1 Copyright © 2011, 2007, 2003, 1999 by Saunders, an imprint of Elsevier Inc. All rights reserved. Financial and Practice Management Chapter 24

2 Copyright © 2011, 2007, 2003, 1999 by Saunders, an imprint of Elsevier Inc. All rights reserved. Introduction Physicians’ records are the key to good management practice. The medical assistant who can keep accurate financial records and conduct the administrative side of the practice in a businesslike fashion is invaluable.

3 Copyright © 2011, 2007, 2003, 1999 by Saunders, an imprint of Elsevier Inc. All rights reserved. This chapter will examine:  Items that all financial records should consistently show  Accounts payable and accounts receivable  Common bookkeeping systems  Importance of a trial balance  Common periodic accounting reports  Employment records required by the IRS

4 Copyright © 2011, 2007, 2003, 1999 by Saunders, an imprint of Elsevier Inc. All rights reserved. This chapter will examine:  Basis for withholding amounts from earnings  Purpose of the W-4 form  FICA requirements  Importance of budgeting  Petty cash  Payroll

5 Copyright © 2011, 2007, 2003, 1999 by Saunders, an imprint of Elsevier Inc. All rights reserved. What Is Accounting? Accounting is a system of recording, classifying, and summarizing financial transactions. Bookkeeping is the recording part of the accounting process.

6 Copyright © 2011, 2007, 2003, 1999 by Saunders, an imprint of Elsevier Inc. All rights reserved. Accounting Bases Two general bases (methods):  Cash basis: Charges for services are entered as income when payment is received, and expenses are recorded when they are paid.  Accrual basis: Income is considered earned when services have been performed or goods have been sold, even though payment may not have been received.

7 Copyright © 2011, 2007, 2003, 1999 by Saunders, an imprint of Elsevier Inc. All rights reserved. Financial Summaries Financial records of any business should show the following at all times:  How much was earned in a given period  How much was collected  How much is owed  The distribution of expenses occurred

8 Copyright © 2011, 2007, 2003, 1999 by Saunders, an imprint of Elsevier Inc. All rights reserved. Periodic analysis of business records can result in:  Improved business practices  Better management of time  Curtailment or elimination of unprofitable services  Better budgeting of expenses

9 Copyright © 2011, 2007, 2003, 1999 by Saunders, an imprint of Elsevier Inc. All rights reserved. Rules of Bookkeeping  Use good penmanship.  Use the same pen and ink style consistently.  Keep columns of figures straight.  Write well-formed figures.  Carry decimal points correctly.

10 Copyright © 2011, 2007, 2003, 1999 by Saunders, an imprint of Elsevier Inc. All rights reserved. Rules of Bookkeeping  Enter all charges and receipts immediately into the daily record or journal.  Endorse checks as soon as they are received.  Do not erase, write over, or blot out figures.  Make corrections as though correcting information in the medical record.  Do not attempt to work on financial records when distracted.

11 Copyright © 2011, 2007, 2003, 1999 by Saunders, an imprint of Elsevier Inc. All rights reserved. Bookkeeping is either right or wrong. Either the books balance or they do not balance. Bookkeeping Must Be Accurate!

12 Copyright © 2011, 2007, 2003, 1999 by Saunders, an imprint of Elsevier Inc. All rights reserved. Kinds of Financial Records Daily journal  The chronologic record of the practice  The financial diary  Records all information regarding services rendered, charges, and receipts  Record of all transactions

13 Copyright © 2011, 2007, 2003, 1999 by Saunders, an imprint of Elsevier Inc. All rights reserved. Checkbook  Receipts are deposited into checking accounts.  Keep records of each deposit.  Bills are paid by check, through use of online payment services, or through automatic withdrawals.

14 Copyright © 2011, 2007, 2003, 1999 by Saunders, an imprint of Elsevier Inc. All rights reserved. Disbursements Journal Computer posting: Payment data are entered and the computer can print the check. Manual posting: Consists of a section at the bottom of the day sheet and a check register page at the end of each month, plus monthly and annual summaries.

15 Copyright © 2011, 2007, 2003, 1999 by Saunders, an imprint of Elsevier Inc. All rights reserved. Petty Cash  Petty cash is used to pay minor expenses.  A total of $25 to $50 is usually sufficient for the office.  Bills should be paid by writing checks or via online services instead of using petty cash, even if a bill is small.

16 Copyright © 2011, 2007, 2003, 1999 by Saunders, an imprint of Elsevier Inc. All rights reserved. Petty Cash Money  Petty cash is usually obtained by writing a check to the practice and cashing it at the bank.  Money should be in a cash drawer that can be kept locked.  Only one person should be in charge of petty cash.  All money should be accounted for at all times using receipts.

17 Copyright © 2011, 2007, 2003, 1999 by Saunders, an imprint of Elsevier Inc. All rights reserved. Replenishing Petty Cash  Determine the amount of cash spent.  Write a check for the amount needed to bring the fund back to the original amount.  Cash the check and replenish the fund.

18 Copyright © 2011, 2007, 2003, 1999 by Saunders, an imprint of Elsevier Inc. All rights reserved. Accounting Systems  Single-entry system  Double-entry system  Pegboard or write-it-once system

19 Copyright © 2011, 2007, 2003, 1999 by Saunders, an imprint of Elsevier Inc. All rights reserved. Single-Entry System  Oldest and simplest method for keeping records  Includes three basic records:  general journal  cash payment journal  accounts receivable ledger

20 Copyright © 2011, 2007, 2003, 1999 by Saunders, an imprint of Elsevier Inc. All rights reserved. Drawbacks of Single-Entry Systems  Errors are not easily detected.  There are no built-in controls.  Periodic analyses are inadequate for financial planning.

21 Copyright © 2011, 2007, 2003, 1999 by Saunders, an imprint of Elsevier Inc. All rights reserved. Double-Entry System  Includes the same basic journals as a single-entry system  May include numerous subsidiary journals  The most complete of all systems  Provides the most comprehensive picture of the practice

22 Copyright © 2011, 2007, 2003, 1999 by Saunders, an imprint of Elsevier Inc. All rights reserved. Double-Entry System Based on the following equation: Assets = Liabilities + Proprietorship (capital) The two sides of the equation must always be in balance.

23 Copyright © 2011, 2007, 2003, 1999 by Saunders, an imprint of Elsevier Inc. All rights reserved. Double-Entry System Assets: Properties owned by businesses, such as bank accounts, accounts receivable, buildings, equipment, and furniture Equities: The rights to assets Equity of the owner: Also called capital, proprietorship, owner’s equity Liabilities: Equities of the creditors to whom money is owed

24 Copyright © 2011, 2007, 2003, 1999 by Saunders, an imprint of Elsevier Inc. All rights reserved. Pegboard or Write-It-Once System  Most commonly used manual method of accounting in the physician’s office.  Computer programs are similar in theory to pegboard systems.

25 Copyright © 2011, 2007, 2003, 1999 by Saunders, an imprint of Elsevier Inc. All rights reserved. End-of-Day Summarizing  Most computer programs perform this function automatically.  Pegboard systems have three control boxes at the bottom of the day sheet for summarizing.

26 Copyright © 2011, 2007, 2003, 1999 by Saunders, an imprint of Elsevier Inc. All rights reserved. Trial Balances  A trial balance should be calculated once per month after all posting has been completed and before monthly statements are prepared.  The purpose of the trial balance is to disclose any discrepancies between the journal and the ledger.

27 Copyright © 2011, 2007, 2003, 1999 by Saunders, an imprint of Elsevier Inc. All rights reserved. Obtaining the Trial Balance  Pull the account cards that have a balance due.  Enter each balance on the calculator.  Total the figures. The amount should equal the accounts receivable balance figure on the control.

28 Copyright © 2011, 2007, 2003, 1999 by Saunders, an imprint of Elsevier Inc. All rights reserved. Example of Balancing End-of-Month Accounts Receivable Accounts receivable at first of month _____ Plus total charges for month _____ Subtotal _____ Less total payments for month _____ Subtotal _____ Less total adjustments for month _____ Accounts receivable at end of month _____

29 Copyright © 2011, 2007, 2003, 1999 by Saunders, an imprint of Elsevier Inc. All rights reserved. Locating and Preventing Errors First step  Find the difference between the two totals. Then…  Search the daily journal pages and the account cards for an entry in the identical amount.  Make sure all entries were posted correctly.

30 Copyright © 2011, 2007, 2003, 1999 by Saunders, an imprint of Elsevier Inc. All rights reserved. Accounts Payable Procedures Invoices and statements  Invoices describe the items purchased and show the amount due.  Place invoices in a consistent place until they are paid.  Some vendors require payment from the invoice.  Other vendors send monthly statements.

31 Copyright © 2011, 2007, 2003, 1999 by Saunders, an imprint of Elsevier Inc. All rights reserved. Paying for Purchases  Compare statements with invoices for accuracy.  Fasten the statement and invoice together.  Write the date and check number on the statement.  Mail the check.  File the invoice and statement.

32 Copyright © 2011, 2007, 2003, 1999 by Saunders, an imprint of Elsevier Inc. All rights reserved. Disbursement Categories  Auto expense  Dues and meetings  Equipment  Insurance  Medical supplies  Office expenses  Printing, postage, and stationery  Rent and maintenance  Salaries  Taxes and licenses  Travel and entertainment  Utilities  Miscellaneous  Personal withdrawals

33 Copyright © 2011, 2007, 2003, 1999 by Saunders, an imprint of Elsevier Inc. All rights reserved. Common Periodic Financial Reports Financial reports are completed on a monthly and an annual basis. Financial reports contain:  statement of income and expenses  cash flow statements  trial balances  accounts receivable trial balances  aging analysis  balance sheet

34 Copyright © 2011, 2007, 2003, 1999 by Saunders, an imprint of Elsevier Inc. All rights reserved. Payroll Records  Involves frequent reporting activities  Requires tax withholdings from both employee and employer  Must be complete for every employee  Must keep records for at least 4 years

35 Copyright © 2011, 2007, 2003, 1999 by Saunders, an imprint of Elsevier Inc. All rights reserved. Records Required by IRS  Social security number of employees  Number of withholding allowances claimed  Amount of gross salary  All deductions, such as:  Social Security taxes  Medicare taxes  federal, state, and city taxes  state disability insurance  state unemployment tax

36 Copyright © 2011, 2007, 2003, 1999 by Saunders, an imprint of Elsevier Inc. All rights reserved. IRS Numbers  Social Security Number  individuals  Employer Identification Number  businesses/employers

37 Copyright © 2011, 2007, 2003, 1999 by Saunders, an imprint of Elsevier Inc. All rights reserved. Payroll Reporting Forms W-4 Employee’s Withholding Allowance Certificate  This form indicates the number of withholding allowances claimed.  New forms must be completed when changes occur.  Employees may elect to claim fewer or no allowances so that more tax is withheld.

38 Copyright © 2011, 2007, 2003, 1999 by Saunders, an imprint of Elsevier Inc. All rights reserved. Income Tax Withholding Amount withheld is based on:  total earnings of the employee  number of withholding allowances claimed  marital status of the employee  length of the pay period involved

39 Copyright © 2011, 2007, 2003, 1999 by Saunders, an imprint of Elsevier Inc. All rights reserved. Employers Income Tax Physicians must usually make estimated tax payments quarterly. Forms are submitted with estimated tax due on:  April 15  June 15  September 15  January 15

40 Copyright © 2011, 2007, 2003, 1999 by Saunders, an imprint of Elsevier Inc. All rights reserved. Social Security, Medicare, and Income Tax Withholding  Amounts are withheld from employee paychecks and paid to the federal government.  Rates change periodically.  Current Social Security tax rate: 6.2%  Current Medicare tax rate: 1.45%

41 Copyright © 2011, 2007, 2003, 1999 by Saunders, an imprint of Elsevier Inc. All rights reserved. Quarterly Returns Employers must file quarterly tax returns. Due dates:  April 30  July 31  October 31  January 31

42 Copyright © 2011, 2007, 2003, 1999 by Saunders, an imprint of Elsevier Inc. All rights reserved. Annual Returns  Employers furnish copies of Form W-2 (Wage and Tax Statement) to the employee.  Forms must be given to employees by January 31 of each year.  This form is used for employees to file their personal tax returns.

43 Copyright © 2011, 2007, 2003, 1999 by Saunders, an imprint of Elsevier Inc. All rights reserved. Other Taxes  Federal Unemployment Tax (FUTA)  State Unemployment Tax  State Disability Insurances

44 Copyright © 2011, 2007, 2003, 1999 by Saunders, an imprint of Elsevier Inc. All rights reserved. Budgets  New budgets are compiled for each fiscal year.  Expenses should be planned for each expense category.  Monitor expenses each month to ensure that the account has not been overspent.

45 Copyright © 2011, 2007, 2003, 1999 by Saunders, an imprint of Elsevier Inc. All rights reserved. Budget Expense Categories  Insurance  Rent  Depreciation  Loan payments  Advertising and promotions  Legal and accounting  Supplies  Medication and pharmacy expenses  Salaries and wages  Utilities  Dues, subscriptions, and fees  Taxes  Repairs and maintenance  Medical equipment  Administrative equipment

46 Copyright © 2011, 2007, 2003, 1999 by Saunders, an imprint of Elsevier Inc. All rights reserved. Insurance  One of the physician’s major expenses.  Malpractice insurance is a mandatory expense.  Workers’ compensation insurance is required to cover employee injuries and accidents.

47 Copyright © 2011, 2007, 2003, 1999 by Saunders, an imprint of Elsevier Inc. All rights reserved. Summary of Scenario  Never hesitate to ask the practice accountant when questions about financial management arise.  Many events or situations can affect practice finances.  Be a cooperative employee and work as a team to do your part toward the financial health of the practice.

48 Copyright © 2011, 2007, 2003, 1999 by Saunders, an imprint of Elsevier Inc. All rights reserved. Closing Comments  The physician relies heavily on the person who manages the finances of the office.  Always be cost-conscious and avoid being wasteful.  Explain costs to patients when necessary.  The medical assistant must earn trust in order to be placed in a responsible position handling practice finances.