Learning Unit 1

INTRODUCTION

Theme 1: The Accounting Equation

Chapters 1 and 2
Workbook pages 19-39

LO1: Discuss the basic concepts of accounting, including business & trust concepts
Pg 11-19 of TB
- Accounting is a double entry system entailing debits and credits
- Used to:
• Communicate nancial information
• Record business transactions
• Determine nancial performance and position (whether nancial objectives have been attained/pro ts or
losses have been made)
- Financial information forms the basis of the decision-making to regulate & evaluate economic activities
Business Concepts:
- Business transactions include all the money received and paid out by the attorney for their own account
> rm's own funds and can be used for business purposes
- any nancial in ows and out ows directly related to the attorney's own business operations are
considered business transactions (from fees/income for legal services rendered, expanses - rent or salaries -
payed by the business from business funds to run the practice >> all related to the attorney's personal business
accounts, not transactions done on behalf of clients or in trust accounts)
1. Business Money: the funds that belong to the attorney's own practice or law rm
• used to cover the operating expenses of the legal practice, pay for services, and manage the
nancial aspects of running the business
• money is used to pay for things like o ce rent, salaries for sta , utilities, and other costs related
to the day-to-day running of the law rm
• includes the fees that the attorney or rm earns from providing legal services to clients
• Separate from trust money (funds that are held on behalf of clients and must be kept in a
separate trust account)
2. Business Creditors: individuals/entities to whom the attorney or law rm owes money for goods or
services provided to the business > where creditors have provided something of value to the attorney's practice, but
payment has not yet been made.
• represent the rm's nancial obligations related to its own business operations
3. Business Banking Account: the bank account used by the rm to manage their own business-related
nances (current account)
• Where deposits and withdrawals of business money are made > When a client pays a law

to pay for day-to-day running expenses (rent, utilities, stationary) or income

from legal services rendered.
• Separate from trust account
4. Fees: money levied for services rendered
Trust Concepts:
- Refer to the principles and practices surrounding the handling of client funds that are entrusted to an
attorney for safekeeping or speci c purposes such as deposits for future legal services
- Kept separate from the rm's own (business) money
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 1. Trust Money: money held/received on account of a person in S86(2) or invested by S86(3) of LPA, held
in the trust for speci c purposes (deposits for property transactions, settlement amounts, or money held for un lled
legal fees)
• Handled according to clients instructions
• Incl. trust cash, money in trust banking account, investment account, money handled during
correspondent transactions > all recorded in trust cashbook
Incorporated Law Society, Transvaal v U amounts that include both business & trust money
should be treated as trust money. Portion for business and portion for trust must both be
deposited into the trust account and thereafter the business can take their money.
- This is rooted in the importance of safeguarding client funds and maintaining clear boundaries between trust money
and business money.
- This means that an attorney might receive a payment that includes both business money (such as fees owed to the
attorney for legal services) and trust money (such as funds held on behalf of the client for a speci c purpose, like a
property transaction).
- When this combined payment is received, the entire amount should be deposited into the trust account rst,
NB not into the attorney's business account to ensure that the trust money is properly handled and not accidentally
used for business expenses (ensuring there is a clear separation between what belongs to the client and what belongs to the
business).
- After the total amount is deposited into the trust account, the attorney can then calculate the portion that is
owed to the business (for fees or other charges) and transfer that portion from the trust account to the business
account.
- The remaining trust money stays in the trust account to be used for the client's speci ed purposes.
‣ Eg: An attorney receives a payment of R10,000, where R7,000 is for legal fees (business money) and R3,000 is
a deposit for a property transaction (trust money). The entire R10,000 should rst be deposited into the trust
account. After that, the attorney can transfer the R7,000 to the business account for fees, leaving the R3,000
in the trust account for the property transaction.

2. Trust Banking Account: special bank account where client funds are deposited and managed.
• S86(2) of LPA all LP’s must keep a trust banking account and deposit any money held on behalf
of clients into it on day of receipt or rst banking day after receipt of it.
• Failure to deposit into authorised trust acc. = misconduct
• Under no circumstances may trust money be deposited/credited into business bank account.
• Any money, other than trust money, must be deposited into bus. bank acc. Asap.
• Withdrawals and payments from trust acc. = regulated by LPC rules
• Withdrawals can only be made:
- To/for trust creditor (paying $ held in trust acc. back to a client or paying an expense on clients behalf)
- As a transfer to the bus. banking acc. for money due to the rm (fees for services rendered)
• Payments can only be made by EFT (no cellphone transactions)
• No limit of number of trust accounts that can be opened
• A rm must immediately notify the LPC of name and address of banks where trust accounts are
held in writing, any changes - must be noti ed
• Any interest earned on trust accounts is typically paid to a statutory body like the Attorneys
Fidelity Fund, which protects clients in cases of attorney misconduct.
3. Trust Creditors: clients who keep money in the trust account.
• Creditors bcs the money held in trust is owed to them by the practice, the money x belong to
practice
• A separate ledger is opened for each trust creditor
- Must always re ect a credit balance/may never be in debt (payments or withdrawals from them
may x exceed the amount received form them)
• Total of trust assets (cash, banking, investments) may x be less than the total of the list of trust
creditors balance (the balance of trust creditors may x exceed trust assets) = trust de cit
• If trust de cit or trust creditor is in debt, rm must report immediately to LPC, with explanation
and proof of recti cation
• A list of trust creditor balances are prepared monthly and must meet requirements:
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 - Legible - Compared with trust funds (trust cash, balance in trust acc. &
- Creditors identi ed by name trust investments
- Totalled - Form part of rms accounting records
- Kept for +7 years

4. Trust Investments: the practice of placing client funds that are held in trust into an interest-bearing
investment account ito S86 of LPA.
• This is done when client funds are expected to be held for a longer period and can earn interest
on behalf of the client.
• S86(3) - surplus money not immediately needed for particular purpose
• S86(4) - investment on clients instruction/behalf of in writing
• Any withdrawals from investment acc. must be deposited into trust bank acc. rst before
payments are made (x be paid directly to client from investment acc.) unless rms receives written
authorisation for payment of any guarantees issued by bank
5. Trust Transfers: the movement of funds from a trust account to a business account (or another trust
account) when attorney is entitled to fees/disbursements at completion of a mandate & ito money due
to the rm.
• No transfers are allowed unless:
- Disbursements have been made and debited by the rm
- Firm has a contractual obligation to pay disbursements (fees were rendered and client charged)
- Fees and disbursements have been correctly debited in the accounting records
• Trust banking account may only hold money on behalf of a person, not money due to the
practice
• Transfers must be made from trust acc. to bus. acc. at least once a month
• Only the exact amount due to the rm may be transferred
• The trust creditor from whose acc. the transfer is made must be identi ed/established
• A rm must employ and maintain systems to ensure the LPC rules are complied with/not
infringed when amounts are transferred.
6. Legal Practitioners Fidelity Fund: is a statutory fund in SA designed to protect clients against and
reimburse for nancial loss caused by the theft or embezzlement of trust money by LP’s.
• Ensures that clients can safely entrust their money to attorneys and other legal practitioners
without fearing nancial loss due to misappropriation.
• Established by Attorneys Act ito the LPA
• LP’s contribute to the fund (often made through interest generated on trust accounts and direct levies)
• S86(4) - FF entitled to interest of trust banking & investments at attorneys own accord and 5%
of interest earned on behalf of clients investments
• Misconduct where attorney not give interest to FF
• Attorneys are entitled to claim they trust bank account and audit charges/costs back from FF
(subject to limitations)

• Does not cover losses due to professional negligence, non-performance, or poor legal advice—
only theft or misappropriation.
• If a client su ers a nancial loss because an attorney has dishonestly handled their funds, the
client can make a claim to the Fidelity Fund to seek reimbursement.
• Attorneys contribute to the fund through mandatory annual fees, but they do not have access to
it for personal, business, or any operational purposes.

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 LO2: Identify the elements of an accounting equation
Pg 6 workbook Everything you OWN
1. Assets (A)
✴ Assets = Liabilities +
2. Owners Equity (OE)
Owners Equity
3. Liabilities (L)
Everything you OWE

LO3: Discuss the accounting equation

Pg 6 workbook / Pg 29-34 of TB
- Accounting is a double entry system entailing debits and credits
• Each transaction with a ect 2 general ledger accounts - for every debit there is a credit
- These will either increase or decrease in value
- The accounting equation shows the relationship between assets, liabilities and owners equity - tf
the foundation of the double entry system.
- Used to show how transactions a ect A, L and OE accounts of a business → re ects the fundamental
relationship between a companies resources (A), obligations (L) and residual interest of stakeholders (OE).
- All assets are purchased with $ that belongs to the owners (OE) or by borrowing $ (Liabilities)
- The total value of assets is always = to the total OE + total L (left always = right)
- Only items that meet the de nition of A, L and Equity are recognised & where useful for statements
- Shown through T accounts Debits are assets and expenses
A bank account is an asset account, to
bring the value of an asset account
- Expenses ↓ OE (on Debit side) Credits are sales/income and down you need to credit it >> an asset
liabilities account is debit, you debit an asset
- Income ↑ OE (on Credit side) account to increase its value and the
credit will bring the value down >>
• Di erence between Expenses and Liabilities: credit expense - debit bank

- Expenses are costs related to running the business, while liabilities are obligations to pay in the
future.
- An expense is the cost incurred by the law rm in the process of running its operations. It represents
the money spent or costs incurred by the rm to generate revenue or maintain operations
- A liability is a nancial obligation or debt that the law rm owes to others, which must be settled in
the future. It represents a legal obligation to pay a certain amount to creditors or other entities.
• Di erence between Assets and Income:
- Expenses are costs related to running the business, while liabilities are obligations to pay in the
future.
- An expense is the cost incurred by the law rm in the process of running its operations. It represents
the money spent or costs incurred by the rm to generate revenue or maintain operations
- A liability is a nancial obligation or debt that the law rm owes to others, which must be settled in
the future. It represents a legal obligation to pay a certain amount to creditors or other entities.

LO4: Analyse transactions in the accounting equation

Pg 34-42 of TB / 14-18 HB ???
- The in uence of each transaction comprises of 2 parts (debiting and crediting on each respective side), tf the
accounting equation balances after each transaction
- WATCH THAT YOUTUBE VIDEO AND PASTE THE LINK HERE
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Theme 2: The Accounting Cycle
Chapters 3, 4, 6, 8 ledger accounts and 13 transfer procedures

LO5: Discuss Monthly and Annual accounting cycles

Pg 2 WB / Pg 28, 75….. of TB / pg 20-24 of HB
- The accounting cycle represents the ow of data from the time the transaction arises, until the time
when it is re ected in the nancial statements.
- Representation of the di erent steps a bookkeeper follows to all nancial info during the accounting
period ( nancial year).
- Used to ensure all nancial info is recorded and accurate to be able analyse and interpret data for
decision making.
- Accounting Period: time period from when the Accounting Cycle starts to when it ends → quarterly or
annually
Daily Steps: Source Documents & Journals
1. Transactions:
- Cash transactions (received and payed) → Eg: buying stationary.
- Credit transactions (inventory/service is purchased/sold on credit) → Eg: buying a car on credit
- Transactions X involving cash or credit → Eg: recording depreciation on xed assets for the year
2. Source Documents
3. Journals

Monthly Steps: General Ledger & Trial Balance

4. General Ledger:
- Journals are posted/transferred to the GL → sorted into ve categories of assets, liabilities, owner's
equity, revenue/income and expenses.
5. Trial Balance:
- Information is then taken from the accounts in the GL to the Trail balance Sheet to:
• show an overview of Accounts and their balances
• Check that total debits = total credits
• Any errors can be picked up and adjusted (incorrect amounts, missing entries, or incorrect postings)
- Preliminary step before the preparation of the income statement and balance sheet.
Yearly Steps: Financial Statements
6. Financial Statements
- Prepared at end of nancial period
-
Finish this > HB not correlating with TB exactly.. idk what to do or it it really is di erent (from pg
22-24 of HB)

LO6: Explain the purpose of each subsidiary journal

Ch6 of TB
1. BUSINESS CASH RECEIPT JOURNAL
• D

2. BUSINESS CASH PAYMENT JOURNAL

• D

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 3. BUSINESS FEES JOURNAL
• D

4. BUSINESS GENERAL JOURNAL

• D

5. TRUST CASH RECEIPTS JOURNAL

• D

6. TRUST CASH PAYMENT JOURNAL

• D

7. TRANSFER JOURNAL
• D

LO7: Prepare journal entries

Ch4 of TB?
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LO8: Post to General Ledger for Businesses and Trusts

CH4 & 8 of TB
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LO9: Extract trial balance

Pg 124-127 Ch8 of TB
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LO10: Prepare Elementary Statements

Pg … workbook / Pg 27-28 & 42-46 TB
- Pro t & Loss
• D

- Financial Position
• D

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Theme 3: Value Added Tax (VAT)
Chapter 5

LO11: Calculate VAT

VAT - 15%
Excluding - 100%
Including - 115%

Price Including VAT: Price Excluding VAT: VAT Amount:

Including ÷ 1.15 = Excluding Excluding x 0.15 = Including VAT amount ÷ 0.15 = Excluding
Excluding x 0.15 = VAT amount Incl - Excl = VAT amount Excluding + VAT = Incl
or
Incl - Excl = VAT amount

LO12: Terms and Conditions of VAT

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LO13: Incorporate VAT into the accounting cycle

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