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FAC1503: Example updates and Explanatory Examples

Contents
1. Glossary of terminology used in this teaching document ................................................. 2

3. Acronyms ................................................................................................................................ 4

4. What is the Accounting Cycle? ........................................................................................... 5

5. What are the cash records ................................................................................................. 6

6. What are the requirements for the operation of a trust bank account ....................... 7

7. Preparing the ledger accounts and the trial balance ..................................................... 17

8. Trust Bank Accounts – Section 84 and 86 of the Legal Practice Act, 28 of 2014 ..... 28
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1. Glossary of terminology used in this teaching document (The symbols refer to where
the terms have been used in the document)

1. Account
An account is a part of the accounting system used to classify and summarise the
increases, decreases, and balances of each asset, liability, and equity item.
2. Accounting equation
A mathematical equation on which the framework of accounting is based. The
equation MUST always balance. (BAE)
3. Advocates’ journal
The purpose of the advocates’ journals is to record all items regarding claims for
services rendered by advocates. The advocates’ journal is completed from
statements received from the advocates for services rendered to the clients of the
law firm. For purposes of FAC1503, statements received from an advocate are
recorded in the general journal due to the limited number of transactions.
3. Books of first entry
Books of prime entry are part of the double-entry system. All transactions are first
entered into a book of prime entry. Thereafter the posting is made to the General
Ledger. There are six books of prime entry:
1. Purchases journal
2. Sales journal These four journals are only used if the business
3. Purchases returns journal buys and sells goods.
4. Sales returns journal
5. General journal
6. Cash book (Cash receipts journal and Cash payments journal).
4. Cash records
Cash transactions are recorded in cash books (Cash receipts journal and cash
payments journal)
5. Credit transactions
Credit (non-cash) transactions are the ability of a customer to obtain goods or
services before payment, based on the trust that payment will be made in the future.
Credit transactions are recorded in sundry journals such as fees journal, sheriff’s
journal, advocates journal or the general journal.
6. Cheque
A cheque (a specially printed form) is an order to a bank to pay the sum stated on
the front of the cheque from the drawer's (the writer of the cheque/payer) account, to
the payee (named on the front of the cheque).
7. Contra-account
The opposite account that is debited or credited when applying the double-entry
system.
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8. Credit
A credit is an accounting entry that either increases a liability or equity account or
decreases an asset or expense account.
9. Debit
A debit is an accounting entry that either increases an asset or expense account or
decreases a liability or equity account.
10. Electronic funds transfer (EFT)
An electronic funds transfer is a transaction that takes place over a digital network,
either among accounts at the same bank or to different accounts at separate financial
institutions.
11. Fees journal
All fees levied for services rendered to clients (either for cash or on credit) are
recorded in the fees journal.
12. General journal
A general journal is used to record unique journal entries that cannot be processed
in a more efficient manner. In the general journal, you must enter the account(s) to
be debited and the account(s) to be credited along with their amounts and a brief
description. Examples of transaction recorded in the general journal are:
• Depreciation
• Other adjusting entries
• Bad debts
• Sale of an asset used in the business

13. Historical cost

Financial statements are prepared using historical cost. This means that assets,
liabilities, income, and expenditure is recorded at the price paid/received at the date
of the transaction.
14. Ledger
A ledger is a bookkeeping book/software programme where all the accounts are
recorded.
15. Sheriff’s journal
The claims for services rendered on credit by a sheriff are recorded in the sheriffs’
journal. The journal is prepared from the statement received from the sheriff. For
purposes of FAC1503, statements received from the sheriff are recorded in the
general journal due to the limited transactions.
16. Trial balance (TB)
A trial balance is a bookkeeping worksheet in which the balance of all ledger
accounts is compiled into a column of debit balances and a column of credit balances.
The total of the debit column should be equal to the total of the credit column. The
general purpose of producing a trial balance is to ensure the entries in an entity’s
bookkeeping system are mathematically correct.
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17. Trust creditors’ ledger

The trust creditors’ ledger keep records of transactions with each individual trust
creditor.
18. Trust creditors’ control account
This is one account in the general ledger reflecting the total amount owed to all the
individual trust creditors in the trust creditors’ ledger. The balance of the trust
creditors’ control account must equal the total of the trust creditors’ list, which
represents the amounts owed by the individual creditors obtained from the individual
balances in the trust creditors’ ledger (subsidiary ledger) accounts for each creditor.
19. Trust money
Section 88(1) of the Legal Practice Act, 28 of 2014 states that trust money does not
form part of the assets of the law practitioners’ practice. Thus, the creditors of the
practice cannot claim against this money.

2. Acronyms for folio references

B Balance sheet account (Statement of financial position)
BCRJ Business cash receipts journal
BCPJ Business cash payments journal
CL Clients ledger
FJ Fees journal
GJ General journal
N Nominal account (Statement of profit and loss)
TB Trial balance
TJ Transfer journal
TCL Trust creditors ledger
TCRJ Trust cash receipts journal
TCPJ Trust cash payments journal

3. Acronyms
EFT Electronic funds transfer
LPA Legal Practices Act, (28 of 2014)
LPF Fund Legal Practitioners’ Fidelity Fund

In the double-entry bookkeeping system, every transaction or event affects at least two
different accounts (one account is debited and the other credited). It serves as a kind of error-
detection system: if at any point, the sum of debits does not equal the corresponding sum of
credits, then an error has occurred.
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In summary:

ASSETS
Dr Increase Decrease Cr

LIABILITIES
Dr Decrease Increase Cr

EXPENDITURE
Dr Increase Decrease Cr

REVENUE
Dr Decrease Increase Cr

TIP
NET ASSETS is equal to the difference between revenue earned and the
expenditure incurred.

Mini example:
A motor vehicle is purchased for R50 000 for cash.
A motor vehicle is an asset of the business.
A positive bank account is also an asset of the business.

The motor vehicle (asset) will be debited, i.e. increased.

The bank account (asset) will be credited, i.e. decreased.

Dr MOTOR VEHICLE Cr
50 000

Dr BANK ACCOUNT Cr
50 000

The business’s cash in the bank decreases and the motor vehicles owned by the business
increases. Both legs of the transaction affect the assets of the entity.

4. What is the Accounting Cycle?

The accounting cycle is a set of steps that are repeated in the same order every period. The
starting point of the cycle is the recording of the business transactions and leading up to the
preparation of financial statements. The key steps in the accounting cycle include recording
journal entries, posting to the general ledger, preparing the trial balances, making adjusting
entries, and creating financial statements. An accountant should be aware at all times, at which
stage of the accounting cycle the recording process is.
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The sole purpose of recording transactions and keeping track of expenses and revenues is to
convert the data into meaning financial information by presenting it in the form of financial
statements. Financial statements are composed of the following components:
• statement of financial position (balance sheet)
• Statement of profit or loss and other comprehensive income (income statement)
• statement of owner’s equity, and
• statement of cash flows.

The accounting cycle is summarised as follows:

Source
Transactions take place Source documents documents are
are completed recorded in books
of first entry

Analysis and
interpretation of Accounting General ledger is
financial statements Cycle updated
take place

Financial
Prepare to adjust
statements are Trial balance is
journal entries at
compiled at the end
the end of the compiled
of the financial
period
period

5. What are the cash records

In terms of section 86(2) of the Legal Practice Act 28 of 2014 (LPA) and rule 35.7 of the Rules
of the Attorneys’ Profession, every practising attorney must open and keep two separate bank
accounts with a banking institution in the Republic, namely

• a business bank account; and

The business bank account is used for receipts and payments relating to ordinary
business transactions. In some instances, payments can be made from the business
bank account on behalf of clients. These payments are not recommended and must be
limited. An attorney should not make payments on behalf of a client from the business
bank account, based on a promise from the client that the amount will be returned.

• a trust bank account.

The trust bank account is used for receipts of trust money entrusted by clients to the
attorney and payment of trust money to third parties as mandated by the client. The bank
statement must contain a reference to the fact that it is an account opened and maintained
in terms of section 86(2) of the LPA.
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• For each bank account, there must be a set of accounting records i.e. two sets of
accounting records

An attorney needs to run, simultaneously, two sets of accounting records. One set is the
Trust account set of books and one is the Business account set of books.
It may be necessary for the attorney to transfer funds from the Trust bank account to the
Business bank account. The attorney will then pay the money from the Trust bank
account to the Business bank account and record the transaction in both the Trust
account set of books and the Business bank set of accounts.
The Trust account and the Business account are not linked.

6. What are the requirements for the operation of a trust bank account

One of the duties of the management of an attorney’s practice is to ensure that sufficient
funds are available in the trust bank account at all times to be able to fulfil all the
responsibilities that the attorney has to the client.
Clients deposit funds to be held in trust for future payments of costs incurred on behalf of
such clients and to cover future fees that will be charged to the client.

Notes
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TIP Nominal accounts (N) in the General Ledger record expenses, profits, losses and gains. Balance
sheet (new term Statement of Financial Position) accounts (B) record assets, liabilities and equity.
Folio nos. are used to uniquely identify an entry in a journal or ledger.

Example illustrating the principles of legal accounting

The following information was obtained from the records of an attorney’s practice, Lane Attorneys at
01/06/2019:

Folio Dr Cr
Trial balance at 01/06/2019 No. R R
Capital B1 50 000
Accumulated income [accumulated income carried over from the previous
financial period] B2 52 900
Fee income N1 150 000
Water and lights [accumulated expenses from previous months in the financial period] N2 48 900
Rental paid [accumulated expenses from previous months in the financial period] N3 27 500
Law library B3 56 000
Furniture and fittings B4 82 000
Business cash book (Dr balance) [Balance of Business bank account] B5 15 500
Trust cash book (Dr balance) [Balance of Trust bank account] B6 40 000
Clients control [Balance of list of clients that owe money to the practice] B7 23 000
Trust creditors control [Balance list of clients that the practice owes
money to] B8 40 000
292 900 292 900
[Opening balances see the general ledger accounts]

The following is a list of amounts owed by clients at 01/06/2019:

R
G Gold (Folio no. C1) 14 000
H Heat (Folio no. C2) 7 000
B Bomvu (Folio no. C3) 2 000
Balance of trust creditors control – 30/06/2019 23 000

The practice received the following deposits, which were paid into the trust bank account:
R
05/06/2019 A Teng (Folio no. T4) re Divorce fees 10 000
10/06/2019 P Path (Folio no. T1) re Adoption fees 20 000
20/06/2019 B Ball (Folio no. T3) re Mortgage Bond 29 000
59 000
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The practice received the following deposits, which were paid into the business bank account:
R
06/06/2019 G Gold 11 800
10/06/2019 H Heat 7 000
20/06/2019 C Truth 35 000
53 800

The practice made payments for the following expenses during the month of June 2019:
June R
01/06 Pay office rent for the month of June 8 000
10/06 Pay transfer duties for the purchase transaction on behalf of T Truth. 25 000
15/06 Pay advocate F Front obo B Ball 3 800
30/06 Pay the water and electricity account for June 5 500

The practice issued the following fee notes for work done during June 2019:
June R
20/06 Invoice T Truth re fees in respect of mortgage bond 10 000
20/06 Invoice L Lunlaza re collection fees 6 600
20/06 Invoice B Ball re fees in respect of mortgage bond 18 000

The opening balance of the trust creditors control account is as follows:

R
P Path re-adoption fees 18 000
L Lunlaza re collection fees 22 000
40 000

REQUIRED:

Prepare the following in the books of Lane Attorneys for June 2019:
1. Books of first entry
1.1 Trust cash journals
1.2 Business cash journals
1.3 Fees journal
1.4 Transfer journal
2. Ledgers
2.1 General ledger
2.2 Clients ledger
2.3 Trust creditors ledger
3. The trial balance of Lane Attorneys at 30 June 2019
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Solution: Example illustrating principles of legal accounting

Acronym of Trust Cash Receipts Journal = TCRJ
1. Books of first entry

1.1.1 Trust cash receipts journal of Lane Attorneys for June 2019 TCRJ
Trust
creditors Trust
Sundries control bank
Date Receipts Fol. R R R
05/06 A Teng re divorce fees TCL4 10 000 10 000
10/06 P Path re-adoption fees TCL1 20 000 20 000
20/06 B Ball re mortgage Bond TCL3 29 000 29 000
59 000 59 000
Folio reference TCL refers to Trust B8 B6
creditors ledger(refer to explanation below)

1.1.2 Trust cash payments journal of Lane Attorneys for June 2019 TCPJ
Trust
creditors Trust
Sundries control bank
Date Payments Fol. R R R
30/06 Transfer to business bank B5 21 800 21 800
21 800 21 800
B6

1.2.1 Business cash receipts journal of Lane Attorneys for June 2019 BCRJ
Clients Business
Sundries control bank
Date Receipts Fol. R R R
06/06 T Truth CL5 35 000 35 000
10/06 G Gold CL1 11 800 11 800
20/06 H Heat CL2 7 000 7 000
30/06 Trust bank – Transfer 21 800 21 800
21 800 53 800 75 600
Cr B7 Dr B5

TIP The CL folio reference above refers to the creditors’ ledger. The creditors ledger is a sub-
ledger of the General Ledger and contains the clients’ accounts for clients with credit
balances
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1.2.2 Business cash payments journal of Lane Attorneys for June 2019 BCPJ
Clients Business
Sundries control bank
Date Payments Fol. R R R
01/06 Office rental (June) N3 8 000 8 000
10/06 Transfer duties – T Truth CL5 25 000 25 000
15/06 Advocates fees – B Ball CL4 3 800 3 800
30/06 Water and electricity account (June) N2 5 500 5 500
13 500 28 800 42 300
Dr B7 Cr B5

1.3 Fees journal for June 2019 FJ

Dr Cr
Date Details Fol. R R
20/06 T Truth re fees in respect of mortgage bond CL5 10 000
20/06 L Lunlaza re collection fees CL6 6 600
20/06 B Ball re fees in respect of mortgage bond CL4 18 000
20/06 Fees earned N1 34 600
Dr Clients control B7 34 600

1.4 Transfer journal for June 2019 TJ

Dr Cr
Date Details Fol. R R
30/06 B Ball (Trust account) (3 800 + 18 000) TCL3 21 800
30/06 B Ball (Business account) CL4 21 800
Transfer of trust funds to the business account for
B Ball re mortgage bond
Dr Trust creditors control B8 21 800
Cr Clients control B7 21 800

The journal entries are posted to the individual accounts for B

Ball. B Ball paid in R29 000 which was deposited in the Trust
2. General ledger accounts
account. The practice paid R3 800 for advocates’ fees and levied
fees for services rendered of R18 000.
2.1 Equity accounts
Dr Capital B1 Cr
2019 R 2019 R
30/06 Closing balance c/d 50 000 01/06 Opening balance b/d 50 000
50 000 50 000
2019
01/07 Closing balance b/d 50 000
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Dr Accumulated income B2 Cr
2019 R 2019 R
30/06 Closing balance c/d 52 900 01/06 Opening balance b/d 52 900
52 900 52 900
2019
01/07 Closing balance b/d 52 900

2.2 Asset accounts

Dr Business bank account B5 Cr
2019 R 2019 R
01/06 Opening balance b/d 15 500 30/06 Payments BCPJ 42 300
30/06 Receipts BCRJ 75 600 30/06 Closing balance c/d 48 800
91 100 91 100
2019
01/07 Opening balance b/d 48 800

Dr Trust bank account B6 Cr

2019 R 2019 R
01/06 Opening balance b/d 40 000 30/06 Transfer to
business bank TJ 21 800
30/06 Receipts BCRJ 59 000 Closing balance c/d 77 200
99 000 99 000
2019
01/07 Opening balance b/d 77 200

Dr Clients control account B7 Cr

2019 R 2019 R
01/06 Opening balance b/d 23 000 30/06 Payments from
clients BCRJ 53 800
30/06 Costs paid obo 30/06 Transfer to
clients BCPJ 28 800 business bank TJ 21 800
20/06 Fees charged FJ 34 600 30/06 Closing balance c/d 10 800
86 400 108 200
2019
01/07 Opening balance b/d 10 800

Dr Law library B3 Cr
2019 R 2019 R
30/06 Opening balance b/d 56 000 01/06 Closing balance c/d 56 000
56 000 56 000
2019
01/07 Opening balance b/d 56 000
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Dr Furniture and fittings B4 Cr

2019 R 2019 R
30/06 Opening balance b/d 82 000 01/06 Closing balance c/d 82 000
82 000 82 000
2019
01/07 Opening balance b/d 82 000

2.3 Liability accounts

Dr Trust creditors control B8 Cr
2019 R 2019 R
30/06 Closing balance c/d 99 000 01/06 Opening balance b/d 40 000
20/06 Receipts TCRJ 59 000
99 000 99 000
2019
01/07 Opening balance b/d 99 000

2.4 Income accounts

Dr Fee income N1 Cr
2019 R 2019 R
30/06 Closing balance c/d 184 600 01/06 Opening balance b/d 150 000
20/06 Fees charged FJ 34 600
184 600 184 600
2019
01/07 Opening balance b/d 184 600

2.5 Expense accounts

Dr Water and electricity N2 Cr
2019 R 2019 R
01/06 Opening balance b/d 48 900 30/06 Closing balance c/d 54 400
30/06 June expenses BCPJ 5 500
54 400 54 400
2019
01/07 Opening balance b/d 54 400

Dr Rental paid N3 Cr
2019 R 2019 R
01/06 Opening balance b/d 27 500 30/06 Closing balance c/d 35 500
30/06 June expenses BCPJ 8 000
35 500 35 500
2019
01/07 Opening balance b/d 35 500
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3. Clients ledger
Dr G Gold CL1 Cr
2019 R 2019 R
01/06 Opening balance b/d 14 000 06/06 Receipt BCRJ 11 800
30/06 Closing balance c/d 2 200
14 000 14 000
2019
01/07 Opening balance b/d 2 200

Dr H Heat CL2 Cr
2019 R 2019 R
01/06 Opening balance b/d 7 000 10/06 Receipt BCRJ 7 000
7 000 7 000
2019
01/07 Opening balance b/d 0

Dr B Bomvu CL2 Cr
2019 R 2019 R
01/06 Opening balance b/d 2 000 30/06 Closing balance c/d 2 000
2 000 2 000
2019
01/07 Opening balance b/d 2 000

Dr B Ball CL4 Cr
2019 R 2019 R
01/06 Opening balance b/d 0 30/06 Transfer TJ 21 800
10/06 Costs BCPJ 3 800
20/06 Fees charged FJ 18 000
21 800 21 800

Dr T Truth CL5 Cr
2019 R 2019 R
01/06 Opening balance b/d 0 20/06 Receipts 35 000
15/06 Costs BCPJ 25 000 30/06 Closing balance c/d 0
20/06 Fees charged FJ 10 000
35 000 35 000
2019
01/07 Opening balance b/d 0

Notes
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Dr L Lunlaza CL6 Cr
2019 R 2019 R
01/06 Opening balance b/d 0 30/06 Closing balance c/d 6 600
20/06 Fees charged FJ 6 600
6 600 6 600
2019
01/07 Opening balance b/d 6 600

4. List of clients at 30 June 2019

R
CL1 G Gold 2 200
CL3 B Bomvu 2 000
CL6 L Lunlaza 6 600
10 800

5. Trust creditors ledger

Dr P Path TCL1 Cr
2019 R 2019 R
30/06 Closing balance c/d 38 000 01/06 Opening balance b/d 18 000
30/06 Trust receipt TCRJ 20 000
38 000 38 000
2019
01/07 Opening balance b/d 38 000

Dr L Lunlaza TCL2 Cr
2019 R 2019 R
30/06 Closing balance c/d 22 000 01/06 Opening balance b/d 22 000
22 000 22 000
2019
01/07 Opening balance b/d 22 000

Dr B Ball TCL3 Cr
2019 R 2019 R
30/06 Transfer of funds TJ 21 800 01/06 Opening balance b/d 0
30/06 Closing balance c/d 7 200 30/06 Trust receipt TCRJ 29 000
29 000 29 000
2019
01/07 Opening balance b/d 7 200
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Dr A Teng TCL4 Cr
2019 R 2019 R
30/06 Closing balance c/d 10 000 01/06 Opening balance b/d 0
30/06 Trust receipt TCRJ 10 000
10 000 10 000
2019
01/07 Opening balance b/d 10 000

6. List of trust creditors at 30 June 2019

R
The list of trust creditors or client
TCL1 P Path accounts is a way of checking the 38 000
TCL2 L Lunlaza total of the Clients Ledger/Trust 22 000
creditors’ ledger with the control
TCL3 B Ball account in the general ledger.
7 200
TCL4 A Teng 10 000
77 200

7. Trial balance of Lane Attorneys at 30 June 2019

Dr Cr
R R
Capital (Equity account) B1 50 000
Opening income B2 52 900
Fee income (Income account) N1 184 600
Water and lights (Expense account) Note: The balance of N2 54 400
the Trust bank account
Rental paid (Expense account) = the balance of the
N3 35 500
Law library (Asset) Trust creditors’ control B3 56 000
account = R99 000
Furniture and fittings (Asset) B4 82 000
Business cash book (Dr balance) [Balance of Business bank account] B5 48 800
Trust cash book (Dr balance) [Balance of Trust bank account] B6 77 200
Clients control [Balance of list of clients that owe money to the practice] B7 10 800
Trust creditors control [Total of clients that the practice owes money to] B8 77 200
364 700 364 700

Notes
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7. Preparing the ledger accounts and the trial balance

LEARNING ACTIVITY 6.1 Preparing the ledger accounts and the trial balance

Page 99 of Study Guide

TIP
A law practice delivers a service to its clients. Therefore, the business does not buy
and sell goods.

The following relates to Mecer Attorneys that are not registered as a VAT vendor:
Column of
Name of each Column of accounts with a
ledger account accounts with a credit balance
debit balance

1. Trial balance at 31 January 20.6:

Fol. Dr Cr
Note: The balance of the Trust
bank account = the balance of R R
the Trust creditors’ control
Capital account = R2 520 B1 256 800
Law library at cost B2 36 000
Equipment at cost B3 32 400
Motor vehicles at cost B4 182 400
Business bank account B5 4 296
Trust bank account The folio number B6 2 520
Clients control of each account B7 1 704
[See below #]
Trust creditors control B8 2 520
259 320 259 320
The control accounts
Total of Dr column =
balance is included in
Total of Cr column
the TB
Law practitioners
perform services
for clients and
2. The following balances on 31 January 20.6 appeared in the:
charge fees
Clients’ ledger
F Franco R648 Debit
T Tank R792 Debit (In respect of a court case filed by ABC Venture Capital Ltd.)
M Mostert R264 Debit
There is only one trust creditor.
Therefore the list of Trust creditors =
Trust Creditors Control Account (per
TB)
Trust creditors’ ledger
K Kline R2 520 Credit (In respect of the transfer of property situated on Erf 66, Arkasia.
 Page 18 of 41

TIP # Providing a folio no. is a form of reference. In the trial balance above, there is a folio no. referring
to B1 – This shows that the Capital Account is the first account in the General Ledger. The B refers
to the term Balance Sheet, which was the previous name for the Statement of Financial Position
(The statement that presents the financial position of the business at the end of the reporting period.)
N stands for Nominal account (The nominal accounts are the statement of profit and loss
accounts such as the accounts for recording revenues, expenses, gains, and losses. These
accounts are closed off at the end of the reporting period and the balance transferred to a Statement
of Financial Position account such as the equity account either the proprietor's capital account or
the entity's retained earnings account.
T is for Trust creditor in the Trust Creditors Ledger
C is for Client in the Clients Ledger

3. Transactions entered into by Mecer Attorneys during February 20.6:

Date Detail
1 Pay office rent for February 20.6, R1 440.
[An expense – Cost to operate a business on the premises]
2 Purchase government gazettes amounting to R120 for the library.
[Purchase of an Asset]
2 Receive a cheque for R648 from F Franco in settlement of his account.
5 Debit F Franco with fees in respect of the drafting of a will, R2 376.
[This transaction is fees charged for services rendered to a client]
8 M Mtuli instructs the attorney’s practice to issue a summons against his wife for a
divorce. He pays a deposit of R1 620 to cover preliminary costs.
9 Debit T Tank with fees of R75 600 for defence in the court case filed by ABC Venture
Capital Ltd and receives payment in cash, for the full amount.
[This transaction is fees charged for services rendered to a client]
10 Receive a deposit of R3 432 from W Winston for the preparation of contracts
regarding the registration of a company. [Client – Money paid into trust bank account]
11 Receive an account from P & C Stationers for stationery purchased on credit, R846.
12 T Tank instructs the attorney’s practice to act on his behalf in a third-party case and
pays a deposit of R720. The attorney’s practice pays R60 for a police report from
these funds. [Client – Money paid into trust bank account]
17 Pay municipal taxes on behalf of K Kline in respect of the transfer of the property,
R1 440. [K Kline is a client, paid money into the trust account. This transaction will be paid from
the trust bank account]
18 The conveyancing transaction between trust creditor K Kline and the buyer, O Ostio
is concluded. The balance on the trust account of K Kline is paid out to him.
[The amount for this transaction is not given. It must be calculated. NB: Take note from which account
See balance on trust creditors account – K Kline] the transaction was paid

20 Debit T Tank with fees in respect of the third party case, R1 728
20 Pay advocate D Donkin in respect of the third party case of T Tank, R3 960. #
22 Pay sheriff fees from trust monies for issuing of summons on M Mtuli, R48.
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22 Pay registration expenses from trust monies in respect of the company registration
for W Winston, R360.
27 F Franco’s cheque is returned by the bank, marked “R/D”.
28 Sell an old typewriter for R324 on credit to N Nolan.
28 Receive office rent of R720 from A Aston for sub-letting a section of the premises.
28 Issue cheques for: [These are expenses incurred to operate the practice]
Wages, R6 388.
Water and electricity, R2 040.
Telephone, R636.

# The payment to advocate D Donkin is made from the business bank account as T Tank did not
specifically deposit funds in the trust bank account for this purpose (Also refer to learning unit 4).

Additional information
1. All payments are made by cheque or electronic fund transfers.
2. The legal practice does not make use of advocate and sheriff journals as their services are
not frequently used.
3. Mecer Attorneys do not make use of a business creditors control account as the majority
of business expenses are cash transactions.

REQUIRED:
Prepare the following in the books of Mecer Attorneys for February 20.6:
1. Books of first entry
• Business cash journals
• Trust cash journals
• Fees journal
• General journal
2. Ledgers
• General ledger
• Clients ledger
• Trust creditors ledger
3. The trial balance of Mecer Attorneys at 28 February 20.6

Notes
 Page 20 of 41

LEARNING ACTIVITY 6.1 FEEDBACK

Payments received from clients as payments for services

1. Books of first entry rendered are deposited into the Business bank account

Business cash receipts journal of Mecer Attorneys for February 20.6 BCRJ
Clients
Sundries control Bank
Date Receipts Fol. R R R
2 F Franco C1 648 648
9 T Tank C2 75 600 75 600
28 Rent received N6 720 720
720 76 248 76 968
Rent received from a lessee sub-
leasing a part of the premises B7 B5

TIP The Cash Book of a business is divided into a Cash Receipts Journal and a *Cash Payments Journal.
In the case of a lawyer’s practice, there is also a *Trust Cash Receipts Journal and *Trust Cash
Payments Journal.

Acronym of Business Cash Payments Journal = BCPJ

*Business cash payments journal of Mecer Attorneys for February 20.6 BCPJ
Clients Business
Sundries control bank
Date Payments Fol. R R R
1 Office rent N6 1 440 1 440
2 Law library B2 120 120
20 T Tank (advocate) [see note by transaction] CL2 3 960 3 960
27 F Franco (R/D) CL1 648 648
28 Wages N5 6 388 6 388
28 Water and electricity N4 2 040 2 040
28 Telephone N3 636 636
10 624 4 608 15 232
B7 B5

Notes
 Page 21 of 41

Deposits received from clients that are

to be held in trust, to be deposited into
the trust bank account
Acronym for Trust Cash Receipts Journal = TCRJ

*Trust cash receipts journal of Mecer Attorneys for February 20.6 TCRJ
Trust
creditors Trust
Sundries control bank
Date Receipts Fol. R R R
8 M Mtuli (divorce) TCL2 1 620 1 620
10 W Winston (company) TCL3 3 432 3 432
12 T Tank TCL4 720 720
5 772 5 772
B8 B6

Acronym for Trust Cash Payments Journal = TCPJ

*Trust cash payments journal of Mecer Attorneys for February 20.6 TCPJ
Trust
creditors Trust
Sundries control bank
Date Payments Fol. R R R
16 T Tank (police report) TCl4 60 60
17 K Kline (taxes – Akasia property) TCL1 1 440 1 440
18 K Kline (Akasia property) TCL1 1 080 1 080
22 M Mtuli (sheriff) TCL2 48 48
22 W Winston (company registration) TCL3 360 360
2 988 2 988
B8 B6

Fees journal
Fees journal of Mecer Attorneys for February 20.6 FJ
Clients
control Fees
Date Details Fol. R R
5 F Franco – redrafting of will CL1 2 376 2 376
9 T Tank – re court case CL2 75 600 75 600
20 T Tank – re third party case CL3 1 728 1 728
79 704 79 704
B7 N1
 Page 22 of 41

The general journal is used to record the following transaction types:

1. The purchase of non-current assert on credit
2. The sale of non-current assets on credit. [as per the transaction with N Nolan above]
3. The entries necessary to open the ledger accounts when a business first comes into
existence.
4. The entries, which will be necessary to close the ledger accounts when the entity ceases
to do business.
5. Transfers between ledgers.
6. Correction of errors in the ledgers.

General journal of Mecer Attorneys for February 20.6

These transactions are Debit Credit

Day Details credit transactions Fol. R R
11 Stationery N2 846
P & C Stationers B9 846
(Stationery purchased on credit)
28 N Nolan B10 324
Equipment B3 324
(Old typewriter sold on credit)

TIP
Nominal accounts in the General Ledger record expenses, profits, losses and gains and is shown
by an N. In a computerised accounting package the programme also makes use of B’s and N’s

2. Ledgers
General ledger of Mecer Attorneys Equity

Dr Capital B1 Cr
R 20.6 R
Feb 1 Balance b/d 256 800
Asset See glossary for
Historical cost
Dr Law library at cost B2 Cr
20.6 R R
Feb 1 Balance b/d 36 000
2 Business bank BCPJ 120
36 120
 Page 23 of 41

Asset

Dr Equipment at cost B3 Cr
20.6 R 20.6 R
Feb 1 Balance b/d 32 400 Feb 28 N Nolan GJ 324
28 Balance c/d 32 076
32 400 32 400
Mar 1 Balance b/d 32 076

Asset

Dr Motor vehicles at cost B4 Cr

20.6 R R
Feb 1 Balance b/d 182 400

Asset

Dr Business bank account B5 Cr

20.6 R 20.6 R
Feb 1 Balance b/d 4 296 Feb 28 Payments BCPJ 15 232
28 Receipts BCRJ 76 968 28 Balance c/d 66 032
81 264 81 264
20.6
Mar 1 Balance b/d 66 032

Asset

Dr Trust bank account B6 Cr

20.6 R 20.6 R
Feb 1 Balance b/d 2 520 Feb 28 Payments TCPJ 2 988
28 Receipts TCRJ 5 772 Balance c/d 5 304
8 292 8 292
20.6
Mar 1 Balance b/d 5 304

Notes
 Page 24 of 41

The general ledger of a lawyer’s practice has BOTH a Clients

Control Account (Dr) and a Trust Creditors Control Account (Cr).
Asset

Dr Clients control B7 Cr
20.6 R 20.6 R
Feb 01 Balance b/d 1 704 Feb 28 Business bank BCRJ 76 248
28 Fees earned FJ 79 704 Balance c/d 9 768
28 Business bank BCPJ 4 608
86 016 86 016
20.6
Mar 1 Balance b/d 9 768

Liability – Practice owes the clients of the practice

Dr Trust creditors control B8 Cr

20.6 R 20.6 R
Feb 28 Trust bank TCPJ 2 988 Feb 01 Trust bank b/d 2 520
28 Balance c/d 5 304 28 Trust bank TCRJ 5 772
8 292 8 292
20.6
Mar 1 Balance b/d 5 304
Liability – Trade creditor

Dr P & C Stationers B9 Cr
R 20.6 R
Feb 11 Stationery GJ 846
Asset – Trade debtor

Dr N Nolan B10 Cr
20.6 R R
Feb 28 Equipment GJ 324

Income

Dr Fees earned N1 Cr
R 20.6 R
Feb 28 Clients control FJ 79 704

Expense
Dr Stationery N2 Cr
20.6 R R
Feb 11 P & C Stationers GJ 846

Expense
 Page 25 of 41

Dr Telephone N3 Cr
20.6 R R
Feb 28 Business bank BCPJ 636

Expense
Dr Water and electricity N4 Cr
20.6 R R
Feb 28 Business bank BCPJ 2 040

Expense
Dr Wages N5 Cr
20.6 R R
Feb 28 Business bank BCPJ 6 388

Expense
Dr Office rent paid N6 Cr
20.6 R 20.6 R
Feb 1 Business bank BCPJ 1 440 Feb 28 Business bank BCRJ 720
28 Balance c/d 720
1 440 1 440
20.6
Mar 1 Balance b/d 720

Clients’ ledger of Mecer Attorneys

NB – If the attorney’s firm receives instructions from a client on different matters, each
PAUSE
matter should be separately accounted for. (Refer to Mr T Tank below.)
– As Mecer Attorneys only used the sheriff once on 22 February 20.6 the legal firm
did not make use of a sheriffs journal. On receipt of the invoice and account
statement from the sheriff, Mecer Attorneys immediately paid the account from
the business bank account. (Also refer to learning unit 4)

Dr F Franco CL1 Cr
20.6 R 20.6 R
Feb 1 Balance b/d 648 Feb 2 Business bank BCRJ 648
5 Fees earned FJ 2 376 28 Balance c/d 3 024
27 Business bank BCPJ 648
3 672 3 672
20.6
Mar 1 Balance b/d 3 024
 Page 26 of 41

Dr T Tank (Re matter: ABC Venture Capital Ltd) CL2 Cr

20.6 R 20.6 R
Feb 1 Balance b/d 792 Feb 9 Business bank BCRJ 75 600
9 Fees earned FJ 75 600 28 Balance c/d 792
76 392 76 392
20.6
Mar 1 Balance b/d 792

Dr M Mostert CL3 Cr
20.6 R R
Feb 1 Balance b/d 264

Dr T Tank (Re matter: Third-party case) CL4 Cr

20.6 R 20.6 R
Feb 20 Fees FJ 1 728 Feb 28 Balance c/d 5 688
Business bank
(Advocate) BCPJ 3 960
5 688 5 688
20.6
Mar 1 Balance b/d 5 688

List of client balances at 28 February 20.6 R

F Franco 3 024
T Tank (ABC Venture Capital Ltd.) 792
M Mostert 264
T Tank (Third-party case) 5 688
Total 9 768

Trust creditors’ ledger of Mecer Attorneys

Dr K Kline TCL1 Cr
20.6 R 20.6 R
Feb 17 Trust bank (Municipal Feb 1 Balance b/d 2 520
taxes) TCPJ 1 440
18 Trust bank (K Kline) TCPJ 1 080
2 520 2 520

Dr M Mtuli TCL2 Cr
20.6 R 20.6 R
Feb 22 Trust bank (Sheriff) TCPJ 48 Feb 8 Trust bank (Divorce) TCRJ 1 620
28 Balance c/d 1 572
1 620 1 620
20.6
Mar 1 Balance b/d 1 572
 Page 27 of 41

Dr W Winston TCL3 Cr
20.6 R 20.6 R
Feb 22 Trust bank (Company Feb 10 Trust bank (Company
registration) TCPJ 360 registration) TCRJ 3 432
28 Balance c/d 3 072
3 432 3 432
Balance b/d 3 072

Dr T Tank (Re matter: Third-party case) TCL4 Cr

20.6 R 20.6 R
Feb 12 Trust bank (Police Feb Trust bank (Deposit) TCRJ 720
report) TCPJ 60 12
28 Balance c/d 660
720 720
20.6
Mar 1 Balance b/d 660

List of trust creditors’ balances at 28 February 20.6

R
K Kline -
M Mtuli 1 572
W Winston 3 072
T Tank (Matter: Third-party case) 660
Total 5 304

Notes
 Page 28 of 41

3. Trial balance of Mecer Attorneys at 28 February 20.6

Debit Credit
Statement of Financial Position section Fol. R R
Capital B1 256 800
Law library at cost B2 36 120
Equipment at cost B3 32 076
Motor vehicles at cost B4 182 400
Business bank account B5 66 032
Trust bank account B6 5 304
Clients control B7 9 768
Trust creditors control B8 5 304
P & C Stationers B9 846
N Nolan B10 324
Statement of Profit and Loss section
Fees earned N1 79 704
Stationery N2 846
Telephone N3 636
Water and electricity N4 2 040
Wages N5 6 388
Office rent N6 720
342 654 342 654

8. Trust Bank Accounts – Section 84 and 86 of the Legal Practice Act, 28 of 2014
The trust banking of legal practitioners is regulated by Section 86 of the Legal Practice Act, 28
of 2014.

Trust accounts
• Section 84(1) Every attorney or any advocate referred to in section 34(2)(b), who practises
or is deemed to practise –
(a) for his or her own account either alone or in partnership; or
(b) as a director of a practice which is a juristic entity, must be in possession of a Legal
Practitioners Fidelity Fund certificate.
• Section 84(2) No legal practitioner referred to in subsection (1) or person employed or
supervised by that legal practitioner may receive or hold funds or property belonging to
any person unless the legal practitioner concerned is in possession of a Legal Practitioners
Fidelity Fund (hereafter referred to as the LPF Fund) certificate.
• Section 84(3) The provisions of subsections (1) and (2) apply to a deposit taken on
account of fees or disbursements in respect of legal services to be rendered. (i.e. Trust
money)
• Section 86(1) Every legal practitioner referred to in section 84(1) must operate a
trust account. [A trust account is a separate bank account]
 Page 29 of 41

• Section 86(2) Every trust account practice must keep a trust account at a bank with which
the LPF Fund has made an arrangement as provided for in section 63(1)(g) and must
deposit therein, as soon as possible after receipt thereof, money held by such practice on
behalf of any person. This is interest earned on the practice trust account
(a) Interest accrued must, in the case of money deposited in terms of this subsection, be
paid over to the LPF Fund and vests in the LPF Fund,
(b) 100% of trust interest earned, will be paid monthly to the LPF Fund as provided for by
NB!
Rule [Link] made under the authority of Section 95(1) of the Legal Practice Act,
28 of 2014.
• The legal practitioner can claim approved recoverable bank charges and audit fees on the
trust accounts back from the LBF Fund, subject to certain formulas and requirements.
It is this point that differentiates the type
of investments
Trust savings and other interest-bearing accounts
• Section 86(3) A trust account practice may, of its own accord, invest in a separate trust
savings account or another interest-bearing account any money which is not immediately
required for any particular purpose.
(a) These investments should be made through banks with which the LPF Fund has entered
into an arrangement.
(b) These investments remain part of the entrusted monies and are recorded as such in the
trust accounting records of the legal practice. These investments enjoy protection from
the LPF Fund.
(c) Interest accrued must, in the case of money deposited in terms of this subsection, be
paid over to the LPF Fund and vests in the LPF Fund NB!
(d) 100% of trust interest earned will be paid on an annual basis to the LPF Fund as
provided for by Rule [Link] made under the authority of Section 95(1) of the Legal
Practice Act, 28 of 2014. It is this point that differentiates
the type of investments

Section 86(4) A trust account practice may, on the instructions of any person, open a
separate trust savings account or another interest-bearing account for the purpose of
investing therein any money deposited in the trust account of that practice, on behalf of
such person over which the practice exercises exclusive control as trustee, agent
or stakeholder or in any other fiduciary capacity.
(a) Interest accrued on money deposited in terms of this section must be paid as follows:
– 5% of the interest accrued on money in terms of this paragraph must be paid over to
the LPF Fund and vests in the LPF Fund.
– 95% of the interest accrued on the above money must be paid over to the person
who gave instructions for the investment to be made.
(b) With effect from 1 March 2019, 5% of the trust interest earned will be paid monthly to
the LPF Fund in terms of section 86(5) and as provided for by Rule [Link] made
under the authority of Section 95(1) of the Legal Practice Act, 28 of 2014.
 Page 30 of 41

• Trust money may not be deposited directly into the Trust investment account. All trust
monies must flow through the trust bank account to the trust investment account and, on
withdrawal of the money invested, from the trust investment account back to the trust bank
account. The trust creditors can then be paid from the trust bank account.
• Interest earned on Section 86(3) trust investments must be paid over to the LPF Fund. It
is, therefore, not the property of the legal practitioner nor the trust creditors.

Summary of the process of investing trust money:

Client deposits money into the practices’ trust bank account

A legal practitioner of their own accord Every trust account practice The client, instructs legal
decides to invest the money, currently must keep a trust account at practitioner to invest the money in
not required for a specific purpose in a bank with which the LPF LPF Fund approved bank until it is
LPF Fund approved bank until it is Fund has entered into an needed for fees and costs.
needed for fees and costs. arrangement.

Paid into a trust investment account. Paid into a trust investment

Either a savings account or other account. Either a savings account
interest-bearing account. or other interest-bearing account

Section 86(3) investment Section 86(2) investment Section 86(4) investment

Interest earned on the investment to be paid over Interest earned on the investment to be paid over
annually to the LPF Fund (100%) monthly to the client (95%) and LPF Fund (5%)

The previous Section 78(2)(b) of the Attorneys Act required that any trust savings or interest-
bearing account referred to in section 78(2)(a) contain a reference to this subsection.
Section 86 of the Legal Practice Act, 28 of 2014 (LPA) does not include such a requirement,
but it is still a requirement in terms of the Rules.
 Page 31 of 41

Page 127 of Study Guide

EXAMPLE 8.1

The accounting treatment of section 86(2) and section 86(3) trust investments

The following information was obtained from the accounting records of Wintrish Attorneys for
June 20.8:

20.8
June
1 The balance of the trust bank account of Wintrish Attorneys with Dow Bank amounted to
R250 000. Mr Wintrish decided to invest R80 000, not immediately required, in a special
interest-bearing savings account with Win Bank.
30 Wintrish Attorneys withdrew R80 800 from the savings account with Win Bank and
deposited it in the trust bank account.
30 Interest of R700 was earned during the month on the Trust bank account held in Dow Bank.

REQUIRED:
Prepare the following in the accounting records of Wintrish Attorneys for June 20.8:
1. Subsidiary journals, properly totalled:
1.1. Trust cash receipts journal
1.2. Trust cash payments journal
1.3. General journal
2. Ledgers, properly balanced:
2.1. General ledger
2.2. Trust creditors ledger

FEEDBACK: EXAMPLE 8.1

WINTRISH ATTORNEYS

1. SUBSIDIARY JOURNALS
1.1 Trust cash receipts journal for June 20.8 TCRJ6
Trust
creditors Trust
control bank
Date Details Fol. R R
30/06 Interest received on trust bank account TCL2 700 700
30/06 Trust investment – Win Bank [trust creditor] TCL1 80 800 80 800
81 500 81 500
Cr B2 Dr B1
 Page 32 of 41

1.2 Trust cash payments journal for June 20.8 TCPJ6

Trust
creditors Trust
control bank
Date Details Fol. R R
01/06 Trust investment – Win Bank [trust creditor] TCL1 80 000 80 000
80 000 80 000
Dr B2 Cr B1

1.3 General journal for June 20.8 GJ6

Debit Credit
Date Details Fol. R R
30 Interest received on trust investment [trust creditor] TCL1 800
LPF Fund [trust creditor] TCL2 800
Transfer of interest to the LPF Fund
30 Dr Trust creditors control account B2 800
30 Cr Trust creditors control account B2 800

2. LEDGERS

2.1 General ledger

Dr Trust bank B1 Cr
20.8 R 20.8 R
01/06 Balance b/d 250 000 01/06 Trust payments TCPJ6 80 000
30/06 Trust receipts TCRJ6 81 500 30/06 Balance c/d 251 500
331 500 331 500
Jun 30 Balance b/d 251 500
The balance of the Trust bank account must equal the
Trust creditors control account at month end
Dr Trust creditors control B2 Cr
20.8 R 20.8 R
30/06 Trust bank TCPJ6 80 000 01/06 Balance [Per question] b/d 250 000
30/06 Journal debits GJ6 800 30/06 Trust bank TCRJ6 81 500
30/06 Balance c/d 251 500 30/06 Journal credits GJ6 800
332 300 332 300
30/06 Balance b/d # 251 500
 Page 33 of 41

Interest earned on the R80 000 invested in interest-bearing savings

2.2 Trust creditors ledger
Dr Trust investment – Win Bank TCL1 Cr
20.8 R 20.8 R
01/06 Trust bank TCPJ6 80 000 30/06 Trust bank TCRJ6 80 800
30/06 LPF Fund GJ6 800
80 800 80 800

Dr Legal Practitioners Fidelity Fund TCL2 Cr

R 20.8 R
30/06 Trust bank TCRJ6 700
The credit is from the Trust Cash Receipts Journal. The
reference to 6 indicates the page no of the TCRJ on 30/06 Trust investment –
which the transaction is recorded. Win Bank GJ6 800
1 500
From P 6 of the General Journal

NB
PAUSE The interest earned on the section 86(2) trust bank account and section 86(3) trust
investment accrues to the LPF Fund but has not been paid to the LPF Fund. Therefore,
the R1 500 is still owed to the LPF Fund on 30 June.

Check the balance of Trust Creditors Control:

List of trust creditors’ balances at 30/06/20.8

R
Opening balance [No detail of the composition of this amount] 250 000
LPF Fund 1 500
Total # 251 500

Notes
 Page 34 of 41

Page 139 of Study Guide

LEARNING ACTIVITY 1 The accounting treatment of Section 86(4) investments

The recording of trust, business and transfer transactions in an attorney’s practice

On 1 May 20.2 the following information was obtained from the accounting records of Candice
Attorneys:
R
Business bank 4 300
Trust bank Note that the opening balance of the Trust bank account is 37 000
equal to the opening balance of the Trust creditors’ control
Client control [Opening balance] 1 350
A Backer 250
J Rhodes 1 100

Trust creditors control [Opening balance] 37 000

M Munnik 24 800
Z Zontach 11 700
G Adams 500

The following transactions took place in the attorney’s practice of Candice Attorneys during
May 20.2:

20.2
May
1 G Adams is divorcing his wife and deposited a bank guaranteed cheque of R15 000
with Candice Attorneys to cover fees and charges, including advocate fees.
2 G Adams gave a written instruction that R7 000 be invested in an interest-bearing
account at SA Bank. Candice Attorneys executed the instruction. [Section 86(4) investment]
5 Candice Attorneys instructed advocate K Lombaard to handle G Adams’ divorce and
paid his account to the amount of R6 000. [Payments made on behalf of a client are made from
the business bank account]
6 Candice Attorneys decided to invest R10 000 of the trust monies in the trust bank
account not needed for immediate use, in a special savings account at First Bank.
[Section 86(3) investment, there was no instruction from the client to invest, practice may do so of its own
accord]
14 Candice Attorneys received a combined cheque from A Bacher, a client, to the amount
of R700 for:
• Settlement of his account for services rendered in a collection matter (fees have been
charged during the previous month) – R250.
• A deposit for fees still to be levied for the preparation of a purchase contract – R450.
24 The divorce case of G Adams was settled, and Candice Attorneys levied a fee of
R4 000. Candice Attorneys withdrew the investment made on 2 May 20.2 and received
R7 100. The attorney’s practice paid the amount due to G Adams after all transfers were
made.
[If the practice levies a fee for services rendered the transaction is recorded in the Fees Journal]
 Page 35 of 41

28 Candice Attorneys withdrew R5 000 (excluding interest) of the trust investment made
on 6 May 20.2. Interest on the investment amounted to R80.
30 Candice Attorneys received written instruction from M Munnik to invest R12 000 of his
funds held in trust, in an interest-bearing savings account at SA Bank. Candice,
Attorneys, obliged. [Section 86(4) investment – client instructed investment]

REQUIRED:
Prepare the following in the accounting records of Candice Attorneys for May 20.2:
1. Subsidiary journals, property totalled:
1.1 Business cash receipts journal
1.2 Trust cash receipts journal
1.3 Trust cash payments journal
1.4 General journal
1.5 Fees journal
1.6 Transfer journal
2. Ledgers, properly balanced:
2.1 General ledger
2.2 Trust creditors ledger
2.3 Clients ledger

Notes
 Page 36 of 41

LEARNING ACTIVITY 1 Feedback

CANDICE ATTORNEYS
1. Subsidiary journals

1.1 Business cash receipts journal for May 20.2 BCRJ5

Business
Sundries bank
Date Details Fol. R R
14 Trust bank (transfer A Bacher) TCPJ5 250 250
24 Trust bank (transfer G Adams) TCPJ5 4 000 4 000
4 250 4 250
B2

Debit business bank account

1.2 Trust cash receipts journal for May 20.2 TCRJ5

Investment in SA Bank withdrawn from Trust
investment account and deposited in Trust creditors Trust
bank account. The amount is the original
investment of R7 000 plus the interest
control bank
Date Details earned on investment of R100 Fol. R R
1 G Adams (trust creditor) TCL3 15 000 15 000
14 A Bacher (trust creditor) TCL4 700 700
24 Trust investment (Sec 86(4) investment)(G Adams) – SA
Bank (trust creditor) TCL5 7 100 7 100
28 Trust investment (Sec 86(3) investment) – First Bank
(trust creditor) TCL6 5 080 5 080

The amount is the original investment of R5 000 plus the interest earned
27 880 27 880
on investment of R80 B4 B1

Credit trust creditors control account Debit trust bank account

Notes
 Page 37 of 41

1.3 Trust cash payments journal for May 20.2 TCPJ5

Details Trust
Trust creditor creditors Trust
control bank
Date Fol. R R
2 Trust investment (Sec 86(4) investment)(G Adams) – SA
Bank TCL6 7 000 7 000
5 G Adams – Adv K Lombaard TCL3 6 000 6 000
6 Trust investment (Sec 86(3) investment) – First Bank TCL5 10 000 10 000
14 Business bank (transfer A Bacher) BCRJ5 250
24 G Adams TCL3 5 600 5 600
24 Business bank (transfer G Adams) BCRJ5 4 000
30 Trust investment (Sec 86(4) investment)(M Munnik) – SA
Bank TCL7 12 000 12 000
40 600 44 850
B4 B1
Debit trust creditors control account Credit trust bank account
ccountaccount
1.4 General journal for May 20.2 GJ5
Dr Cr
Date Details Trust creditor Fol. R R
24 Trust investment (Sec 86(4) investment)(G Adams) – SA
Bank TCL6 100
G Adams (100 x 95%) TCL3 95
LPF Fund (100 x 5%) TCL8 5
Transfer of interest to client and LPF Fund
28 Trust investment (Sec 86(3) investment) – First Bank TCL5 80
LPF Fund (100%) TCL8 80
Transfer of interest to the LPF Fund
31 Dr Trust creditors control account B4 180
31 Cr Trust creditors control account B4 180

NB
PAUSE
Both of the journal entries above are for trust creditors. The interest earned on the trust
investment in SA Bank (Section 86(4) investment) of R100 is allocated between the client
G Adams (R95) and the LPF Fund (R5). The interest earned on the trust investment in
First Bank (Section 86(3) investment) of R100 is only allocated to the LPF Fund.
 Page 38 of 41

1.5 Fees journal for May 20.2 FJ5

Clients
Date Details Fol. control Fees
R R
24 G Adams (client) CL3 4 000
Fees N1 4 000
Fees charged for divorce
31 Dr Clients control account B3 4 000
31 Cr Trust creditors control account B4 4 000

1.6 Transfer journal for May 20.2 TJ5

Debit Credit
Date Details Fol. R R
14 A Bacher (trust creditor) TCL4 250
A Bacher (client) CL1 250
Transfer of fees from combined cheque
24 G Adams (trust creditor) TCL3 4 000
G Adams (client) CL3 4 000
Transfer of account
31 Dr Trust creditors control account B4 4 250
31 Cr Clients control account B3 4 250

2. Ledgers
2.1 General ledger
Dr Trust bank account B1 Cr
20.2 R 20.2 R
01/05 Balance b/d 37 000 31/05 Trust payments TCPJ5 44 850
31/05 Trust receipts TCRJ5 27 880 31/05 Balance c/d 20 030
64 880 64 880
01/06 Balance b/d 20 030

Dr Business bank account B2 Cr

20.2 R R
01/05 Balance b/d 4 300
31/05 Receipts BCRJ5 4 250
8 550
 Page 39 of 41

Dr Clients control account B3 Cr

20.2 R 20.2 R
01/05 Balance b/d 1 350 31/05 Journal credits GJ5 4 250
31/05 Fees FJ5 4 000 Balance c/d 1 100
5 350 5 350
01/06 Balance b/d 1 100

Dr Trust creditors control account B4 Cr

20.2 R 20.2 R
31/05 Trust bank TCPJ5 40 600 01/05 Balance b/d 37 000
31/05 Journal debits GJ5 200 31/05 Trust bank TCRJ5 27 880
31/05 Journal debits TJ5 4 250 31/05 Journal credits GJ5 200
31/05 Balance c/d 20 030
65 080 65 080
01/06 Balance b/d 20 030

Dr Fees N1 Cr
R 20.2 R
31/05 Client control FJ5 4 000

2.2 Trust creditors ledger

Dr M Munnik TCL1 Cr
R 20.2 R
01/05 Balance b/d 24 800

Dr Z Zontach TCL2 Cr
R 20.2 R
01/05 Balance b/d 11 700

Dr G Adams TCL3 Cr
20.2 R 20.2 R
05/05 Trust bank – advocate TCPJ5 6 000 01/05 Balance b/d 250
24/05 G Adams (client) TJ5 4 000 31/05 Trust bank TCRJ5 15 000
31/05 Trust bank TCPJ5 5 600 31/05 G Adams Investment
– SA Bank GJ5 95
15 600 15 600
 Page 40 of 41

Dr A Bacher TCL4 Cr
20.2 R 20.2 R
14/05 A Bacher (client) TJ5 250 14/05 Trust bank TCRJ5 700
31/05 Balance c/d 450
700 700
01/06 Balance b/d 450

Dr Trust investment – First Bank TCL5 Cr

20.2 R 20.2 R
06/05 Trust bank TCPJ5 10 000 28/05 Trust Bank TCRJ5 5 100
31/05 LPF Fund GJ5 100 31/05 Balance c/d 5 000
10 100 10 100
01/06 Balance b/d 5 000

Dr Trust investment (G Adams ) – SA Bank TCL6 Cr

20.2 R 20.2 R
May 2 Trust bank TCPJ5 7 000 24/05 Trust bank TCRJ5 7 100
24/05 G Adams (trust
creditor) GJ5 100
7 100 7 100

Dr Trust investment (M Munnik ) – SA Bank TCL7 Cr

20.2 R R
30/05 Trust bank TCPJ5 12 000

Dr LPF Fund TCL8 Cr

R 20.2 R
31/05 Trust investment – GJ5
SA Bank 5
Trust investment – GJ5
First Bank 80
85

NB The interest earned on the section 86(4) trust investment accrues to the LPF Fund but 5 not
PAUSE
yet been paid over to the fund per the question. Therefore, the R100 is still owed to the LPF
Fund on 31 May. Interest earned on a section 86(4) trust investment must be paid over
monthly to the LPF Fund.
 Page 41 of 41

List of trust creditors balances on 31 May 20.2 R

M Munnik 24 800
Z Zontach 11 700
G Adams 0
A Bacher 450
Trust investment – First Bank (5 000)
Trust investment (G Adams) – SA Bank 0
Trust investment (M Munnik) – SA Bank (12 000)
LPF Fund 100
20 050

Balance of trust bank account on 31 May 20.2 20 050

2.3 Clients ledger

Dr A Bacher CL1 Cr
20.2 R 20.2 R
May 1 Balance b/d 250 May 14 A Bacher (trust creditor) TJ5 250
250 250

Dr J Rhodes CL2 Cr
20.2 R R
May 1 Balance b/d 1 100

Dr G Adams CL3 Cr
20.2 R 20.2 R
May 24 Fees FJ5 4 000 May 24 G Adams (trust creditor) TJ5 4 000
4 000 4 000