PRACTICE FINANCES

Chapter 10

Chapter 10 2

Practice Finances Learning Objectives

Define five accounting terms related to the responsibilities of the administrative medical assistant.

Demonstrate an understanding of accounting principles by explaining the procedures for maintaining two of the essential financial records.

List three banking duties of the assistant. List the duties of the assistant related to the

payroll process. Explain how an employee’s net salary is

determined.

Chapter 10 3

Key Terms Absolute accuracy Accounting Accounts payable Accounts receivable Accrual method Aging reports Annual summary Audit Balance sheet Bank reconciliation

Blank endorsement Bookkeeping Cash basis Charge/receipt slips Check Daily journal Deductions Deposits Direct earnings EFT

Chapter 10 4

Key Terms (cont’d)

Employer identification number (EIN)

E-signature FICA Full endorsement FUTA Indirect earnings Interest Monthly summary

Patient ledger cards Payroll Pegboard accounting Petty cash fund Posting Practice analysis

report Procedure day sheet Restrictive

endorsement

Chapter 10 5

Essential Financial Records

Accounting Methodical recording, classifying, and

summarizing of business transactions Bookkeeping

Accurate recording of transactions

Chapter 10 6

Essential Financial Records (cont’d)

Cash basis Expenses are recorded when actually paid Income not recorded until payment is

actually received Accrual basis

Income is recorded when earned Expenses are recorded when incurred

Chapter 10 7

Essential Financial Records (cont’d)

Daily journal Also called general

journal or day sheet Charge/receipt

slips Record of physician’s

services and charges

Ledgers Patient ledger cards Accounts receivable

ledger Accounts payable

ledger Summaries

Monthly summary Annual summary Balance sheet

Day Sheet

ROA 45.00

99212 70.00

70120 120.00

99202 47.00

ROA 37.00

Chapter 10 8

Accounting Software Specialized software for medical

practices is available Saves time by automating routine

tasks Accurately completes mathematical

calculations

Chapter 10 9

Daily Journal For recording the daily fees charged

and payments received Accounts receivable Cash receipts

Helps to keep control of amount of money owed to practice

Used to account for daily cash flow Software, such as NDCMedisoft,

provides an electronic daily journal

Chapter 10 10

Bookkeeping Methods Single-entry method

One entry for each transaction Double-entry method

Uses debits and credits Pegboard method

“Write it once” system Multiple layers of forms

Chapter 10 11

Summaries Used to analyze charges, cash

receipts, and disbursements Compare current financial performance

with past financial performance Software easily manipulates

databases to produce summaries Practice analysis reports Aging reports Spreadsheet capabilities

Chapter 10 12

Banking Absolute accuracy Promptness Administrative medical assistant

acts as physician’s agent

Chapter 10 13

Checks and Checking Interest bearing account Regular business checking account

Negotiable checks Contain the specific

amount to be paid Are properly

completed

Unacceptable checks Postdated checks Predated checks Third-party checks Checks with “paid-in-full”

annotation when amount is not full amount

Chapter 10 14

Endorsements Blank endorsement

Payee signs name Full endorsement

Payee signs name, company, bank, account number, etc.

Restrictive endorsement (safest) Marked “For Deposit Only” Payee signs name, company, bank, account

number, etc.

Chapter 10 15

Deposits andReturned Checks Deposits

Daily practice Cash flow management All cash and checks Complete and accurate

deposit slips Bank receipts

Security of checkbook and other banking materials

Returned checks Incorrectly written

checks Incomplete checks “Non-sufficient Funds”

Chapter 10 16

Bank Reconciliation Statement balance is compared with

checkbook balance Compare canceled checks with items listed

on statement Compare checks listed on statement with

checkbook to verify accuracy Account for deductions such as service charges

Compare deposits against credits on bank statement

Record any interest earned Complete the reconciliation form

Chapter 10 17

Electronic Banking Using software for

Checking balances Receiving electronic

deposits Finding out which

checks have cleared Transferring money

between accounts Paying bills

Must still record all checks and deposits

Must still reconcile statement

E-signatures Same legal standing

as written signatures Electronic funds

transfer (EFT)

Chapter 10 18

Petty Cash Small amounts of cash used for

small expenses Delivery charges, cab fares, postage stamps

Petty cash register or voucher Provides record of small expenses Ensures only authorized payments are made Security

“Proving petty cash”

Chapter 10 19

Payroll Calculate the earnings of employees Subtract taxes and other deductions Create employee payroll records Prepare the salary checks Submit payroll taxes Use current tax formulas and abide

by IRS regulations

Chapter 10 20

Payroll Records Need for accurate records Employer Identification Number (EIN) Employee data

Identified by Social Security Number Non-U.S. citizens must complete an

Employment Eligibility Verification Form Pay schedule Type of payment—hourly or salaried Employee-requested deductions

Chapter 10 21

Payroll Taxes Direct earnings

Salaries or wages paid to employees

Indirect earnings Paid leave or specific employer-

paid benefits W-4 form

Employee’s allowances or exemptions

Chapter 10 22

Payroll Taxes (cont’d)

FICA tax Social security contributions 2 separate deductions

1 for Medicare 1 for pension benefits

1/2 paid by employee 1/2 paid by employer Contribution percentage changes yearly

Chapter 10 23

Calculating Payroll

Voluntary deductions

Employer’s obligation

Net earnings

Gross earnings Exemptions and

state and local deductions

FICA taxes Unemployment

taxes

Chapter 10 24

Employer’s TaxResponsibilities

Federal Unemployment Tax Act (FUTA) May also pay into state unemployment fund

Some states also require employee contributions

Taxes must be paid to the federal government monthly

Employers are required to file a quarterly tax return For reporting federal income and FICA taxes

Chapter 10 25

Payroll Records Records must, by law, be retained for 4

years Employee earnings records should

contain:

Net salary paid Income taxes

withheld FICA, state, and local

taxes deducted Other deductions

Employee’s name and SSN

Address Number of

exemptions Gross salary earned

Chapter 10 26

Electronic Payroll Also called direct deposit

Employee’s net pay is automatically withdrawn from practice account, AND

Deposited into the employee’s account Electronic Funds Transfer (EFT)

Loss or theft of paychecks is eliminated Productivity is increased Convenience of eliminating trips to the bank

Chapter 10 27

Quiz

day sheet

Net

restrictive

False, both the employee and the employer must pay FICA taxes.

The _____________ endorsement is most often used by businesses.

Another name for the daily journal is ___________.

FICA taxes are the responsibility of the employee. (T/F)

_____ pay is the amount paid to the employee.

Chapter 10 28

Critical Thinking What is the difference between a cash basis

and an accrual basis in accounting?

With a cash basis, expenses are recorded when they are actually paid and income when payment is actually received. With an accrual basis, expenses are recorded when they are incurred and income when it is earned.