SQE1 · FLK2
Solicitors Accounts
SRA Accounts Rules, client money, ledgers.
Client money handling, double-entry bookkeeping, breaches of the SRA Accounts Rules and reporting duties.
Solicitors Accounts in SQE1 FLK2
Solicitors Accounts tests the SRA Accounts Rules and the bookkeeping that keeps client money safe. It is the most mechanical FLK2 subject: most questions ask you to record a transaction correctly across client and business ledgers or to spot a breach of the Rules.
What’s tested
- The distinction between client money and business money, and the duty to keep client money safe
- Operating the client account and the requirement to keep client money separate
- Double-entry bookkeeping: client and business ledgers and the cash account
- Recording common transactions: receipts, payments, transfers and disbursements
- Mixed receipts and the treatment of money that is part client, part business
- Interest on client money and the firm's policy
- Breaches of the Accounts Rules, prompt correction, and the obligation to obtain an accountant's report
Key statutes and rules
- SRA Accounts Rules — the governing rules on client money and record-keeping
- SRA Principles — the overarching duties (acting honestly and with integrity) that underpin the Rules
- SRA Code of Conduct for Firms — systems and controls for compliance
Common SBAQ traps
- Posting an entry to the wrong ledger (client vs business) or only making one side of a double entry
- Treating money received for paid disbursements and unpaid disbursements identically
- Leaving client money in the business account, or making good a shortfall late rather than promptly
How to revise Solicitors Accounts for FLK2
This subject is mastered by doing, not reading: work through ledger entries until the double-entry for each transaction type is automatic. Build a short library of standard transactions (receipt, payment, transfer, mixed receipt) and replay them under time pressure.
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Free revision notes — Solicitors Accounts
Solicitors Accounts is the most technical FLK2 subject. Questions test the SRA Accounts Rules (in force 25 November 2019), double-entry bookkeeping, and the identification and remediation of breaches. Virtually all questions require you to apply specific Rules, not just general principles.
Client money and client accounts
Client money (Rule 2) is money received or held for a client or third party (including money paid in advance for disbursements not yet due). All client money must be held in a client account (Rule 3) — a bank or building society account in the firm's name with the word 'client'. The only exceptions: money that the client has authorised to be paid directly to the office account (e.g. agreed fees), and money held as a stakeholder. Rule 4: firms must not use client money for their own purposes. Client money must never be mixed with office money in the office account (except the firm's own money held as agent of the client in a joint account).
Payments in and out
Rule 5: generally, money of the same nature must pass through the appropriate ledger account. Rule 7: client money received must be paid promptly to a client account; delays (e.g. over 5 working days) can constitute a breach. The firm can pay fees from the client account provided there is a properly executed bill and the client has been notified (or is in a position to be notified). Disbursements: if the firm pays a disbursement from the office account, it can reimburse itself from the client money only after the disbursement has been incurred. Never make a payment from the client account that exceeds the balance on that client's ledger.
Bookkeeping and ledgers
The double-entry bookkeeping system requires every transaction to be recorded in two accounts. Client ledger account: a credit entry when money comes in to the client account; a debit when it goes out. Office ledger account: a debit when costs are incurred; a credit when the firm is paid. Reconciliations must be performed at least every 5 weeks. A list of client account balances must reconcile with the client account bank statement. A deficit on any individual client ledger (i.e. the client account has paid out more than it received for that client) is a breach of the Accounts Rules and must be remedied immediately.
Reporting obligations and breaches
Firms must appoint a COFA (compliance officer for finance and administration). The COFA must report to the SRA any material breaches of the Accounts Rules that they are unable to remedy. The firm must also report if the accountant's report identifies a breach (Rule 12 — annual accountant's report for firms holding client money over a certain threshold). Dishonest misappropriation of client funds is a criminal offence and will lead to SRA intervention. The Solicitors Indemnity Fund has been replaced — claims for negligence and breach of trust go to the mandatory indemnity insurance market and ultimately to the Compensation Fund.
Common pitfalls
- Paying fees from the client account before raising a bill — this is a breach even if the client owes those fees.
- Allowing a client account deficit to continue rather than remedying it immediately — even temporary deficits on individual ledgers are a breach.
- Confusing 'office money' in a client account (not permitted except for the firm's own funds held as agent) with the permitted practice of using client money to pay agreed fees after billing.
- Forgetting the 5-week maximum between reconciliations — this is a specific Rules requirement, not just good practice.
Exam tip
In Solicitors Accounts questions, always identify: (1) Is this client money or office money? (2) Which account should it go to? (3) Has there been a breach? (4) How must it be remedied? Draw a quick T-account ledger for complex scenarios.
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Solicitors Accounts — frequently asked questions
What's tested in SQE1 Solicitors Accounts?
Solicitors Accounts (FLK2) tests the SRA Accounts Rules: the distinction between client money and business money, the duty to keep client money safe and separate, recording transactions through double-entry client and business ledgers, the treatment of mixed receipts, interest and disbursements, common breaches of the Rules, and the requirement for an accountant's report.
Is SQE1 Solicitors Accounts multiple choice?
Yes. Like the rest of SQE1, Solicitors Accounts is assessed through single-best-answer questions: a client-based scenario followed by five options (A–E) from which you pick the single best answer. There is no negative marking, so it is always worth attempting every question.