Accounting Terminology and Basics

Definitions and Introductory Issues

Rule 1501 sets out several pertinent definitions:

  • – A “client” is a person or entity that has retained you to provide legal services.
  • “Funds” include cash, currency, securities and negotiable instruments or other financial instruments.
  • “Trust funds” are funds that you have received in your capacity as a lawyer that are not intended to immediately become your property. These include funds:
    • – from a client for services to be performed or for disbursements to be made on their behalf,
    • – which belong in part to the client and in part to you in a form that cannot easily be split (i.e. one cheque), and
    • – are received from or held for a third party which relate to a client transaction.
  • – “General funds” are not defined, but “General Account” is. Your General Account is where you deposit funds you receive in connection with the practice of law that are not trust funds.

Note the broad definition of “trust funds” – funds received in your capacity as a lawyer that are not intended to immediately become your property.This definition includes funds received from persons other than your clients, such as funds received by you as purchase price for your client’s transaction or payment of a retainer by a family member of your client. It could also include all the beneficiaries of an estate, many, or all, of whom may not be your client in the traditional sense.

In some instances, you may be in a dilemma as to whom you can receive instructions from as to the use of the money. In extreme cases, you may need to apply to court to settle the question.

Think about the issues that might arise before you agree to accept funds from anyone other than your client. In transactional settings, set these out in trust conditions and undertakings. In other settings, if possible, have your “clients” agree who will give you instructions. In appropriate circumstances, consider advising other “beneficial owners” of funds that you are not protecting their interests.

 

Basics for General and Trust Accounts

Pursuant to Rule 1518, your records must be:

  • – legible—in handwritten (ink, not pencil), printed, or electronic form (that can be readily transferred to print on demand);
  • – recorded using the double-entry basis for accounting;
  • – chronological; and
  • – easily traceable (i.e., with appropriate cross-referencing).

The minimum accounting records that you are required to maintain are set out in Rules 1519 and 1520. See Appendix A for a checklist of the required accounting records mandated under these Rules. Some of these items are reviewed in greater detail in the next section of this module.

Rule 1521 provides that you must record all transactions promptly, as follows:

  • – for a trust account transaction, no more than three business days after the transaction; and
  • – for a general account transaction, no more than seven business days after the end of the month in which the transaction occurred.

The Law Society auditor may attend at your office at any time to review your books and records. Further, the Executive Director of the Law Society may at any time order a review of your practice to ensure that your books, records and accounts are being properly maintained. If either occurs, you must cooperate and comply with all reasonable requests (Rules 1533 and 1534).