reflected in the bank reconciliation statement. One needs to examine the
outstanding cheques to ensure that they are not more than six months old
in which event they must be reversed in the supplementary cash-book by
entering them on the debit side as they have become stale.
vii. Calculate the adjusted bank balance in the bank reconciliation statement
by adding or subtracting the various entries from the original balance of
the bank statement. The adding or subtracting will depend upon the effect
of each of the relevant entries on the bank balance.
viii. The calculated balance per the bank reconciliation statement and the
brought down balance in the supplementary cash-book should now agree
with the adjusted bank balance.
EXAMPLES OF BANK RECONCILIATION
Standard format:
Where the balance as per bank statement is favourable
Bank reconciliation statement as at 31 October 2009
Balance as per bank statement xx xxx
Less: Outstanding cheques nr 4 xxx
nr 7 xxx x xxx
Sub-total xx xxx
Plus: Outstanding deposit xx xxx
36
Sub-total xx xxx
Less/Plus: Bank error (if applicable) x xxx
Balance as per cash-book xx xxx
Where the balance in the bank statement is overdrawn
Plus: Outstanding cheque nr 3 xxx x xxx
Sub-total xx xxx
Less: Outstanding deposit xx xxx
Sub-total xx xxx
Format based on the lay-out of a bank statement. (The example is for both favourable and
overdrawn balances)
Bank reconciliation statement as at 31 Dr Cr

October 2009
Balance as per bank statement Overdrawn Favourable

balance balance
Less: Outstanding cheques nr 6 xxx
nr 9 x xxx x xxx
Less: Bank error: Deposit x xxx
Plus Bank Error: Cheque xx xxx
37
Balance as per cash-book
Total
Notes on Bank Errors
 If the bank erroneously debited the business bank account with a cheque
drawn on the Trust Account (trust cheque) then the amount of this
cheque must be added to the credit balance of the business bank account
or the business bank account overdraft must be reduced by the amount of
this cheque. Therefore the value of the bank error (cheque) must be
added in the bank reconciliation statement for the business bank account.
 If the bank erroneously credited the trust account with a deposit made to
the business account then the amount of the deposit must be subtracted in
the trust bank reconciliation. Therefore the value of the bank error must
be subtracted in the bank reconciliation statement for the trust bank
account.
Where only the cash-book balance is given
Standard format
First calculate the balance in the supplementary cash-book.
If favourable:
Plus: Outstanding cheques nr 4 xxx
38
nr 7 xxx x xxx
Sub-total xx xxx
Sub-total xx xxx
If overdrawn:
Less: Outstanding cheque nr 3 xxx x xxx
Sub-total xx xxx
Sub-total xx xxx
Format based on lay-out of bank statement
The example is for both favourable and overdrawn.
Bank reconciliation statement as at 31 Dr Cr

October 2009
Balance as per cash-book Overdrawn Favourable

balance balance
Plus: Outstanding cheques nr 6 Xxx
39
nr 9 x xxx
Plus: Bank error: Deposit x xxx
Less Bank Error: Cheque xx xxx
Balance as per bank statement
Total
PRACTICAL EXAMPLES
Example 1
The business cash-book of ABC reflects an overdraft balance of 64 739 as at 30 June 2009. The bank
statement at the same date was 56 862 overdrawn. A comparison of the bank statement reveals that:
i. Overdraft interest of 928 has not been recorded in the cash-book.
ii. Trust and business account bank charges of 558 and 394 respectively, have not been recorded in
the cash book.
iii. Cheques issued totalling 8 992 have not yet been presented for payment.
iv. A deposit of 4 894 is not reflected in the bank statement.
v. A cheque for 1 443 drawn on the trust bank account appears in the bank statement.
vi. An unpaid cheque of 477 from a client has been returned by the bank marked “R/D”.
vii. Insurance and motor lease debit orders of 54 and 1 713 respectively, have not been entered in
the cash-book.
viii. A deposit of 9 346 made to the trust banking account has been incorrectly reflected in the
bank statement.
You are required to:
a) Prepare a supplementary cash-book for June 2009.
b) Prepare the bank reconciliation statement as at June 2009.
40
Answer to Example 1
Dr Supplementary Cash-book for June 2009 Cr
Balance 64
739,00
Interest 928,00
Trust account bank 558,00

charges
Business account bank 394,00

charges
Unpaid (R/D) cheque 477,00
Insurance debit order 54,00
Balance 68 Motor lease debit order 1 713,00

863,00
Total 68 Total 68
863,00 863,00
Standard format
Balance as per bank statement (56

862,00)
41
Plus: Outstanding cheques 8 992,00
Sub-total (65
854,00)
Less: Outstanding deposit 4 894,00
Sub-total (60
960,00)
Less: Bank Error: Cheque 1 443,00
Sub-total (59
517,00)
Plus: Bank error: deposit 9 346,00
Balance as per cash-book (68

863,00)
Dr Cr
Balance as per bank statement 56 862,00
Less: Outstanding cheques 8 992,00
42
Plus: Outstanding deposit 4 894,00
Plus Bank Error: Cheque 1 443,00
Less: Bank error: Deposit 9 346,00
Balance as per cash-book 68

863,00
Total 75 200,00 75
200,00
Example 2
Your trust cash-book balance as at 30 September 2013 reflected a favourable balance of 64 789. The
favourable bank balance on the same date was 114 310. A comparison of the cash-book and bank
statement for September 2013 reveals the following:
i. Interest of 7108 on the favourable balance has not been entered in the
cash-book.
ii. A cheque for 1 779 issued on 8 December 2012 has still not been
presented for payment.
iii. Cheques totalling 17 218 have not yet been presented for payment to the
bank.
iv. A deposit of 3 114 made on 30 September 2013 is not reflected in the

bank statement.
v. A cheque for 2 736 drawn on the business account has been erroneously
paid by the bank from the trust account.
vi. An unpaid cheque of 734 has not been entered in the cash-book.
vii. An electronic transfer of 30 000 by a client has not been entered in the
cash-book.
You are required to prepare:
a) The supplementary cash-book for September 2013; and
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b) The bank reconciliation statement as at 30 September 2013.
Answer to Example 2
Dr Supplementary Cash-book for September 2009

Cr
Balance 64 Unpaid cheque 734,00

789,00
Interest received 7 108,00
Stale cheque 1 779,00
(issued 8 Dec 2008)
Electronic transfer 30 Balance 102

000,00 942,00
103 103
676,00 676,00
Balance 102
942,00
Standard format
Balance as per bank statement 114

310,00
Sub-total 97 092,00
44
Sub-total 100
206,00
Plus: Bank Error: Cheque 2 736,00

942,00
Dr Cr
Balance as per bank statement 114

310,00
Plus Bank Error: Cheque 2 736,00

942,00
Total 120 120

160,00 160,00
CHAPTER 9
ADJUSTMENTS
DETERMINING, ANALYSING AND RECORDING ADJUSTMENTS
Need for adjustments
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Management needs to ascertain the financial position of the undertaking at the end of an accounting
period. The income statement which reflects the income and expenses for a period must indicate the
income earned during that period and the expenses incurred to earn income.
Adjusting the accounts
The accrual principle which is derived from the concept of an accounting period entails that all income
realized during a specific period and all expenses relating the same period, must be taken into account.
To determine the financial position accurately, income and expenses are assigned to which period they
pertain. Expenses and income are matched. Thus the period in which cash is received may not
necessarily be the accounting period in which the income is earned. The same applies to an expense
incurred in an accounting period which actually does not relate to that period in which it is incurred.
Prepaid expenses
A prepaid expense is an expense paid in advance. Only the portion of the expense relevant to the
particular period or consumed within the period is considered as an expense. On payment of the
expense in advance an asset is created. The asset portion is associated with the future period until such
time as it is consumed by the undertaking when it will become as expense.
An advance payment of an expense is initially recorded in asset account. During the accounting period
a portion of the entire asset is consumed. The account is adjusted at the end of the accounting period to
the extent that the asset has been consumed. An example of a pre paid expense is rent. On 9 March
2006 Reyno paid two months rent in advance on 31 March 2006 the rent relating to march had expired.
The adjustment recorded in the general journal is as follows;
J2
2006
March 31 Rent L50 3 500
Prepaid Rent L51 3 500
Recording of rent for

March 2006
Posting the adjustment to the ledger account is as follows:
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Prepaid Rent
L51
Rent
Mar 9 7 Mar 31 3
L50
000 500
Mar31 3
500
Accrued Expenses
Expenses which have been incurred but have not been recorded at the end of the accounting period
must be taken into account. Such expenses are liabilities. A cheque in respect of a typist’s salary was
issued on 1 April 2006. The amount of 800 dollars regarding this expense was incurred to earn income
during March.
The adjustment is recorded in the general journal as follows:
2006
March 31 Salaries and wages L55 800
Salaries and wages accrued L56 800
Adjustment of salary payable for March 2006
Posting to the ledger is follows:
Salaries and Wages Salaries and Wages Accrued

L55 L56
Mar 31 Mar 31 800

800
Depreciation
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Fixed assets are applied in the process of any income. As it is used, a portion of an asset is consumed
which must be replaced in the future. To provide for the replacement and to record the portion
consumed, an amount is charged as an expense in each accounting period. The transforming of the
initial costs into expense is called depreciation.
The two methods commonly applied in calculating depreciation are the Straight Line Method and the
Diminishing Balance method.
Depreciation is the measure of wearing out, consumption or other loss of value of a fixed asset. This
may arise from:
1. Use e.g. plant and machinery;
2. Passing of time e.g. ten year lease of property
3. Obsolescence through technology and market changes e.g., plant and machinery of a
specialized nature
4. Depletion e.g. the extraction of material from a quarry
Straight line method of depreciation
This is the simplest method of calculating depreciation. Under this method the depreciation charge is
constant over the life of the asset. To calculate the depreciation charge we require three pieces of
information:
a) The original or historical cost of the asset;
b) An estimate of its useful life to the business;
c) An estimate of its residual value at the end of its useful.
The depreciation charge is calculated as follows:
Annual depreciation charge = original cost – residual value__

estimated useful life
Diminishing or reducing balance method of depreciation
Under this method the depreciation charge is higher in the earlier years of the life of the asset. The
percentage is usually given. In the first year the percentage is applied to cost but in subsequent years it
is applied to the asset’s net book value. The net book value of a fixed asset is its original cost less the
accumulated depreciation on the asset to date.
Bad debts
A bad debt is a debt which is, or is considered to be uncollectable.
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If a debt is considered to be uncollectable then it would be prudent to remove it totally from the
accounts and charge it as an expense to the profit and loss account. The original sale remains in the
accounts as this did actually take place. The debtor is however removed as it is now considered that the
debt will never be paid and an expense is charged to the profit and loss account for bad debts.
The double entry effect required to achieve these effects is:
Dr bad debts expense account
Cr debtors account
Example
Abacus and company have total debtors at the end of their accounting period of $45 000. Of these it is
discovered that one, Mr. James Scott who owes $790, has been declared bankrupt and another who
gave his name as Peter Campbell has totally disappeared owing Abacus and company $1240.
 Enter the opening balance in the debtors account. As debtors are an asset this will be on the
debit side of the ledger.
Debtors account
20xx $ 20xx $
Opening balance 45 000
 As the two debts are considered to be irrecoverable then they must be removed from debtors by
a credit entry to the debtors account and corresponding debit entry to a bad debts expense
account.
Debtors account
20xx $ 20xx $
Opening balance 45 000 bad debts expense- Scott 790
Bad debts expense- Campbell 1240
Balance c/d 42 970
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45 000 45 000
Balance b/d 42 790
Bad debts expense account
20xx $ 20xx $
Debtors- Scott 790 profit and loss account 2030
Debtors- Campbell 1240
2030 2030
The bad debts account should thus be balanced and the balance written off to the profit and loss
account.
CHAPTER 10
PARTNERSHIPS
PARTNERSHIPS: GENERAL PRINCIPLES
A partnership may be defined as a legal relationship subsisting between two or more persons, who
carry on a lawful business or undertaking to which each contributes something with the object of
making a profit and sharing it between them. A partnership agreement may be verbal but this is
unsatisfactory. Usually the partners will sign a properly prepared agreement known as a Partnership
Deed, containing inter alia, the following matters:
a) Rights, duties and powers of the respective partners.
b) Amount of capital to be introduced by each partner
c) The ration to which each partner will share profits or losses
d) Provision of interest (if any) to be allowed on Capital and charged on drawings.
e) Provision for admission of new partners, retirement of partners, death, insolvency, etc.
At the commencement of the study of partnership accounts, some students are usually under the
impression that there is a departure from the ordinary principles of bookkeeping. This is not so.
Allowing for different circumstances that must necessarily arise in partnerships accounts, the
principles are the same.
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Because in partnerships there will be more than one contributor of capital and more than one
participant in the profits, it is necessary to have more than one Capital Account. Each partner will
therefore have a Capital Account in the books. In order for partners to know the amount of their
respective interest in the firm it is of the greatest importance that a proper system of accounting
should be in force. It will be apparent by now that most of the problems peculiar to partnerships
have some connection with the ascertainment of each partner’s share in the profits and in the assets
both during the continuance of the partnership and upon death or dissolution. The normal
“proprietorship” accounts will be Capital, Current and Drawings accounts for each partner whilst
circumstances may call for loan accounts for one or more persons.
a) Capital Account
The amount contributed by each partner whether in cash or other assets will be credited to his
Capital Account, and unless agreed otherwise, this account remains fixed or intact during the
continuance of the partnership. The presumption in partnership law is that the Capital Account of
each partner is fixed- each partner thus has an obligation to restore his capital to its original level
where his drawings exceed his share of profits. The restoration is rarely made as a separate account-
a Current Account- is opened to record each partner’s position with the firm otherwise than in
relation to capital.
b) Current Account
Since the Capital of each partner is fixed at the amount originally introduced, it is necessary to open
a Current Account for each partner to record any items that would otherwise have affected their
Capital Account namely:
i) Share of Profits or Losses]
ii) Interest on Capital
iii) Interest charged on Drawings
iv) Salaries not paid.
c) Drawings Account
This account is self-explanatory. Since the Current Account would become congested with the large
number of entries, a Drawings Account is opened in which all the detailed withdrawals are
recorded, the total being transferred to the debit of the Current Account at the account period.
d) Interest on Capital and Drawings
The practice of crediting interest on capital is justified where the partners introduce unequal
capitals; the interest is credited to the partner’s Current Account. In many cases, drawings are
affected for varying amounts and it is necessary to adjust the right of the partners by debiting
the Current Account.
e) Partner’s Salaries
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The agreement will specify whether any partner to receive a salary. The payment of such is
debited to a Partner’s Salaries Account.
f) Division of Profits and Losses
The partnership Deeds gives the proportion in which profits are to be credited or losses debited
to the partner’s Current Account e.g. A 2\5, B 2\5, C 1\5. If the deed is silent it is assumed that
Profits and Losses are to be shared in proportion to the capital e.g. if A contributed $3 000 and
B $2 000 they would share in the proportion 3:2.
g) Profit and Loss Appropriation Account
As stated above, the books of a Partnership are kept in exactly the same manner as of a sole
trader. The Profits and Loss Account is, however, divided into two sections. The first section is
compiled in exactly the same way as the sole trader but the net profit is carried down to the
second section called the Appropriation Account. The Appropriation Account shows how the
net profit is divided amongst the partners.
The following examples illustrate, the Appropriation:
Moses and Albert are in a partnership. On the 31st of March 2000 their Capital Account has
credit balances of Moses $15 000 and Albert $10 000. The partnership agreement stated that
after the Trading, Profit and Loss Account has prepared for the year the Net Profit would be
further dealt with in the following manner:-
a) Albert was to be paid a salary of $1 200 for the year.
b) Interest at the rate 10% per annum was to be credited against their Capital
c) Profits/ losses were to be shared into the ratio of Moses # parts and Albert 2 parts.
The net Profit for the year ending 31March 2000 is $18 700. You are required to show the
Appropriation Account of the Partnership.
The Appropriation Account commences with the balance brought down from the Profit and Loss
Account.
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APPROPRIATION ACCOUNT
To Salary: Albert 1 By Net profit 18 700

200
Interest on Capital
Moses 10% of $15 000 1

500
Albert 10% of $10 000 1

000
3
700
Share of Profit
18 700
Moses 3 parts 9 000
Albert 2 parts 6 000 15

000
18 700
ADMISSION OF A PARTNER, RETIREMENT AND DISSOLUTION
The sole practitioner decides to sell the business to someone else, the question of goodwill arises. How
much is to be paid by the purchaser of the business for goodwill? This same question arises when it is
desired to admit a new partner or when a partner retires from the business.
What is goodwill?
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It has been defined as:
“The goodwill of a business is the advantage, whatever it may be, which a person gets by continuing to
carry on, and being entitled to represent to the outside world that he is carrying on a business which has
been carried on for some time previously.”
“The attractive force which brings in custom”
“The benefit of a good name, reputation and connection of business”
“The one thing which distinguishes an old established business from a new business at its first start”
“The monetary measurement of the benefits attaching to the ownership of a successful business”
“The capitalized value attaching to the differential profit capacity of a business”
“The whole advantage, whatever it may b, of the reputation and connection of the firm which may have
been built by years of honest work or gained by lavish expenditure of money”
Goodwill arises from a number of factors e.g.
a) the nature of a firm’s product or the reputation of its services
b) the possession of trademarks, patents a well known business name
c) situation of premises
d) possession of favourable contracts partial or complete monopoly
It is impossible to determine exactly the value of a concern’s goodwill. A business with assets
worth $6000 after liabilities have been met may be sold for $10 000. The difference of $4 000
being for the goodwill -an intangible asset. Ultimately, the value of goodwill is what the purchaser
is prepared to pay the seller to accept the law of supply of demand.
One method is to take a number of year’s purchase of the average net profits. An example will
illustrate this method.
“T” is entitled to goodwill which is estimated at three year’s purchase of the average net profits of
the last five years. The profits for the last five years were:
1990 $2000
1989 $1500
1988 $1800
1987 $2300
1986 $1900
The average net profit equals $9500 divided by 5 = $1900

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The year’s purchase of the average net profit = $1900 x 3 = $5700
Another method of computing goodwill is the super profits method. Super profits are represented by
the amount which the average net profits actually earned exceed what would be accepted as a fair
commercial return. E.g.
Capital Employed $100 000
Fair Return, 6% $6 000
Actual Average Profits $10 000
Goodwill Valued At 5 year’s purchase of profits ($4000 x 5) $20 000
When a new partner is admitted, it is only fair that the existing partners should receive some
compensation for the past efforts. The compensation to be borne will of course equal that goodwill that
has become his upon joining as a member of the business. I will give the example of A and B sharing
profits in the ratio of 3:2. They agree to admit C who is to receive 1\6 of the profits upon payment of
capital of $2000. Goodwill is valued at $2 400. The new profit sharing ratio is 3:2:1
Since C has taken over has taken over 1\6 share (or $400) of the value of the goodwill he must pay $2
400 (i.e. his capital contributions plus compensation for goodwill). The old partners will share the
payment of the goodwill in the proportion in which they surrendered the 1\6 share to C. prior to the
admission of C, A’s share of profits was 3\5. Henceforth it will be 3\6. A has give up 3\5 – 3\6 = 1\10,
B has given up 2\5- 1\3= 1\15. A must therefore be paid 1\10 of the goodwill (1\10) x $2 400 $240 and
B, 1\15 ($160) by C).
The payment can be effected in one of the several ways:
I) C can make payment directly to A and B
II) C can pay the $400 into the business of A and B’s accounts credited accordingly.
III) Goodwill is introduced into the books and then written off.
The third method is the one commonly used. The first step is to bring in the goodwill as full value.
Using the example, the journal entry would read:
Dr Cr
Goodwill Account 2 400
To Capital A (3\5) 1 440
To Capital B (2\5) 960
Being goodwill raised and credited to A and B in profiting sharing ratio.
55
Because the goodwill is not to remain in the book it is then written off in the following profit
sharing ratio
Dr Cr
Capital A (3\6 1 200
B (2\6) 800
C (1\6) 400
To Goodwill 2 400
Goodwill written off in the new profit sharing ratio to the partners.
From the two journal entries you will notice that A has received a net credit of $240 and B a net credit
of $160, the same result we achieved by crediting A and B with their share of the surrendered goodwill.
In addition to the question of goodwill it is usual for the assets of liabilities of the firm to be revalued
before a new partner is admitted. The revaluation usually results in a profit or loss which must be
shared by the existing partners in the proportion in which they share profit and losses. When a partner
retires from a firm, it is again necessary for the goodwill to be agreed upon and for the assets and
liabilities to be revalued. The outgoing partner is then paid over the balance of this capital plus his
share of the goodwill and any profits (or loss) from the revaluation. Upon the dissolution of the
partnership, the assets will either be sold or taken over by the individual partners. The bookkeeping
involved in recording the admission and retirement of a partner and the dissolution of a partnership are
shown in the attached examples.
CHAPTER 11
REVALUATION AND REALISATION OF FIXED ASSETS
Reasons for revaluation
During a period of inflation, the current monetary value of fixed assets such as freehold land and
buildings may be much in excess of their net book value. A business may wish to reflect the current
56
worth of such assets on its balance sheet. This is particularly the case with large companies who wish
to show to the users of their financial statements the current worth of significant assets in the company.
The difference between the revalued amount and the previous net book value (usually a surplus) needs
to be credited to an account separate from the profit and loss account as the gain is not realized (that is,
there is no intention of turning the asset intention of turning the asset into cash by selling it.) the
account is known as the revaluation reserve.
Depreciation of a revalued asset
When a fixed asset has been revalued, the charge on depreciation should be based on the revalued
amounts and the remaining useful economic life of the asset. Therefore because of the revaluation, the
depreciation is higher than previously. It should be remembered that the prime function of depreciation
is to write off the cost of an asset over its expected life.
CHAPTER 12
TRUST ACCOUNTS
CASE LAW
Meticulous stringent control over trust funds constitutes the most important aspect of the legal
practitioner’s accounting system. In Cape Law Society v MDA 1971 (2) SA 201, at 204, the
importance was summarised as follows:
“Without doubt records by an attorney relative to his dealing with trust monies is foundational to the
legislature’s endeavour to protect the interest of the public in its dealing with the legal profession. It
is not sufficient that trust monies should not be misappropriated. It is equally necessary that an
attorney’s dealings with such monies should be properly recorded”
and in Law Society Transvaal v Matthews 1989 (4) SA 389 at 395, Kirk-Cohen J put it thus:
“Where trust money is paid to an attorney it is his duty to keep it in his possession and to use it for no
other purpose than that of the trust. It is inherent in such a trust that the attorney should at all time have
available liquid funds in an equivalent amount. The very essence of a trust is the absence of risk. It is
57
imperative that trust money in the possession of an attorney should be available to his client the instant
it becomes payable. Trust money is generally payable before and not after demand. See Incorporated
Law Society, Transvaal v Visse and Others; Incorporated Law Society, Transvaal v Viligen 1958 (4)
SA 115 (T) at 118F-H. An attorney’s duty in regard to the preservation of trust money is a
fundamental, positive and unqualified duty. The rule thus obliges attorneys to keep proper records and
books of account in accordance with generally accepted accounting practice and procedure containing a
full and accurate record of all financial transactions and accurate record of all financial transactions
and distinguishing in readily discernible manner between trust account and business account
transactions. An undigested mass of figures from which it may be possible to find out something (or,
indeed, everything) about the condition of the trust account is not keeping proper books in a business
sense. It is no answer to say ‘I have no bookkeeper or my accountant is too busy’. If any attorney
cannot deal properly with a matter he must not undertake it. This is an absolute rule; it has to be so –
the public is at risk. Thus it is so that the particulars and information of trust moneys must be
contained in the narrative of the entries of the books of account and it should not be necessary to resort
to documents and files to obtain such information.”
See also:
Law Society of Zimbabwe v Chiwara HC-H 49/89
Law Society of Zimbabwe v Sibanda HC-H 7/90
Nyekete v Law Society of Zimbabwe SC 39/94
Chizikani v Law Society of Zimbabwe 1994 (1) ZLR 382 (S) (SC 54/94)
Mugabe and Mutezo v Law Society of Zimbabwe 1994 (2) ZLR 356 (S) (SC 181/94)
2. STATUTORY PROVISIONS
The specific provisions in relation to the handling and recording of trust moneys are contained in the
following statutes:
a) Legal Practitioners Act [Chapter 27:07]

b) Legal Practitioners (General) Regulations 1999, S. I. 137 of 1999
c) Law Society of Zimbabwe By- Laws, 1982, S. I. 314 OF 1982 as amended by Law Society of
Zimbabwe (Amendment) By- Laws, 1986, (No. 1) S. I. 191 of 1986; Law Society of Zimbabwe
(Amendment) By- Laws, 1989, (No. 2) S. I. 24 of 1990; Law Society of Zimbabwe
(Amendment) By- Laws, 1990, (No. 3) S. I. 155 of 1990.
d) Legal Practitioners (Law Society Compensation Fund) Rules 1981, S. I. 635 of 1981 as
amended by Legal Practitioners (Law Society Compensation Fund) (Amendment) Rules (No. 1)
S. I. 36 of 1987, (Amendment) Rules (No. 2) S. I. 352 of 1990 and (Amendment) Rules (No. 3)
S. I. 248 of 1992.
58
TRUST MONEYS
Section 13 of the Act stipulates that every legal practitioner who holds or receives any monies for or on
behalf of another person shall open and keep “a current account at a bank as a separate trust account” in
which account he shall deposit all such monies.
Trust moneys include money received from a client as a deposit towards the client’s obligations in
respect of services to be rendered in the future, money received from a client pending client’s further
instructions and money received for onward transmission to a client or other person.
The trust current account so kept must be used exclusively for the deposit and withdrawal of trust
money. Business funds must not flow through this account. (A separate current account is kept for
business transactions).
TRUST CREDITORS
These creditors constitute the clients on behalf of whom the firm holds trust money which is deposited
in the trust bank account. From an accounting point of view the recording of such money is more
specifically directed at each individual matter. It is essential that details of all aspects from the initial
receipt of money be recorded. This is done by opening a client’s file. Trust creditors are recorded in
the trust creditors’ ledger. A balance on the creditors’ ledger will always be a credit balance. Under no
circumstances may an account which is larger than the available credit be debited to an account.
A list of balances from the trust creditors’ ledger should always agree in total with the trust creditors
control account as well as with the balance in the trust bank account.
BOOKS OF ACCOUNT
In terms of section 14 of the Act, proper books of account must be kept to provide particulars and
information on:
a) Moneys received, held or paid for or on behalf of any other person

b) Moneys deposited in trust accounts
c) Interest paid on any trust moneys
INVESTMENT OF TRUST MONEY
In terms of section 13 (2) of the Act, a legal practitioner may invest money deposited in the trust
current account in a separate account bearing interest at the bank or building society or other institution
approved by the Council. In terms of section 5 of the Regulations, the account must allow for
withdrawal of funds on not more than 7 days notice. Any interest on money so deposited is payable to
59
the Compensation Fund (less any portion which the council may allow towards the cost of operating
trust accounts, section 13 (5).
If so instructed by the client, a legal practitioner may in addition to the investment referred to above
open a separate investment account in which he will deposit trust moneys received from that client
(Act, Section 13 (3)). Any interest received on such deposits belongs to the client. The provisions of
section 5 of the Regulations do not apply to such an account.
LAW SOCIETY COMPENSATION FUND
In terms of section 68 of the Act, the Law Society Compensation Fund is administered by a Board of
Trustees. The Fund derives its income largely from interest on moneys deposited in trust savings
accounts, (Section 13 (2) and 13 (5) of the Act) and interest earned from the Fund’s own investments.
Section 70 (1) of the Act provides that the Law Society can direct the Fund to make a grant to any
person who has satisfied the Council that he has sustained loss in consequence of theft, fraud, forgery
or other dishonesty committed by a legal practitioner (or his employee) in the practice of his
profession.
DEPOSITS AND WITHDRAWALS
Any deposits into an investment account opened in terms of section 13 (2) or section 13 (3) of the Act
must be made from the trust current account. Any withdrawal from the investment account must be
made in favour of the trust current account. (Act, section 13 (4)).
ASSETS OF THE LEGAL PRACTITIONER
In terms of section 15 of the Act, an amount standing to the credit of a trust account shall not be
regarded as forming part of the assets of the legal practitioner unless there is an excess remaining after
satisfying the claims of client depositors and interest belonging to the Compensation Fund.
SAVING OF LIABILITY OF BANKS
A bank or similar institution shall not in terms of section 18 of the Act be deemed to have knowledge
that a legal practitioner is not entitled absolutely to all moneys of the trust account.
AUDIT CERTIFICATE
Section 81 of the Act requires a legal practitioner who intends to practice on his own account or in
partnership with any other person to, before commencing practice, submit to the Secretary of the
Society an audit certificate issued by a registered accountant. The form of the certificate is prescribed
in the Law Society of Zimbabwe (Amendment) By- Laws and states that the accountant has explained
to the legal practitioner a system of bookkeeping which complies with the Act and By- Laws.
Section 81 (1) as read with the Law Society By- Laws requires every legal firm which is required to
keep a trust account to submit an audit certificate annually.
PRACTISING CERTIFICATE
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In terms of section 12 of the Act, no legal practitioner shall practice without a valid practicing
certificate.
COMBINED ACCOUNTING RECORDS
Combined Business and Trust Cash Book
A cash book differs from the cash receipts journal and the cash payments journal in respect of the
following:
 No bank account is maintained in the general ledger
 Receipts are entered on the left page of the analysis book and payments on the right page
 The balance in respect of cash book, or overdraft, is shown in the cash book since no bank
account is provided in the general ledger.
Using the combined cash book, entails that an addition to the above-mentioned, receipts and payments
pertaining to both business and trust matters, are recorded in the same book of prime entry. The cash
book is designed to include two columns on each side which are used for business and trust clients
respectively. A firm may exercise a choice in respect of using one receipt book printed with two
columns relating to business or trust or two separate receipt books. Receipts as well as payments are
recorded daily and are allocated accurately to the appropriate columns.
Combined records are suitable for any practice using a hand written system providing that it does not
impede the office routine. Computer programs are also designed to accommodate the combined system.
CONTRAVENING OF ACT AND REGULATIONS
In terms of section 22, a legal practitioner who contravenes the provisions of Part IV (section 13 to 22)
is liable to a fine not exceeding level eight or to a year’s imprisonment or both.
The Tribunal established in terms of section 24 comprises a chairman and a deputy chairman (who
were or are judges of our courts) and two other members selected from time to time by the chairman
from a panel of ten submitted by the Law Society. The Tribunal hears allegations of misconduct against
legal practitioners brought before it by the Council of the Law Society. It has the power in terms of
section 28 to:
 Issue an interim order to prohibit a legal practitioner from operating a trust or business account
and appoint a curator bonis to administer such accounts,
 Suspend a legal practitioner from practicing,
 Direct the deletion of a legal practitioner from the register,
 Order the legal practitioner to pay a fine not exceeding level six,
 Censure,
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 Caution and postpone any further action on certain conditions.
THE LAW SOCIETY BY- LAWS
Part IXA of the Law Society By- Laws lays down certain requirements:
1. TRUST ACCOUNT BALANCES

In terms of by- law 70B, at least once every month, at least once every month and within 30
days of the end of that month the credit balances in respect of each client must be extracted and
noted in a prominent manner in the ledger. The list so extracted must be preserved for not less
than 3 years.
2. BALANCING OF BOOKS
In terms of by- law 70C, books of account must be written up at least once in each month and
balanced within 3 months of the extraction of balances as required by by- law 70B.
3. NOTIFICATION TO COUNCIL OF TRUST ACCOUNT DETAILS

In terms of by- law 70D, the firm shall immediately after opening a trust account notify the
Council the name and address of the bank or building society. If so required by the Council, the
firm must within 10 days furnish statements issued by the bank or building society certifying
the balances of such accounts.
4. ACCOUNTING TO CLIENTS
By- law 70E requires every firm to render a statement of account to the client within a
reasonable time after the performance of the mandate. The statement must show:
a) Details of all amounts received in connection with the matter
b) Particulars of all disbursements and fees and other charges
c) The amount payable to or by the client
Any amount due to the client must be paid within a reasonable time.
5. RECEIPTS AND PAYMENTS

Trust money must be deposited in the trust current account either on the day of receipt or the
first banking day thereafter. Payments must be made promptly. (By- law 70F).
6. FEES AND DISBURSEMENTS

Debits in respect of fees or disbursements must be within a reasonable time of making the claim
(By- law 70G).
7. TRUST CHEQUES
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By- law 70H stipulates that cheques drawn on the trust current account shall not be made
payable to “cash” or “bearer” but to the order or specific payee designated on the cheque. The
cheque itself must indicate that it is drawn on a “trust account”.
8. TRUST SHORTFALLS
In terms of by- law 70I, shortfalls are not allowed in the trust accounts. The total of the client’s
credit balances must not exceed the total moneys in the firm’s trust current account any
investment accounts and the trust cash on hand.
9. PRACTISING CERTIFICATES
By- law 71(A) stipulates that a new application (in terms of section 74 of the Act) for a
practicing certificate is to be made to the secretary of the Society 30 days before the
commencement of practice accompanied by the prescribed fee, contributions (if such have been
prescribed by the Compensation Fund) and an audit certificate required in terms of section 58 of
the Act. Renewal of practicing certificates must be applied for 30 days before the expiry date
accompanied by similar requirements.
10. AUDIT CERTIFICATES

By- law 71C requires a legal firm to submit to the secretary of the Society an audit certificate at
least once every calendar year.
a) Within two months of the annual audit, or

b) Within 6 months of the annual closing of the trust books of account, or
c) At such time as the application is made for a practicing certificate, whichever is the earlier,
In addition, an audit certificate covering the relevant periods both before and after:
a) The retirement from the partnership by a legal practitioner to thereafter practice in another
firm,
b) The joining of partnership (as a partner or employee) by a legal practitioner who has
hitherto practiced on his own,
must be submitted to the secretary.
A legal practitioner who has practiced on his own account is, upon retirement required to
submit an audit certificate covering the period up to the date of retirement.
11. INTEREST ON TRUST MONEY

By- law 77 stipulates that the interest due to the fund accruing during the period covered by the
audit certificate shall be paid at the same time as application is made for a practicing certificate.
12. COLLECTION COMMISION

By- law 70 provides that:
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A legal practitioner instructed to collect an uncontested claim for trade debt shall be entitled and
obliged, in lieu of any other fees and charges, save for disbursements, and save as in hereinafter
provided, to charge his client a collection commission at the rate of
a) Ten per centum on the first $x thousand dollars, and
b) Five per centum on the next $y thousand dollars;
c) Two comma five per centum on the balance of any payment or installment collected:
Provided that whenever payment is recovered in one lump sum in response to a letter of demand
only, the maximum commission payable shall be the sum of $z dollars.
(The figures are set from time to time by amendment to the by-laws)
There are several cases pertaining to trust accounts which may be illuminating in the area.
These are:
Chizikani v Law Society of Zimbabwe SC-54-94 (1994 (1) ZLR 382 (S)
Mugabe and Mutezo v Law Society of Zimbabwe SC-181-94 (1994 (1) ZLR 356 (S)
Nyekete v Law Society of Zimbabwe SC-39-94
EXTRACT OF THE LAW SOCIETY BY- LAWS
CHARGES AND COMMISSIONS FOR PROFESSIONAL SERVICES

Charges to be fair and reasonable
68. ( 1) In regard to all professional services in matters not provided for by the rules of
any competent court of law or by the Council under by-law 70, legal practitioners shall charge
such sum as may be fair and reasonable, having regard to all the circumstances of the case
and, in particular, the following matters—
(a) the complexity of the matter or the difficulty or novelty of the questions raised;
(b) the skill, labour, specialised knowledge and responsibility involved on the part of
the legal practitioner;
(c) the number and importance of the documents prepared or perused, without regard to
length;
(d) the place where, and the circumstances in which, the business or any part thereof is
transacted;
(e) the time expended by the legal practitioner;
(f) where money or property is involved, its amount or value;
(g) the importance of the matter to the client;
(h) any tariff of recommended charges issued by the Council.
(2) On the taxation of any bill of costs, it shall be the duty of the legal practitioner to sat114
isfy the taxing officer as to the fairness and reasonableness of the charge or charges made.
Tariffs
69. The Council may from time to time fix, prescribe or recommend tariffs of charges
and commissions or minimum or maximum charges and commissions for services rendered
by legal practitioners in matters not provided for by the rules of any competent court of law,
and no legal practitioner shall charge fees other than so fixed or less than any minimum prescribed
or more than any maximum fee prescribed:
Provided that—
(i) no tariff so fixed or prescribed shall prohibit any legal practitioner from acting in
any proper case or matter without making any charge therefor;
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(ii) until tariffs are so fixed or prescribed by the Council, legal practitioners shall not
charge less than the minimum fees for conveyancing and for non-litigious work
other than conveyancing set out in the Second and Third Schedules, respectively, to
the Law Society of Southern Rhodesia By-laws, 1939.219
Commission on collection of debts
70.(1) In this by-law—
“payment or instalment collected” includes—
(a) any payment made by, or on behalf of, any debtor direct to the client, whether
in cash or in kind, or by way of novation or set-off, after the matter has been
handed to the legal practitioner for collection:
Provided that—
(i) at the time when the payment is arranged or made, the matter is still in
the hands of the legal practitioner for collection;
(ii) the debtor has received a demand from the legal practitioner;
and
(b) the value of movables finally recovered or repossessed by the client in terms of
hire-purchase or suspensive sale agreement, leases of movables or agreements
of a like nature, which value shall be any value fixed upon the movables by the
court, failing which the value fixed upon the movables by a sworn appraiser:
Provided that—
(i) where the total unpaid amounts owing under the agreement are less
than the value of the movables, the charge shall be calculated upon
such total unpaid amounts, and not on the value of the movables;
(ii) where no value has been fixed upon the movables, the charge shall be
calculated upon the total unpaid amounts owing under the agreements;
and
(c) all or any legal costs payable by the debtor to the client and collected from the
debtor, but shall not, in the case of claims made by a banker against a customer
or guarantor for the recovery of moneys advanced upon overdraft, include any
sums paid by the debtor directly to the banker;
[Definition as amended by by-law 3 of SI 155 of 1990]
“trade debt” means a liquidated claim for money or for the delivery of movable property
against a debtor in default which arises directly or indirectly from any trade, business,
219 Appropriate tariffs have been fixed and prescribed, so this proviso (i.e. proviso (ii)) falls away.
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profession, calling or other gainful occupation publicly carried on by the creditor, or
which is claimed by the State or any statutory or local authority, but shall not include—
(a) any claim, other than a claim for arrear instalments only, for the recovery of
moneys due under a mortgage bond hypothecating immovable property; or
(b) any claim, other than a claim for arrear instalments only, for the payment of the
purchase-price of immovable property in terms of any agreement of sale;
“uncontested claim” includes—
(a) any claim not involving the issue of any court process; and
(b) any claim commenced by the issue of a summons where the defendant does not
enter an appearance to defend; and
(c) any judgment debt, not the subject of a pending appeal, which has not been
paid in full within seven days after demand, or such longer period after demand
as may have been stipulated in the demand; and
(d) any claim which, after an appearance to defend has been entered but prior to
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judgment, is settled upon terms providing for payment in instalments, or for a
single payment which is not, in fact, paid in terms of the settlement:
Provided that a settlement which envisages payment of the capital sum
plus costs to be taxed or agreed shall not be regarded as providing for payment
in instalments merely because capital and costs are paid separately.
(2) A legal practitioner instructed to collect an uncontested claim for trade debt shall be
entitled and obliged, in lieu of any other fees and charges, save for disbursements, and save as
is hereinafter provided, to charge his client a collection commission at the rate of—
(a) ten per centum on the first two hundred thousand dollars; and
(b) five per centum on the next six hundred thousand dollars; and
(c) two comma five per centum on the balance;
of any payment or instalment collected:
[Sub-by-law as amended by by-law 3 of SI 155 of 1990]
Provided that—
(i) whenever payment in full is recovered in one lump sum in response to a letter of
demand only, the maximum commission payable shall be the sum of five hundred
dollars;
[Proviso (i) as amended by by-law 3 of SI 155 of 1990]
(ii) in the collection of a claim falling within the jurisdiction of the magistrates courts,
the legal practitioner shall be entitled and obliged, in addition, to charge his client
with appropriate fees for any services rendered (whether or not recoverable from the
debtor) referred to in Table A of the Second Schedule to the Magistrates Court
(Civil) Rules, 1980;
(iii) in the collection of a claim falling outside the jurisdiction of the magistrates courts,
the legal practitioner shall, in addition to collection charges, be entitled and obliged
to charge his client with fees for professional services rendered in regard to the obtaining
of judgment against the debtor, and in regard to all forms of execution proceedings,
including garnishee and civil imprisonment proceedings, instituted against
the debtor on the client’s instructions;
(iv) a legal practitioner who is not obliged in terms of this by-law to charge collection
commission on moneys collected by him shall be entitled, by agreement with his client,
to charge collection commission on such moneys on the scale herein provided,
or on some lower scale, and, in the absence of any such agreement, shall be entitled
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to receive a fair and reasonable remuneration for work actually done by him on his
client’s instructions.
(3) The Council of the Society may, on the written application of a member, but only in
exceptional circumstances, authorise such member to depart from the provisions of this bylaw.
PART IXA
BOOKKEEPING
[Part inserted by by-law 3 of SI 191 of 1986]
Interpretation in Part IXA
70A. In this Part—
“auditor” …
[Definition repealed by by-law 3 of SI 24 of 1990]
“bank trust account” means a current account kept by a legal practitioner at a bank in
terms of subsection (1) of section 13 of the Act;
“firm” means—
(a) a legal practitioner in private practice on his own account; or
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(b) a partnership of legal practitioners in private practice;
but does not include a legal practitioner who is not obliged to open a trust account in
terms of subsection (3) of section 13 of the Act;
“trust investment account” means an account kept by a legal practitioner in terms of subsection
(2) or (3) of section 13 of the Act.
Monthly trust account balances
70B.(1) At least once in respect of every calendar month, within thirty days after the end
of the calendar month concerned, every firm shall—
(a) extract a list of the credit balances shown in respect of each client in each trust account;
and
(b) note each balance listed in terms of paragraph (a) in some permanent and prominent
manner in the ledger account from which such balance was extracted, by means of a
mark approved by the firm’s auditor:
Provided that no such mark shall be required where the ledger account is recorded
electronically by a computer and the list of credit balances has been produced
automatically.
(2) Every firm shall preserve the list of balances extracted in terms of subsection (1) for
a period of not less than three years from the date on which the list was extracted.
Balancing of books of account
70C. Every firm shall ensure that the books of account that are required to be kept in
terms of section 14 of the Act are written up at least once in each month and are balanced
within three months after the last date upon which the lists referred to in by-law 70B are required
to be extracted.
Notification to Council of details re trust accounts
70D.(1) Immediately after opening a trust account in terms of subsection (1), (2) or (3)
of section 13 of the Act, a firm shall notify the Council and the firm’s auditor of the name and
address of the bank, building society or other institution at which the trust account is being
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kept.
(2) Every firm which, on the date of commencement of the Law Society of Zimbabwe
(Amendment) By-laws, 1986 (No. 1)220, keeps a trust account in terms of section 13 of the
Act, which was opened on or before that date shall, within six weeks after that date, notify the
council and the firm’s auditor, if he has not already been notified, of the name and address of
the bank, building society or other institution at which the trust account is being kept.
(3) Within ten days after being required to do so by the Council, a firm shall furnish the
Council with signed statements issued by each bank, building society or other institution at
which the firm keeps a trust account, certifying the amount standing to the credit or debit, as
the case may be, of the account at such date as may be specified by the Council.
Accounting to clients
70E.(1) Within a reasonable time after the performance or earlier termination of its mandate,
every firm shall deliver to the client concerned a written statement setting out with reasonable
clarity—
(a) details of all amounts received by the firm in connection with the matter concerned,
with appropriate and adequate explanatory narrative; and
(b) particulars of all disbursements and payments made by the firm in connection with
the matter; and
(c) all fees and other charges raised against or charged to the client and, where any fee
represents an agreed fee, a statement that it was agreed and the amount so agreed;
and
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(d) the amount payable to or by the client.
(2) Unless otherwise instructed, every firm shall pay any amount due to its client within
a reasonable time.
Deposits into and payments from trust accounts to be made promptly
70F.(1) Whenever a firm receives money on account of any person, the firm shall deposit
the money promptly in its trust bank account, either on the same day that it receives the
money or on the first banking day thereafter on which it can reasonably be expected to do so.
(2) Whenever any money deposited in a trust account of a firm becomes payable to any
person, the firm shall pay the money promptly to the person entitled to it.
Fees and disbursements to be debited promptly
70G. Either before or within a reasonable time after claiming payment of any fee due to
it or in respect of any disbursement made by it, a firm shall pass a corresponding debit in its
books of account.
Trust cheques
70H. Every firm shall ensure that each cheque drawn upon its bank trust account—
(a) is not made payable to “cash” or “bearer” or to “cash or order” but is made payable
to or to the order of a specific payee named or designated on the cheque; and
(b) indicates the name of the firm and bears the words “trust account”.
Trust shortfalls
70I. The total of the trust credit balances shown on the trust account in the ledgers of any
220 The date of commencement of the by-laws was the
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firm shall not at any time exceed the total amount of the moneys in the firm’s bank trust account
and any trust investment accounts, together with the trust cash in hand.
Transfers from trust to other accounts
70J. Every firm shall employ and maintain an adequate accounting system which ensures
that—
(a) notwithstanding the payment of any money into a special trust investment account,
the client concerned is still reflected as a trust creditor; and
(b) generally, the requirements of this Part are complied with whenever money is transferred
from the firm’s trust bank account to any other account.
PART IXB
PRACTISING CERTIFICATES
Applications for practising certificates
71A.(1) An application
Audit certificate
71C.(1) Save in the case of a legal practitioner who is to be employed by or to enter into
partnership with a legal practitioner who has submitted an audit certificate in terms of subsection
(2), a person who intends to commence practice as a legal practitioner and is required to
open and keep a separate trust account in terms of section 13 of the Act shall, before doing so,
submit to the Secretary an audit certificate in form E signed by the firm’s auditor.
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(2) A person who is practising as a legal practitioner and is required to open and keep a
separate trust account in terms of section 13 of the Act shall at least once in each calendar
year submit to the Secretary an audit certificate in form F signed by a firm’s auditor—
(a) within two months of the annual audit, if any, of the trust books of account of the
practice of the legal practitioner or firm of legal practitioners with which the legal
practitioner is associated, whether as a partner, employee or otherwise; or
(b) within six months of the annual closing of the trust books account of the practice;
or
(c) at the same time as application is made for a practising certificate;
whichever is the earlier.
(3) One audit certificate submitted by a firm of legal practitioners shall constitute compliance
with subsection (2) by all the legal practitioners associated with such firm, whether as
partners, employees or otherwise.
(4) Where in any year a legal practitioner—
(a) retires from partnership and thereafter practises on his own account or in partnership
with other legal practitioners; or
(b) who has formerly practised on his own account commences to practise in partnership;
he shall submit an audit certificate covering all relevant periods both before and after the
change or changes.
(5) Where a legal practitioner who has practised on his own account retires from practice,
he shall submit an audit certificate covering the period up to the date of his retirement.
(6) Should an audit certificate submitted to the Secretary reveal a shortfall in trust funds
or other irregularity on the part of the legal practitioner or legal practitioners concerned, the
Secretary shall forward such audit certificate, together with any explanation tendered by the
legal practitioner or legal practitioners concerned, to the disciplinary committee established in
terms of Part VIII.
225 Now section 74 of the Legal Practitioners Act [Chapter 27:07].
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LEGAL PRACTITIONERS ACT EXTRACT
PART IV
TRUST ACCOUNTS
13 Opening of trust accounts
(1) Every registered legal practitioner who holds or receives any moneys for or on behalf
of another—
(a) in his capacity as a legal practitioner, notary public or conveyancer; or
[Paragraph as amended by sec 3 of Act No.11 of 1996, as modified by SI 135/96]
(b) in his capacity as an executor, administrator or trustee;
shall open and keep a current account at a bank as a separate trust account in which he shall
deposit all such moneys:
Provided that—
(i) where the administration or control of any such moneys is shared with any
other person who is not his partner or employee, the legal practitioner may
agree with that other person that the moneys administered or controlled by
them shall be otherwise dealt with;
(ii) this subsection shall not apply to a person who is in the full-time employment
of the State, in relation to things done in the course of his employment.
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(2) A registered legal practitioner may, in addition to the trust account referred to in
subsection (1), open and keep a trust account bearing interest at a bank or building society or
with an institution approved by the Council of the Society for the purposes of this subsection
in which he may, unless otherwise instructed by the person on whose account or for whom the
moneys are held or received, as the case may be, deposit, subject to subsection (4) and to such
limitations and conditions as may be prescribed by regulation, any such moneys as are not
immediately required for any purpose.
(3) If, with the authority of the person for or on account of whom he holds or has received
those moneys, a registered legal practitioner holds or receives any moneys in a separate
account from those mentioned in subsections (1) and (2), such account shall—
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(a) be regarded as a trust account for the purposes of this Part; and
(b) be in the same name as the trust account opened in terms of subsection (1) and shall
indicate the name of the person for or on account of whom the money is held.
(4) In the case of an account opened in terms of subsection (2) or (3)—
(a) deposits shall only be made from a trust account opened in terms of subsection (1);
(b) withdrawals shall only be made in favour of a trust account opened in terms of subsection
(1).
(5) Where a trust account is opened in terms of subsection (1) or (2)—
(a) that account shall indicate that it is an account opened in terms of subsection (1) or
(2), as the case may be;
(b) any interest on the moneys deposited in that account shall be paid by the registered
legal practitioner concerned to the Compensation Fund at such times and in such
manner as may be prescribed by by-laws, less such portion thereof as the Council of
the Society may from time to time direct, which may be retained by the legal practitioner
concerned towards the costs of the operating and auditing of his trust accounts.
14 Books of account
(1) A registered legal practitioner shall keep proper books of account containing particulars
and information of—
(a) moneys received, held or paid by him for or on account of any other person; and
(b) moneys deposited by him in his trust accounts; and
(c) interest paid on moneys deposited in a trust account opened in terms of subsection
(1) or (2) of section thirteen.
(2) The Council of the Society may appoint an auditor, registered as a public auditor, in
terms of the Public Accountants and Auditors Act [Chapter 27:12] to inspect the books of
account of a legal practitioner in order to ascertain that the provisions of section thirteen and
of any relevant regulations and by-laws are being observed.
(3) A person appointed in terms of subsection (2) shall report to the Council of the Society
in such general terms as not to disclose confidential information entrusted to the legal
practitioner whose books he has inspected.
(4) If it is found upon an inspection referred to in subsection (2) that a legal practitioner
has not complied with the provisions of section thirteen or of any relevant regulations or bylaws,
the Council of the Society shall be entitled to recover the cost of the inspection from
that legal practitioner.
15 Trust account moneys excluded from insolvency or attachment
An amount standing to the credit of a trust account opened in terms of section thirteen by
a registered legal practitioner shall—
(a) not be regarded as forming part of the assets of the legal practitioner on the death or
insolvency of or assignment of his estate by that legal practitioner; and
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(b) not be liable to attachment at the instance of a creditor of that legal practitioner:
Provided that any excess remaining after payment of—
(a) the claims of all persons whose moneys have or should have been deposited in a
trust account of his; and
(b) any claim by the Compensation Fund in respect of interest due to it in terms of
paragraph (b) of subsection (5) of section thirteen;
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shall form part of the assets of that legal practitioner and shall be liable to attachment at the
instance of a creditor of that legal practitioner.
16 Control of operation of trust account
(1) …
[Subsection repealed by sec 3 of Act No. 10 of 2000]
(2) In the event of—
(a) the death of a registered legal practitioner; or
(b) the insolvency of or the assignment of his estate by a registered legal practitioner;
or
(c) …
[Paragraph repealed by sec 3 of Act No. 10 of 2000]
(d) a registered legal practitioner being declared by a court of competent jurisdiction to
be incapable of managing his own affairs; or
(e) a registered legal practitioner abandoning his practice;
the Master of the High Court may, upon application made by the Council or by a person having
an interest in a trust account of that legal practitioner, on good cause shown, appoint a
curator bonis to control and administer that trust account with such of the rights, duties and
powers prescribed by regulation as the Master may deem fit.
(2a) A curator bonis appointed in terms of subsection (2) shall, in the discharge of his
functions—
(a) in urgent matters, notwithstanding any enactment to the contrary but subject this
Act, deal with the trust account for the benefit of any client ;
(b) have due regard to the rights and interests of the clients of that practice and the interests
of the legal practitioner concerned.
[Subsection inserted by sec 3 of Act No. 10 of 2000]
(3) A person aggrieved by a decision of the Master in terms of subsection (2) may,
within thirty days after the decision becomes known to him, appeal against that decision to a
judge of the High Court who may refer the matter to the court for argument.
(4) On any appeal in terms of subsection (3) the judge or court, as the case may be,
may—
(a) confirm or vary the decision of the Master; or
(b) give such other decision as in his or its opinion the Master ought to have given.
(5) Nothing in this section contained shall be construed as preventing a registered legal
practitioner who was practising in partnership with a legal practitioner referred to in subsection
(2) from continuing to operate on a trust account of the partnership.
17 Orders as to costs
The High Court shall have power to order that—
(a) any costs incurred by the Council of the Society in respect of an application or appeal
made in terms of section sixteen; or
(b) the cost of an inspection made in terms of subsection (2) of section fourteen which
is due by the legal practitioner concerned to the Council of the Society in terms of
subsection (4) of that section;
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shall be a preferent charge upon the moneys standing to the credit of the trust account concerned,
ranking next after the remuneration of the curator bonis and the expenses of administering
that trust account.
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18 Saving of liability of bank, etc., in relation to trust account
A bank, building society or other institution at which a registered legal practitioner keeps
a trust account shall not, by reason only of the name or style by which the account is distinguished,
be deemed to have knowledge that the registered legal practitioner is not entitled absolutely
to all moneys paid or credited to that account:
Provided that nothing in this section contained shall relieve the bank, building society or
other institution from any liability or obligation under which it would be apart from this Act.
19 Limitation of set-off, etc., against trust account
Notwithstanding anything in section eighteen contained, a bank, building society or other
institution at which a registered legal practitioner keeps a trust account shall not, in respect of
any liability of the registered legal practitioner to that bank, building society or other institution
which is not a liability arising out of or in connection with that account, have or obtain
any recourse or right by way of set-off, counterclaim, charge or otherwise against moneys
standing to the credit of that account.
20 Saving of set-off, etc., against trust account
Nothing in this Part contained shall be construed so as to take away or affect a just claim,
lien, counterclaim, right of set-off or charge of any kind which a registered legal practitioner
may at common law or in terms of an enactment have against or upon moneys held or received
by him on account of another person.
21 Council of the Society may require certified balance of trust account
A bank, building society or other institution at which a registered legal practitioner keeps
a trust account shall, whenever so required by the Council of the Society, furnish to the Council
of the Society a signed certificate of balance certifying the amount, if any, standing to the
credit or debit of that trust account in that bank, building society or other institution as at such
date or dates as may be specified by the Council of the Society.
22 Offences in relation to trust accounts
A registered legal practitioner who contravenes any provision of this Part shall be guilty
of an offence and liable to a fine not exceeding level eight or to imprisonment for a period not
exceeding one year or to both such fine and such imprisonment.
[Section as amended by section 4 of Act No. 22 of 2001]
UNIVERSITY OF ZIMBABWE
ACCOUNTING FOR LEGAL PRACTITIONERS LL.B. 2011/2012
LEGAL PRACTITIONER’S BOOKS OF ACCOUNTS
Transactions in a legal practitioner’s office will comprise:
1. Receipts
a) Money from clients in settlement of fees due for payment in respect of services already rendered or in
settlement of disbursements already made on their behalf.
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b) Money received from or on behalf of clients to be held in trust on clients’ behalf or to be dealt with in
accordance with clients’ instructions.
c) Money from the legal practitioner’s own investments or other private sources.
2. Payments
a) Defrayment of office expenditure e.g. salaries, stationery, in the ordinary course of business.
b) Disbursement on behalf of clients e.g. Messenger of Court’s fees, Revenue Stamps, which expenditure is
recoverable form clients.
c) Transfer of funds from the trust current account to the business current account.
In order to record properly the various transactions and to ensure that trust matters are kept separate from
business matters the legal practitioners will keep the following books. (It should be noted that whether records
are written manually or recorded by means of an electronic computer, the principles remain the same).
1. The Ledger
The firm will utilise the following ledgers
a) Business Ledger subdivided into Income Accounts (fees, interest on savings), Expenditure Accounts
(nominal accounts, assets), Clients Business Accounts (Also known as Client Debtors Accounts) in
which are recorded services rendered to clients.
b) Trust Clients Ledger or Trust Creditors Ledger — in this ledger the legal practitioner records his trust
relationship with his various clients. Any moneys received and held by the legal practitioner on trust are
credited to the client’s account in this ledger. Any payment made form the trust funds on behalf of the
client being debited to the account. The balance of an account in the trust Ledger can only be a credit.
Some firms find it convenient to open combined ledger accounts in which the client’s business account
and the client’s trust account are kept ruled as below where the client is Shasha.
Dr SHASHA Cr
Date Details Folio Trust Busi Date Details Folio Trust Busi
May Huzvu TCA1 5 000 1 Balance J1 6000
16 Fees F4 1 240 19 Transfer TJ3 1 000
17 Transfer TJ3 1 000 _____ 31 Balance c/d ____ 240
6 000 1 240 6 000 1 240
31 Balance b/d 240
73
The advantages of keeping combined client’s accounts are similar to the ones referred to earlier in the course
when we considered the Cash Book with a Cash and a Bank Account. Care must of course be exercised to ensure
that the correct account is debited or credited.
2. The Cash Book
The firm will maintain two current accounts at the bank, one for trust accounts and the other for business. Two
separate cheque books having different account numbers will be issued by the bank. Separate cash books will be
kept for the business and the trust accounts. Some firms find it convenient to keep a combined cash book in
which the trust and business accounts are shown side by side, as follows:
Dr CASH BOOK Cr
Date Rec. Details Folio Trust Busi Date Paid to Details Folio Trust Busi
from
July 2 Rent L2 200
1 Capital L1 800 19 Equip L3 200
3 Abel Deposit ATA 300 13 PO Stamp ABA 10
8 Charl Deposit CTA 600 MOC Service ABA 12
13 Charl House CTA 100000 23 Busi Transf ATA 202
16 Fan Deposit FTA 300 Abel Settle ATA 701
23 Abel Transf BCA ______ 202 Bal c/d 100297 580
100200 1002 100200 1002
Bal b/d 100297 580
Again, care must be exercised to ensure that business receipts or payments are not debited or credited to the trust
account or vice-versa.
3. Subsidiary Books
a) Petty Cash Book/Revenue Stamps Book
A petty cash book on the imprest system is a common feature of a legal practitioner’s business records. The petty
cash book is easily adapted into the Revenue Stamps Book to control revenue stamps purchased and issued. The
Revenue Stamps Book is a business and not a trust record and is ruled as follows:
Dr Cr
Date Receipts Folio Date Client Details Amount Folio
74
May11 100 BCB 11 Howe Summons 15 C9
17 Peter Warrant 10 C15
19 Paul Intrp. 10
35
___ Bal c/d 65
100 100
31 65
75
The stamps received are entered on the debit side of the book whilst the issue of stamps is recorded on the credit
side. The client’s business ledger account is debited with the value of stamps issued.
b) Fees Book
In this book the legal practitioner records fees to be debited against client’s accounts for services rendered. It is
inconvenient to credit the fees account as and when fees are charged as this will result in numerous posting in the
account. The debits of the month are therefore added together and the total for the month credited to the fees
account as follows:
Date Account Details Folio Ref. FB

Amount
May 1 Don Huko Bill of costs B4 140
H Howe Agreed fees B9 561
L M Services Prof services B11 210
Noname & Co Opp application B17 440
Orange Services Prof services B16 300
Peter Qunick Prof services B12 100
Rik and sons Collection comm B10 190
1941 (40)
The individual debits are posted to the accounts of the various clients in the Business Ledger the fees account in
the ledger being credited with the total of $3 841.
c) Transfer Journal
Transfers from the trust current account to the business current account are recorded in this book prior to
payment being made. If the transfer is from one client only the use of this book is unnecessary. The usual
journal ruled accounts paper can be used with the client’s trust account being listed. A single cheque is then
drawn and paid into the business current account, as shown below.
Date Clients trust ledger Trust ledger Amount Business
Debit Ledger Cr
May 1 Don Huko T8 140 B4
H Howe T7 561 B9
L M Services T6 210 B11
Noname & Co T10 440 B17
Orange Services T14 300 B16
Peter Qunick T11 100 B12
76
Rik and sons T24 190 B10
1941
Chq 33333
77
d) Messenger of Court’s Book
Every firm finds it convenient to have an account with the Messenger of Court. The firm will not have to
pay in advance to cover costs of service of process. It is inconvenient to make payment to the Messenger
of Court every time a return is received. Instead, the names of the clients are recorded in a book against
the amounts due to the Messenger who is paid the total due to him at the end of the month, the various
client’s business accounts being debited. A similar book is used for the Deputy Sheriff.
Date Details Client Folio Total Messenger of court

Hre Byo Gwe
May
5 Summons Shava B15 20 20
7 Execution Joe B13 10 10
Eviction Koni B02 80 ___ ___ 80
110 20 10 80
Chqs 0012 0013 0014
e) General Journal
A General journal will of course be kept to record the usual business transactions e.g. purchase of assets
on credit; adjustments of accounts of the financial year end.

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LAW SOCIETY

ACCOUNTING FOR LEGAL

INFLUENCE OF TRANSACTIONS TO THE ACCOUNTING

STOCK OF GOODS FOR RESALE…………………………………………….7

PROFITS AND LOSSES…………………………………………………………9

PROFIT AND LOSS ACCOUNT………………………………………………..9

MODERN CASH BOOK……………………………………………………..17

COMMON ERRORS OF THE TRIAL BALANCE…………………………..33

ACCRUALS AND PREPAYMENTS……………………………………….48

CONTRAVENTION OF ACT AND REGULATIONS…………..…….63

ACCOUNTING FOR LEGAL PRACTITIONERS MANUAL

The concepts to take note of are:

Going concern concept

Historical value concept

THE DOUBLE ENTRY CONCEPT

Under this concept each transaction has two aspects:

a) Its effects on assets/ liabilities

b) Its effects on the profit

The T- account form is often used

Debit side Credit side

THE ACCOUNTING EQUATION

ASSETS = CAPITAL + LIABILITIES

The elements of the accounting equation

Capital (sometimes referred to as Owners Equity)

The equation is thus expanded as follows:

ASSETS = CAPITAL + LIABILITIES

The influence of transactions on the accounting equation

Transaction assets capital and liabilities

Introduction of cash as capital +cash + capital

Purchase of asset for cash +asset no effect

Purchase of asset on credit +asset +liabilities

Payment of creditor -cash -liabilities

Drawings by proprietor -cash -capital

Loan from bank +cash +liabilities

INCOME AND EXPENDITURE

Income should only be recognized in the profit and loss account.

Stock of goods for resale

Gross profit and its significance

Gross profit percentage is calculated using the following formula:

Gross profit percentage = gross profit x 100

Sales $8000 (given) 100%

Alternatively information on the mark- up may be given.

Mark up percentage = gross profit x 100%

PROFITS AND LOSSES

Opening stock Sales 45 000

Less returns 300 14 700

Carriage inwards 3200

Customs duty 800

Less closing stock 1200

Cost of goods sold 20 000

Gross profit c/d 20 000

Motor vehicle 1700 discount received 600

Discount allowed 400

Net profit c/d 3800 20 600

BALANCE SHEET AS AT 31 JUNE 2011

Capital Fixed assets

Less drawings current assets

Current liabilities cash on hand 8900 15

Less cost of goods sold

Opening stock xxx

Add purchases xxx

Less closing stock xxx

Gross profit xxx

Less operating expenses