A solicitor's company represents a client in a divorce case. The client receives a bill for professional fees amounting to £4,000 plus a VAT of £800. The client is unhappy with the service provided and asks for a discount. A partner of the firm decides to reduce the bill by 10%.
Which of the following entries is correct?
A solicitor's company represents a client in a divorce case. The client receives a bill for professional fees amounting to £4,000 plus a VAT of £800. The client is unhappy with the service provided and asks for a discount. A partner of the firm decides to reduce the bill by 10%.
Which of the following entries is correct?
Credit £400 client ledger - business side; Credit £80 client ledger - business side
(C) To accurately record the abatement of costs, the client ledger on the business side should be credited. In this scenario, a 10% reduction would result in a credit of £400 on professional charges and £80 on VAT. This means that there would be a corresponding debit on the profit costs and HMRC VAT ledger account.
Option (A) and (B) are incorrect as a credit entry is needed, not a debit entry. Also, the figures in option (B) are incorrect as they represent the reduced bill amount.
Option (D) is incorrect as the figures represent 5% and not 10%, and they are debit entries instead of credit entries.
Option (E) is incorrect because there is no movement on the cash account as the company has received no money.