The Books a Lawyer Keeps: Cash Book, Ledger, Journal and Trial Balance

Balancing is done at the end of a period: total both sides, and write the difference on the smaller side as "By Balance c/d" or "To Balance c/d" so that the two sides agree. The balance is then brought down on the other side as "Balance b/d" for the next period. "c/d" means carried down and "b/d" means brought down.

The client's ledger is a separate ledger, or at least a clearly separate section, and that separation is not a matter of neatness. Rule 30 requires that a copy of the client's account shall be furnished to him on demand, on payment of copying charges, and an advocate cannot furnish a client's account if the client's transactions are mixed with everybody else's.

A worked month

Advocate Nandini's first month, continuing the transactions from chapter [Basic Principles of Accounting: The Double Entry, and What an Account Is] and adding a few. These figures are used again in the next two chapters.

The cash book, bank column only

Check the balance. Receipts 2,95,000 less payments 1,27,000 leaves Rs 1,68,000 in the bank on 30 April.

The client's ledger: Client A

Three things this small table does, and each is a legal requirement rather than good practice.

It shows amounts received, expenses incurred and dates, which rule 25 requires.

It shows that the Rs 20,000 was received for expenses and not for fees, which rule 26 requires, and the Rs 30,000 of fees received on 12 April is not in this ledger at all, because it is income and not client money.

It can be copied and given to the client on demand, which rule 30 requires.

And notice the closing balance is nil. That is what a properly concluded matter looks like. An advocate who can show a client ledger closing at nil, with dates, has answered in advance the charge that destroyed the advocate in Harish Chandra Tiwari v. Baiju, AIR 2002 SC 548, who withdrew Rs 8,118 on 2 September 1987 and neither told his client nor paid it over.

The ledger accounts

Taking a few in the standard form.

Professional Fees account

Income increases on the credit, so the fees sit on the right and the account carries a credit balance of Rs 75,000.

Rent account

An expense increases on the debit, so it carries a debit balance of Rs 15,000.

The trial balance

A trial balance is a list of every ledger balance, with debits in one column and credits in the other. If the totals agree, the double entry is arithmetically sound.

Nandini's, as at 30 April:

The totals agree, so the books balance.

What a trial balance does not prove, and this is a favourite question. It proves the arithmetic, not the correctness. It will still balance if:

• a transaction was omitted entirely from the books;
• an entry was posted to the wrong account of the right class, for example rent debited to Salaries;
• the amounts were both wrong by the same figure;
• an entry was recorded twice; or
• two errors happened to cancel each other, which are called compensating errors.

So a balanced trial balance is a necessary check and not a sufficient one, which is why an advocate's client ledger has to be reconciled with the client, and why rule 27 requires the receipt of money to be intimated to the client as early as possible: the client is the second check.

The books an advocate should keep in practice

Bringing chapter [Accountancy for Lawyers: Why a Lawyer Keeps Accounts at All] together with this one, a small practice keeps:

• a cash book with cash and bank columns;
• a general ledger for the practice's own accounts;
• a client's ledger, one account per client, kept separately;
• a journal for entries that are not receipts or payments, such as depreciation or writing off a bad fee;
• a fee register or bill book, recording what has been billed as against what has been received; and
• vouchers and receipts supporting every entry.

Section 62 of the Income-tax Act 2025 requires books that enable the Assessing Officer to compute total income, and empowers the Board to prescribe the books, the particulars, the form and place of keeping them, and the period of retention. That is chapter [Books of Account Under the Income-tax Act 2025, and the Penalty for Not Keeping Them].

A worked example

On 3 May a client, Mr Fernandes, sends Nandini Rs 50,000, saying Rs 15,000 is her fee for the appeal and Rs 35,000 is for the court fee and other expenses. On 9 May she pays court fee of Rs 22,000. On 30 May the appeal is disposed of and she renders an account.

The cash book on 3 May shows a receipt of Rs 50,000 in the bank column. But one receipt is two transactions, and rule 26 requires the entries to show whether the money was received for fees or expenses. So:

• Debit Bank Rs 50,000;
• credit Professional Fees Rs 15,000; and
• credit Client Fernandes Rs 35,000.

On 9 May: debit Client Fernandes Rs 22,000, credit Bank Rs 22,000. The client's ledger balance falls to Rs 13,000 credit.

On 30 May she must render the account. Rule 30 entitles him to a copy on demand; she gives it without being asked, which is better practice.

The client's ledger, as furnished:

Change one fact. Suppose Nandini's fee for the appeal is disputed and she keeps the Rs 13,000 against it. Rule 26 forbids diverting expenses to fees during the proceeding except with the client's written consent; rules 28 and 29 allow appropriation only after the termination of the proceeding and towards a settled fee; and on Prahlad Saran Gupta v. Bar Council of India, AIR 1997 SC 1338, simply retaining a client's money without justification is conduct not befitting an advocate, even without proved dishonesty.

What beginners get wrong

The cash book is both a journal and a ledger. No separate cash account is needed.

Contra entries are not posted again.

The client's ledger is separate, because rule 30 requires a copy of the client's account to be furnishable.

A trial balance proves arithmetic, not correctness. Omissions, wrong accounts of the right class, double entries and compensating errors all survive it.

One receipt can be two entries, where part is fees and part is expenses.

A closing balance of nil is the goal on a concluded matter.

Quick revision

• Journal: first record, date order, debit first, credit after "To", with a narration.
• Cash book: receipts on the debit, payments on the credit; usually cash and bank columns; it is both a book of original entry and a ledger account; contra entries marked C are not posted again.
• Ledger: one account per page; posting from the journal and cash book; balancing with c/d and b/d.
• Client's ledger: separate, one account per client, because rule 25 needs receipts, expenses and dates and rule 30 needs a copy on demand.
• Trial balance: all ledger balances listed; agreement proves the arithmetic only. It survives omission, posting to the wrong account of the right class, wrong amounts on both sides, double entry and compensating errors.
• A small practice keeps a cash book, general ledger, client's ledger, journal, fee register and vouchers.

Test yourself

1. Why is the cash book said to have a dual character? Because it is a book of original entry, receipts and payments being recorded in it directly rather than journalised first, and also a ledger account, since it shows the balance of cash and bank at any time. A separate cash account in the ledger is therefore unnecessary.

2. What is a contra entry? An entry both sides of which fall within the cash book itself, such as cash deposited into the bank. It is marked with the letter C and is not posted to the ledger again, because both aspects are already recorded.

3. Why must the client's ledger be kept separately? Because rule 25 requires an account of the client's money showing receipts, expenses and debits on account of fees with dates, and rule 30 requires a copy of the client's account to be furnished to him on demand on payment of copying charges. Neither is possible if clients' transactions are mixed together or mixed with the practice's own.

4. Name four errors a trial balance will not reveal. The complete omission of a transaction; posting to the wrong account of the same class, such as rent debited to salaries; recording a wrong amount identically on both sides; and compensating errors that cancel one another. Recording an entry twice will also survive it.

5. A client sends one cheque covering both fees and expenses. How is it recorded? As one receipt in the cash book but two credits: the fee portion to Professional Fees, which is income, and the expenses portion to the client's account, which is a liability. Rule 26 requires the entries to show whether the amounts were received for fees or for expenses.

6. What does a closing balance of nil in a client's ledger show? That everything received for the client has been either spent on his behalf or returned to him, and that nothing of his remains in the advocate's hands. It is the record that answers in advance the charge made out in cases such as Harish Chandra Tiwari v. Baiju.