PURPOSE OF MAINTAINING ACCOUNTS BY LAWYERS
A business enterprise must keep a systematic record of its daily transaction. It is a legal duty. It helps to know where its stand and adjudge its performance. This systematic recording of transactions is known as accounting. Since legal profession is a trade, lawyers are under duty to maintain systematic accounts relating to the profession.
The basic purpose of accounting is to present a complete financial picture of the Advocates profession. This can be done with the help of two financial statements like
(i) Profit and loss account and
(ii) Balance sheet showing the assests and liabilities.
It is necessary to maintain proper accounts to calculate the following
(i) Annual Income
(ii) Income Tax
(iii) Professional Tax
(iv) Amount due to the client or amount due by the client.
1. To calculate the annual income : To calculate the annual income of the Advocate from the legal profession, it is necessary to maintain proper accounts of his income from the profession. Maintaining this account is useful for Advocates also. By knowing his Annual Income , he can take steps to improve his profession.
2. To Calculate income Tax : Advocates are liable to Pay Income tax for the income derived from the profession. In order to calculate the amount payable as income tax, he has to maintain proper accounts relating to his income and expenditure. To calculate the taxable income he is entitled to deduct certain expenditure like rent, salary, telephone bill and other
administrative expenditure. For this purpose also he has to maintain proper accounts.
3. To calculate professional tax: Every six months the advocates are liable to pay professional tax to the Government. The amountof professional tax varies depending on the income. In order to calculate the amount of professional tax he has to maintain the proper accounts.
4. To Ascertain the amount due from the client or due to the client: The account relating to the amount received from the client and the amount received on behalf of the client from others or from the court should be properly maintained. Then only the amount due from the client can be calculated. This will help not only the client but also the Advocate.
PLACE OF KEEPING THE ACCOUNTS BOOKS.
The accounts books and documents relating to the accounts should be kept and maintained by the advocate,
(i) At his office.
(ii) Where he is carrying on the profession more than one office, then at his head office. But accounts can also be maintained separately for each branch at the respective branch office.
Penalty for not keeping Account Books: A Lawyer who is legally liable to maintain account books, fails to maintain it or fails to retain it for the prescribed period (cash book and ledger-16 years, other books-8 years) is liable to pay penalty ranging from Rs.2000/- to
1,00,000/- (S.271 A ).
Bar council Rules relating to accounting
Accounting is an art of recording, classifying and summarizing in a significant manner the event which are financial in character and interpreting the result there of . An Advocate is under a duty to maintain proper accounts of money received from his client and the amount received on behalf of client from others or from the court. The rules relating to such accounting is dealt in rules 25 to 32 of the Bar Council Of India Rules 1975.
Rule 25: An advocate should keep the 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 the account of Advocate fees with the respective dates and all other necessary particulars.
Rule 26 : Where moneys are received from the client, it should be entered whether the amount have been received for the advocates fees or expenses. Amount received for the expenses shall not be diverted towards Advocates fees without the consent of the client in writing.
Rule 27: Where any amount is received on behalf of his client the fact of such receipt must be intimated to the client as early as possible.
Rule 28 : After the completion of the proceeding, the advocate shall be at the liberty to take the settled fee due to hi to the unspent money in his hand.
Rule 29: Where the fee has been left unsettled, the advocate shall take the fees which he is legally entitled from the moneys of the
client remaining in his hands, after the completion of the proceeding. The balance shall be returned to the client.
Rule 30: A copy of the client account shall be furnished to him after getting the necessary copying charges from him.
Rule 31: An advocate shall not make any agreements whereby client’s funds in his hands are converted into loans to the advocate.
Rule 32: An Advocate shall not lend money to his client for the purpose of conducting the case.
Rules Relating to Accounting Under Income Tax Act.
Under the Income Tax Act, every lawyer is required to maintain the following books of accounts and other documents to enable the Assessing Officer to calculate his total income (i) cash book
(ii) Receipt Voucher
(iii) payment voucher
(v) ledger. The accounting year is 1st April to 31st March next year.
1. Cash book : It is the book in which the amount received by the Advocates from the clients and others and the amount spent for the clients are written. This book is useful for the Advocate to know the amount in his hand on each day.
2. Receipt Voucher : It is the document prepared for recording the receipt of money by cash or cheque. When an Advocate received money from the client, the Advocate has to issue a receipt to the client. Advocate shall maintain receipt books with serially numbered receipt forms in duplicate. The original receipt should be given to the client and the duplicate shall be retained by the Advocate.
3. Payment Voucher : Payment vouchers are used to record such payments for which receipts are not obtainable from the person to whom such payments are made. For example bus fare, auto fare, court fees, stamps, refreshment expenses etc. In such cases the Advocate signature in the payment voucher and the signature of the person to whom payment is made may be obtained.
4. Journal : Journal is the book of first entry or original entry. In the journal the transactions are recorded in the order of their occurrence. It should contain the following details (i) Date of Transactions (ii) Account to which the transaction relates (iii) Amount to be debited, (iv) Amount to be credited (v) Explanation of the transaction.
5. Ledger : The transactions recorded in the journal are to be posted to the separate heads of account in other book called as Ledger.
In the ledger different pages are allotted to the different heads of accounts. When the journal entries are posted to the concerned heads of account in the ledger, the page number of the ledger should be noted in the journal for easy reference.
The ledger account of an advocate shall contain the following heads.
Clients Account : For each and every client separate pages shall be allotted in this ledger and separate account shall be maintained for them.
(i) Fees Account : In this account the fees received from each and every client shall be entered separately. From this account the total amount of fees received from all the clients in a financial year can be ascertained.
(ii) Rent Account.
(iii) Salary Account.
(iv) Library Account.
(v) Printing and Stationary Account.
(vi) Postage and Telegram Account.
(vii) Electricity Charges.
(viii) Conveyance Charges.
(ix) Repair and Maintenance.
(x) Office Miscellaneous Expenses Account. At the beginning of the ledger book the index may be given with the name of the different heads of account and their respective pages for easy reference.