The client of a law firm's managing director has raised a dispute regarding a bill for professional services that was recently issued by the firm. After discussion, the firm has agreed to reduce the professional fees by £500, bringing the total bill down to £3,500.
The question now is, how should this reduction be reflected in the client ledger?
The client of a law firm's managing director has raised a dispute regarding a bill for professional services that was recently issued by the firm. After discussion, the firm has agreed to reduce the professional fees by £500, bringing the total bill down to £3,500.
The question now is, how should this reduction be reflected in the client ledger?
In the client ledger account, credit the business side with £500 and £100 to reflect the reduction in VAT.
(D)To reflect a reduction in costs actually billed, the client account's business side should be credited (and debited in the profit cost and HMRC ledgers).
Option (A) is incorrect as it suggests that the business side should be debited instead of credited.
Option (B) is incorrect because the question specifically asks about the client ledger account and not the cash account.
Option (C) is incorrect because the reduction should be shown as a credit to the client and not as a debit.
Option (E) is incorrect because the accounts must accurately track the sequence of events, which includes the issuance of the original invoice and the subsequent reduction in fees.