copyright © 2011, 2007, 2004 by saunders, an imprint of elsevier inc. all rights reserved. 1...

Copyright © 2011, 2007, 2004 by Saunders, an imprint of Elsevier Inc. All rights reserved. 1

Financial and Practice Financial and Practice ManagementManagement

Chapter 24


IntroductionIntroduction

Physicians’ records are the key to good Physicians’ records are the key to good management practice.management practice.

The medical assistant who can keep accurate The medical assistant who can keep accurate financial records and conduct the administrative financial records and conduct the administrative side of the practice in a businesslike fashion is side of the practice in a businesslike fashion is invaluable.invaluable.


This chapter will examine:This chapter will examine:

Items that all financial records should Items that all financial records should consistently showconsistently show

Accounts payable and accounts receivableAccounts payable and accounts receivable Common bookkeeping systemsCommon bookkeeping systems Importance of a trial balanceImportance of a trial balance Common periodic accounting reportsCommon periodic accounting reports Employment records required by the IRSEmployment records required by the IRS


This chapter will examine:This chapter will examine:

Basis for withholding amounts from earningsBasis for withholding amounts from earnings Purpose of the W-4 formPurpose of the W-4 form FICA requirementsFICA requirements Importance of budgetingImportance of budgeting Petty cashPetty cash PayrollPayroll


What Is Accounting?What Is Accounting?

Accounting is a system of recording, classifying, Accounting is a system of recording, classifying, and summarizing financial transactions.and summarizing financial transactions.

Bookkeeping is the recording part of the Bookkeeping is the recording part of the accounting process.accounting process.


Accounting BasesAccounting Bases

Two general bases (methods):Two general bases (methods): Cash basis: Charges for services are entered Cash basis: Charges for services are entered

as income when payment is received, and as income when payment is received, and expenses are recorded when they are paid.expenses are recorded when they are paid.

Accrual basis: Income is considered earned Accrual basis: Income is considered earned when services have been performed or goods when services have been performed or goods have been sold, even though payment may not have been sold, even though payment may not have been received.have been received.


Financial SummariesFinancial Summaries

Financial records of any business should show Financial records of any business should show the following at all times:the following at all times: How much was earned in a given periodHow much was earned in a given period How much was collectedHow much was collected How much is owedHow much is owed The distribution of expenses occurred The distribution of expenses occurred


Periodic analysis of business records Periodic analysis of business records can result in:can result in:

Improved business practicesImproved business practices Better management of timeBetter management of time Curtailment or elimination of unprofitable Curtailment or elimination of unprofitable

servicesservices Better budgeting of expensesBetter budgeting of expenses


Rules of BookkeepingRules of Bookkeeping

Use good penmanship.Use good penmanship. Use the same pen and ink style consistently.Use the same pen and ink style consistently. Keep columns of figures straight.Keep columns of figures straight. Write well-formed figures.Write well-formed figures. Carry decimal points correctly.Carry decimal points correctly.


Rules of BookkeepingRules of Bookkeeping

Enter all charges and receipts immediately into Enter all charges and receipts immediately into the daily record or journal.the daily record or journal.

Endorse checks as soon as they are received.Endorse checks as soon as they are received. Do not erase, write over, or blot out figures.Do not erase, write over, or blot out figures. Make corrections as though correcting Make corrections as though correcting

information in the medical record.information in the medical record. Do not attempt to work on financial records Do not attempt to work on financial records

when distracted.when distracted.


Bookkeeping is either right or wrong. Either the Bookkeeping is either right or wrong. Either the books balance or they do not balance.books balance or they do not balance.

Bookkeeping must be accurate!


Kinds of Financial RecordsKinds of Financial Records

Daily journalDaily journal The chronologic record of the practiceThe chronologic record of the practice The financial diaryThe financial diary Records all information regarding services Records all information regarding services

rendered, charges, and receipts rendered, charges, and receipts Record of all transactions Record of all transactions


CheckbookCheckbook

Receipts are deposited into checking accounts.Receipts are deposited into checking accounts. Keep records of each deposit.Keep records of each deposit. Bills are paid by check, through use of online Bills are paid by check, through use of online

payment services, or through automatic payment services, or through automatic withdrawals.withdrawals.


Disbursements JournalDisbursements Journal

Computer posting: Payment data is entered and Computer posting: Payment data is entered and the computer can print the check.the computer can print the check.

Manual posting: Consists of a section at the Manual posting: Consists of a section at the bottom of the day sheet and a check register page bottom of the day sheet and a check register page at the end of each month, plus monthly and at the end of each month, plus monthly and annual summaries.annual summaries.


Petty CashPetty Cash

Petty cash is used to pay minor expenses.Petty cash is used to pay minor expenses. A total of $25 to $50 is usually sufficient for the A total of $25 to $50 is usually sufficient for the

office.office. Bills should be paid by writing checks or via Bills should be paid by writing checks or via

online services instead of using petty cash, online services instead of using petty cash, even if a bill is small.even if a bill is small.


Petty Cash MoneyPetty Cash Money

Petty cash is usually obtained by writing a Petty cash is usually obtained by writing a check to the practice and cashing it at the bank.check to the practice and cashing it at the bank.

Money should be in a cash drawer that can be Money should be in a cash drawer that can be kept locked.kept locked.

Only one person should be in charge of petty Only one person should be in charge of petty cash.cash.

All money should be accounted for at all times All money should be accounted for at all times using receipts.using receipts.


Replenishing Petty CashReplenishing Petty Cash

Determine the amount of cash spent.Determine the amount of cash spent. Write a check for the amount needed to bring Write a check for the amount needed to bring

the fund back to the original amount.the fund back to the original amount. Cash the check and replenish the fund.Cash the check and replenish the fund.


Accounting SystemsAccounting Systems

Single-entry systemSingle-entry system Double-entry systemDouble-entry system Pegboard or write-it-once systemPegboard or write-it-once system


Single-Entry SystemSingle-Entry System

Oldest and simplest method for keeping recordsOldest and simplest method for keeping records Includes three basic records:Includes three basic records:

general journalgeneral journal cash payment journalcash payment journal accounts receivable ledgeraccounts receivable ledger


Drawbacks of Single-Entry SystemsDrawbacks of Single-Entry Systems

Errors are not easily detected.Errors are not easily detected. There are no built-in controls.There are no built-in controls. Periodic analyses are inadequate for financial Periodic analyses are inadequate for financial

planning.planning.


Double-Entry SystemDouble-Entry System

Includes the same basic journals as a Includes the same basic journals as a single-entry systemsingle-entry system

May include numerous subsidiary journalsMay include numerous subsidiary journals The most complete of all systemsThe most complete of all systems Provides the most comprehensive picture of the Provides the most comprehensive picture of the

practicepractice



Based on the following equation:Based on the following equation:

Assets = Liabilities + Proprietorship (capital)Assets = Liabilities + Proprietorship (capital)

The two sides of the equation must always be in The two sides of the equation must always be in balance.balance.



Assets: Properties owned by businesses, such as Assets: Properties owned by businesses, such as bank accounts, accounts receivable, buildings, bank accounts, accounts receivable, buildings, equipment, and furnitureequipment, and furniture

Equities: The rights to assetsEquities: The rights to assets

Equity of the owner: Also called Equity of the owner: Also called capital, capital, proprietorship, owner’s equityproprietorship, owner’s equity

Liabilities: Equities of the creditors to whom Liabilities: Equities of the creditors to whom money is owedmoney is owed


Pegboard or Write-It-Once SystemPegboard or Write-It-Once System

Most commonly used manual method of Most commonly used manual method of accounting in the physician’s office.accounting in the physician’s office.

Computer programs are similar in theory to Computer programs are similar in theory to pegboard systems.pegboard systems.


End-of-Day SummarizingEnd-of-Day Summarizing

Most computer programs perform this function Most computer programs perform this function automatically.automatically.

Pegboard systems have three control boxes at Pegboard systems have three control boxes at the bottom of the day sheet for summarizing.the bottom of the day sheet for summarizing.


Trial BalancesTrial Balances

A trial balance should be calculated once per A trial balance should be calculated once per month after all posting has been completed and month after all posting has been completed and before monthly statements are prepared.before monthly statements are prepared.

The purpose of the trial balance is to disclose The purpose of the trial balance is to disclose any discrepancies between the journal and the any discrepancies between the journal and the ledger.ledger.


Obtaining the Trial BalanceObtaining the Trial Balance

Pull the account cards that have a balance due.Pull the account cards that have a balance due. Enter each balance on the calculator.Enter each balance on the calculator. Total the figures.Total the figures.

Amount should equal the accounts receivable Amount should equal the accounts receivable balance figure on the control.balance figure on the control.


Example of Balancing End-of-Month Example of Balancing End-of-Month Accounts ReceivableAccounts Receivable

Accounts receivable at first of month Accounts receivable at first of month __________

Plus total charges for monthPlus total charges for month __________

SubtotalSubtotal __________

Less total payments for monthLess total payments for month __________

SubtotalSubtotal __________

Less total adjustments for monthLess total adjustments for month __________

Accounts receivable at end of month Accounts receivable at end of month __________


Locating and Preventing ErrorsLocating and Preventing Errors

First stepFirst step Find the difference between the two totals.Find the difference between the two totals.

Then…Then… Search the daily journal pages and the account Search the daily journal pages and the account

cards for an entry in the identical amount.cards for an entry in the identical amount. Make sure all entries were posted correctly.Make sure all entries were posted correctly.


Accounts Payable ProceduresAccounts Payable Procedures

Invoices and statementsInvoices and statements Invoices describe the items purchased and Invoices describe the items purchased and

show the amount due.show the amount due. Place invoices in a consistent place until they Place invoices in a consistent place until they

are paid.are paid. Some vendors require payment from invoice.Some vendors require payment from invoice. Other vendors send monthly statements.Other vendors send monthly statements.


Paying for PurchasesPaying for Purchases

Compare statements with invoices for accuracy.Compare statements with invoices for accuracy. Fasten the statement and invoice together.Fasten the statement and invoice together. Write the date and check number on the Write the date and check number on the

statement.statement. Mail the check.Mail the check. File the invoice and statement.File the invoice and statement.


Disbursement CategoriesDisbursement Categories

Auto expenseAuto expense Dues and meetingsDues and meetings EquipmentEquipment InsuranceInsurance Medical suppliesMedical supplies Office expensesOffice expenses Printing, postage, Printing, postage,

and stationeryand stationery

Rent and maintenanceRent and maintenance SalariesSalaries Taxes and licensesTaxes and licenses Travel and Travel and

entertainmententertainment UtilitiesUtilities MiscellaneousMiscellaneous Personal withdrawalsPersonal withdrawals


Common Periodic Financial ReportsCommon Periodic Financial Reports

Financial reports are completed on a monthly and Financial reports are completed on a monthly and an annual basis.an annual basis.

Financial reports contain:Financial reports contain: statement of income and expensesstatement of income and expenses cash flow statementscash flow statements trial balancestrial balances accounts receivable trial balances accounts receivable trial balances aging analysisaging analysis balance sheetbalance sheet


Payroll RecordsPayroll Records

Involves frequent reporting activitiesInvolves frequent reporting activities Requires tax withholdings from both employee Requires tax withholdings from both employee

and employerand employer Must be complete for every employeeMust be complete for every employee Must keep records for at least 4 yearsMust keep records for at least 4 years


Records Required by the IRSRecords Required by the IRS

Social security number of employeesSocial security number of employees Number of withholding allowances claimedNumber of withholding allowances claimed Amount of gross salaryAmount of gross salary All deductions, such as:All deductions, such as:

Social Security taxesSocial Security taxes Medicare taxesMedicare taxes federal, state, and city taxesfederal, state, and city taxes state disability insurancestate disability insurance state unemployment taxstate unemployment tax


IRS NumbersIRS Numbers

Social Security NumberSocial Security Number individualsindividuals

Employer Identification NumberEmployer Identification Number businesses/employersbusinesses/employers


Payroll Reporting FormsPayroll Reporting Forms

W-4W-4

Employee’s Withholding Allowance CertificateEmployee’s Withholding Allowance Certificate This form indicates the number of withholding This form indicates the number of withholding

allowances claimed.allowances claimed. New forms must be completed when changes New forms must be completed when changes

occur.occur. Employees may elect to claim fewer or no Employees may elect to claim fewer or no

allowances so that more tax is withheld.allowances so that more tax is withheld.


Income Tax WithholdingIncome Tax Withholding

Amount withheld is based on:Amount withheld is based on: total earnings of the employeetotal earnings of the employee number of withholding allowances claimednumber of withholding allowances claimed marital status of the employeemarital status of the employee length of the pay period involvedlength of the pay period involved


Employer’s Income TaxEmployer’s Income Tax

Physicians must usually make estimated tax Physicians must usually make estimated tax payments quarterly.payments quarterly.

Forms are submitted with estimated tax due on:Forms are submitted with estimated tax due on: April 15April 15 June 15June 15 September 15September 15 January 15January 15


Social Security, Medicare, and Income Social Security, Medicare, and Income Tax WithholdingTax Withholding

Amounts are withheld from employee Amounts are withheld from employee paychecks and paid to the federal government.paychecks and paid to the federal government.

Rates change periodically.Rates change periodically. Current Social Security tax rate: 6.2%Current Social Security tax rate: 6.2% Current Medicare tax rate: 1.45%Current Medicare tax rate: 1.45%


Quarterly ReturnsQuarterly Returns

Employers must file quarterly tax returns.Employers must file quarterly tax returns.

Due dates:Due dates: April 30April 30 July 31July 31 October 31October 31 January 31January 31


Annual ReturnsAnnual Returns

Employers furnish copies of Form W-2 Employers furnish copies of Form W-2 (Wage and Tax Statement) to the employee.(Wage and Tax Statement) to the employee.

Forms must be given to employees by January Forms must be given to employees by January 31 of each year.31 of each year.

This form is used for employees to file their This form is used for employees to file their personal tax returns.personal tax returns.


Other TaxesOther Taxes

Federal Unemployment Tax (FUTA)Federal Unemployment Tax (FUTA) State Unemployment TaxState Unemployment Tax State Disability InsurancesState Disability Insurances


BudgetsBudgets

New budgets are compiled for each fiscal year.New budgets are compiled for each fiscal year. Expenses should be planned for each expense Expenses should be planned for each expense

category.category. Monitor expenses each month to ensure that Monitor expenses each month to ensure that

the account has not been overspent.the account has not been overspent.


Budget Expense CategoriesBudget Expense Categories

InsuranceInsurance RentRent DepreciationDepreciation Loan paymentsLoan payments Advertising and Advertising and

promotionspromotions Legal and accountingLegal and accounting SuppliesSupplies Medication and Medication and

pharmacy expensespharmacy expenses

Salaries and wagesSalaries and wages UtilitiesUtilities Dues, subscriptions, Dues, subscriptions,

and feesand fees Taxes Taxes Repairs and Repairs and

maintenancemaintenance Medical equipmentMedical equipment Administrative Administrative

equipmentequipment


InsuranceInsurance

One of physician’s major expenses.One of physician’s major expenses. Malpractice insurance is a mandatory expense.Malpractice insurance is a mandatory expense. Workers’ compensation insurance is required to Workers’ compensation insurance is required to

cover employee injuries and accidents.cover employee injuries and accidents.


Summary of ScenarioSummary of Scenario

Never hesitate to ask the practice accountant Never hesitate to ask the practice accountant when questions about financial management when questions about financial management arise.arise.

Many events or situations can affect practice Many events or situations can affect practice finances.finances.

Be a cooperative employee and work as a Be a cooperative employee and work as a team to do your part toward the financial team to do your part toward the financial health of the practice.health of the practice.


Closing CommentsClosing Comments

The physician relies heavily on the person The physician relies heavily on the person who manages the finances of the office.who manages the finances of the office.

Always be cost-conscious and avoid being Always be cost-conscious and avoid being wasteful.wasteful.

Explain costs to patients when necessary.Explain costs to patients when necessary. The medical assistant must earn trust in order The medical assistant must earn trust in order

to be placed in a responsible position to be placed in a responsible position handling practice finances.handling practice finances.

copyright © 2011, 2007, 2004 by saunders, an imprint of elsevier inc. all rights reserved. 1...

Documents

imprint of elsevier

irs slide

accurate financial records

financial transactions

accounting bases

practice management

accounting process

good management practice