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Prof. S.D. Bhosale
“Law Master’s” Publication
“Accountancy for lawyers”
(..6..)
Accountancy for Lawyers
QUESTION BANK
1. Discuss principles of Bookkeeping and explain the significance of accountancy for
lawyers.
2. Explain the meaning of the Single entry and Double entry systems. What are the
advantages of the Double entry system?
3. Explain the role of accountancy for a lawyer and discuss the duty of an advocate to
maintain the accounts.
Short Notes
1. Double Entry Book Keeping.
2. Bank Reconciliation statement.
3. Assessment of Income and Expenditure and payment of taxes by Advocate.
TABLE OF CONTENT
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Prof. S.D. Bhosale
“Law Master’s” Publication
“Accountancy for lawyers”
4. To take settled fee (Rule 28)-...................................................................................61
1. Cash book-..................................................................................................................62
IV. Advantages of maintaining accounts by Advocates-......................................................63
3. To pay income tax-....................................................................................................64
6. Helps in improving income-.....................................................................................64
7. Helps in reducing costs-............................................................................................64
2. Liabilities-...................................................................................................................65
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Prof. S.D. Bhosale
“Law Master’s” Publication
“Accountancy for lawyers”
Advocates Act 1961 requires Advocates to maintain accounts. Advocates must
maintainproperaccountstocalculate(i)Annual Income, (ii) Income Tax, (iii) Professional
Tax, and (v) the Amount due to or from the client.
I. Provisions requiring advocates to maintain accounts-
Bar Council of India Rules 25 to 32 of Chapter II of Part VI provide for the
maintenance of clients' accounts. These rules are as follows-
1. To Keep account of the client’s money (Rule 25)-
An advocate should keep accounts of the client’s money entrusted to him. The
accounts should show the amounts received from the client, the expenses incurred for him
and the debits made on account of Advocate fees with the respective dates and all other
necessary particulars.
Under Rule 25 of professional conduct, advocates are mandated to maintain
accurate,transparentrecordsofallclientfunds heldin trust, ensuringstrict separationfrom
personal or business accounts. They must deposit client money into designated trust
accounts, refrain from unauthorized use, and promptly provide detailed statements upon
request. Proper bookkeeping, including receipts, disbursements, and balances, is required
to prevent commingling or misappropriation. Advocates must also return residual funds
promptly after completing services or as agreed. This safeguards client interests, upholds
fiduciary responsibility, and ensures compliance with ethical and legal standards,
preserving trust in the legal profession and averting disciplinary action for financial
misconduct.
2. Advocates' fees and expenses are to be separately mentioned (Rule 26)-
Where money is received from the client, whether the amount has been received for
the advocate’s fees or expenses should be entered. The amount received for the expenses
shall not be diverted towards the advocate fees without the client's written consent.
3. Receipt of the amount is to be intimated (Rule 27)-
Where any amount is received on behalf of the client, the fact of such receipt must
be intimated to the client as early as possible.
4. To take a settled fee (Rule 28)-
After the completion of the proceeding, the advocate shall be at liberty to take the
settled fee due to him from the unspent money in his hand.
5. Return balance (Rule 29)-
Where the fee has been left unsettled, the advocate shall take the fees to which he is
legally entitled from the client's money remaining in his hands after the completion of the
proceeding. The balance shall be returned to the client.
6. A copy of the account shall be furnished (R. 30)-
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Prof. S.D. Bhosale
“Law Master’s” Publication
A copy of the client’s account shall be furnished to him after getting the necessary
copying charges from him.
“Accountancy for lawyers”
7. Not to convert funds into loans (R. 31)-
An advocate shall not make any agreements whereby the client’s funds in his hands
are converted into loans to the advocate.
8. Not to fund case (R. 32)-
An advocate shall not lend money to his client for the purpose of conducting the
case.
II. Books of accounts to be maintained by advocates-
As per the Income Tax Act, every Advocate is required to maintain the following
books of accounts and other documents to enable the Assessing Officer to calculate his
total income, viz.-
1. Cashbook-
Cash Book is thebookin which the amountreceivedbytheAdvocatefrom the client
and others and the amount spent for the clients are written.
2. Receipt Voucher-
A receipt Voucher is a document prepared to record the receipt of money by cash
or chequefrom clients. When an Advocatehas receivedmoneyfrom a client, the Advocate
has to issue a receipt to the client. An advocate shall maintain receipt books with serially
numbered receipt forms in duplicate.
3. Payment Vouchers-
Payment vouchers are secured to record payments for which receipts are not
obtainable from the person to whom such payments are made, such as auto fare, court fees,
stamps, refreshment expenses, etc.
4. Journal-
The journal is the book of the first or original entry. The transactions are recorded
in the order of their occurrence in the Journal. It contains the date of the transaction, the
account to which the transaction relates, the amount to be debited, the amount to be
credited, an explanation of the transaction, etc.
5. Ledger-
The transactions recorded in the journal are to be posted to the separate heads of
account in another book called Ledger. Different pages are allotted to the different heads
of accounts in the ledger. When the journal entries are postedto the concerned heads of the
account of the ledger, the page number of the ledger shall be noted in the journal for easy
reference.The ledger accountofan advocateshallcontainthehead of the ‘clientsaccount’.
In the clientaccountforeach andevery client,separate pages shallbe allotted,and separate
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Prof. S.D. Bhosale
“Law Master’s” Publication
“Accountancy for lawyers”
accounts shall be maintained for them.
III. Accounting systems-
Modern accountingsystems are classifiedas single entry and double-entry systems.
A business entity can record its monetary transactions either on a single-entry system or a
double-entry system of bookkeeping.
1. Single entry system-
A single-entry system is a system in which only one aspect of the transaction is
recorded.A single-entrysystemis less laborious and lesstime-consuming. It is economical
but unscientific. In it, some transactions are recorded on both sides like a double entry
system; some are recorded on one side only, and some others are not recorded. In other
words, it is a mixture of double, single, and no entry. This accounting system is apt for
concerns whose profit, loss, assets, liabilities, etc., are undesirable to be published.
However, according to accounting standards, the single-entry system is faulty,
incomplete, inaccurate and unscientific.
2. Double entry system-
The double-entry system completely records transactions that require substantial
effort and time. The system is based on fundamental principles of accounting, and so it
records every aspect of the transaction.
As the name itself suggests, every entry to an account requires a correspondingand
opposite entry to a different account, e.g. suppose Mr X has purchased goods of Rs. 1000
for cashfrom Mr Y, so here, on the onehand, he has receivedgoods, andon the otherhand,
the cash is given to Mr Y. Thus, it means goods are acquired by paying cash. Therefore,
the double entry system records both aspects of a single transaction, i.e. the increase of
goods with the simultaneous decrease in cash.
The double-entry system maintains that every financial transaction has two aspects,
i.e., giving and receiving. The giving aspect or expenditure is named ‘Credit’, and the
receivingaspect or receipt is named ‘Debit’. So, in a double-entry account system, as the
name itself suggests, there are two sides, i.e., ‘Credit’ and ‘Debit’.
Due to this two-fold effect, the system also possesses completeness and accuracy,
as it matches the generally accepted accounting principles. This accounting procedure
starts with source documents, followed by the journal, ledger, and trial balance, and then ,
at the end, financial statements are prepared. In this system, there are fewer chances of
fraud and embezzlement.
IV. Advantages of maintaining accounts by Advocates-
Advocates have the following advantages of accounting, viz.
1. To calculate annual income-
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Prof. S.D. Bhosale
“Law Master’s” Publication
“Accountancy for lawyers”
Maintaining accounts facilitates advocates' knowing their annual income. Without
maintainingan account, like other businesses, advocates cannot know their annual income
accurately. Since advocacy is a profession, it also has a business aspect. Therefore, for an
advocate, it is necessary to know his annual income so as to increase it in the future.
2. To know expenses and liabilities-
Maintaining accounts facilitates advocate knowing expenses and liabilities
precisely. In any business concern, it is necessary to know expenses and liabilities.
3. To pay income tax
Paying income tax and professional tax is the advocate's national and legal duty.
Proper accountingfacilitates advocates to know their exact income. If the income exceeds
the taxable limit, the advocate must pay Income Tax.
4. To pay professional tax-
It is incumbent on an advocate to pay professional tax. Professional tax varies per
income. Keeping proper accounts facilitates advocates in calculatingthe exact amount of
professional tax. Nowadays, in exceptional circumstances, Advocates have to pay GST
(Goods and Services Tax). Maintaining accounts makes tax-paying work easy.
5. To ascertain the amount due from the client or due to the client-
An advocatemust properlyaccountfor eachclient’samountreceivedandremaining
due. Moreover, it is necessary to maintain an account of the amount received on behalf of
the client to be paid to him.
6. Helps in improving income-
Exact statements of accounts help the advocate know the areas where his income
can be increased.
7. Helps in reducing costs-
Maintainingaccountshelpsadvocate foridentifyingexcess spendingsoas to reduce
it. It helps avoid and identify unnecessary expenses.
8. Getting bank loans becomes easy-
Proper maintenance of accounts and payment of taxes make advocates eligible to
get loans easily. Otherwise, it becomes very difficult to get a loan from the bank.
9. Compliance with legal requirements-
As discussed earlier, the law requires advocates to maintain accounts. By
maintainingaccounts,the Advocatecomplies with the law. By maintainingan account,the
advocate discharges his legal duty. It facilitates advocates in assessing income and
expenditure and paying taxes.
V. Principles of bookkeeping and accounting-
There are the following fundamental elements or principles of accounting, viz.
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Prof. S.D. Bhosale
“Law Master’s” Publication
“Accountancy for lawyers”
1. Assets-
Assets generally mean the accumulation of all objects of real accounts, including
loss formed part of the net result. The increase in the asset is booked as debit, and the asset
decrease is credited.
An asset account is thus an economic resource that benefits the business. Assets
include a Law Library, Computers, laptops, furniture, Cash, a Bank, accounts receivable,
inventory, land, buildings, machinery, vehicles, trademarks, patients, etc.
2. Liabilities-
Liabilities generally mean the indebtednessof concern in respectof any personal or
other accounts. Thus, the increase in liabilities is booked as credit, and the decrease in
liabilities is debited.
Liability accounts record debts or future obligations the business owes to others.
Accentspayable,salariesandwages payable,incometaxes,bankoverdrafts,trustaccounts,
accrued expenses, etc., are liabilities.
3. Capital-
Capital or equity accounts record the claims of the owners of the nosiness to the
assets of that business. Capital, retained earnings, drawings, common stock, accumulated
funds, etc., are examples of equity capital.
Capital means the investment of the concern's owners in the business. Even though
equity capital is a liability in nature, it is considered separate from liabilities. Profit or loss
affects capital because the owner has to accept profit or loss as his responsibility.
4. Income-
The income account records all increases in Equity other than those contributed by
the business owner. The owner's contribution to the business is called ‘capital’. Services
rendered, sales, interest income, membership fees, rental income, interest from
investments, etc., are income.
5. Expenditure-
Expensesaccountforrecordingall decreaseinthe owners’equity,which occur from
using the assets or increasing liabilities in delivering goods or services to a customer. In
other words, it is the cost of doing business. Telephone bills, water charges, electricity
charges, repairs, salaries, depreciation, etc., are examples of expenses.
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