A client has sent a cheque of £6,000, which includes two amounts - one is for the outstanding bill of £3,800 (including VAT) that was recently sent to the client, and the other is for the payment made on account of professional disbursements that haven't been paid yet, which amounts to £2,200 and was not included in the bill.
What is the appropriate way to handle this payment?
A client has sent a cheque of £6,000, which includes two amounts - one is for the outstanding bill of £3,800 (including VAT) that was recently sent to the client, and the other is for the payment made on account of professional disbursements that haven't been paid yet, which amounts to £2,200 and was not included in the bill.
What is the appropriate way to handle this payment?
The cheque can be paid into the client account, but the £3,800 must be transferred into the business account promptly.
B) When a firm receives a cheque containing both business and client funds, they have two options. The first option is to split the cheque, and the second option is to deposit the money into one account and transfer the relevant funds to the other account promptly. However, many banks may refuse to split cheques. In this case, it is best to pay the cheque into the client account, but the £3,800 must be transferred into the business account promptly. It is important to note that the cheque can also be paid into the business account or the client account separately.
Option (B) is the best answer.
Option (A) is incorrect as it fails to consider the other available options.
Option (C) is also incorrect as the cheque can be paid into the client account but not necessarily the business account.
Options (D) and (E) are incorrect as there is no rule that the money must be split, and even if it were, the split would be £2,200 to the client account and £3,800 to the business account, as stated in option (E).