PRACTICE FINANCES

Chapter 8

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LEARNING OUTCOMES: WHEN YOU FINISH THIS CHAPTER YOU WILL BE ABLE TO

8.1 Explain, using accounting terminology, the procedures for maintaining two essential financial records.

8.2 Summarize the main focus of the Red Flag Requirements as they relate to the medical office as a business.

8.3 List three banking duties of the administrative medical assistant.

8.4 Explain how an employee’s net salary is determined.

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absolute accuracy

blank endorsement

accounting bookkeepingaccounts payable (A/P)

cash basis

accounts receivable (A/R)

charge/receipt slips

accrual method daily journalaging reports deductions

annual summary deposits

audit direct earnings

balance sheet EFT

blank reconciliation employer identification number (EIN)

e-signature monthly salary Restrictive endorsements

FICA patient ledger cards

e-signature payroll

full endorsement petty cash fund

FUTA posting

income statement practice analysis report

indirect earnings procedure day sheet

interest Red Flag Requirements

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KEY TERMS

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KEY TERMS (CONTINUED)

absolute accuracy -- correctness that is 100 percent

accounting -- the methodical recording, classifying, and summarizing of business transactions

accounts payable (A/P) -- ledgers record expense amounts owed to a supplier or creditor

accounts receivable (A/R) -- ledgers record the balance of payments due from patients or others (third-party payers)

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KEY TERMS (CONTINUED)accrual method -- income is recorded as soon as it is

earned, whether or not the payment is received, and expenses are recorded when they are incurred

aging reports -- This analysis lists the amounts of money owed to the practice, and the report is organized according to the number of days

annual summary -- provides the monthly charges and payments for an entire year

audit -- review of all financial data in order to ensure the accuracy and completeness of the data

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KEY TERMS (CONTINUED)balance sheet -- the financial statement for a particular date

that indicates the total assets (possessions of value, such as equipment), liabilities (debts), and capital (available dollars)

bank reconciliation -- new balance on the statement must be compared with the checkbook balance to determine whether there is a difference between the amounts

blank endorsement -- the signature of the person to whom the check is payable (the payee) is placed on the back of the check

bookkeeping -- the part of accounting that is the accurate recording of transactions

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KEY TERMS (CONTINUED)

cash basis -- charges for services are not recorded as income to the practice until payment is received and expenses are not recorded until they are paid

charge/receipt slips -- provide a record of the physician’s services

daily journal -- is a record of services rendered, daily fees charged, payments received, and adjustments

deductions -- subtracting from gross amounts

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KEY TERMS (CONTINUED)

deposits -- checks and cash placed into the account belonging to the practice

direct earnings -- are salaries (fixed amounts paid regardless of hours worked) or wages (pay based on an hourly or daily specific rate) paid to employees

EFT -- Electronic Funds Transfer - direct deposit, the employee’s net pay is automatically withdrawn from the practice’s account and deposited into the employee’s account

employer identification number (EIN) -- enables the IRS to track the financial activity of employers in meeting payroll and tax obligations

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KEY TERMS (CONTINUED)

e-signature -- is a unique identifier, or “signature,” created for each person through computer code

FICA -- Federal Insurance Contributions Act -- law requires that a certain amount of money be withheld for Social Security

full endorsement -- indicates the person, company, account number, or bank to which the check is being transferred, followed by the payee’s name

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KEY TERMS (CONTINUED)

FUTA -- which is used to help those who have been without work for a specified time as they seek new employment

income statement -- shows profit and loss for a stated period of time, such as a quarter or year

indirect earnings -- are paid leaves or specific employer-paid benefit programs

interest -- an accrual of money during a committed time

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KEY TERMS (CONTINUED)

monthly summary -- shows the daily charges and payments for an entire month

patient ledger cards -- contain a patient’s name, services rendered, charge, payment, and balance

payroll -- total earnings of all the employees in the practice

petty cash fund -- small amounts of cash (such as $40–$100) to be used for small expenses

posting -- to enter data accurately the first time on a record

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KEY TERMS (CONTINUED)

practice analysis report – to analyze the revenue of the practice for a specified period of time

procedure day sheet -- lists numerically all procedures performed on a given day

Red Flag Requirements -- the medical practice must make sure that persons presenting for services are who they say they are

Restrictive endorsements -- is “restricted” by being marked “For Deposit Only.” The use of the check is thus limited because the party to whom the money should be paid and the purpose have been stated

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The financial records that are used daily in the practiceThe daily journalCharge/receipt slipsLedgersSummaries

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8-13 8.1 EXPLAIN, USING ACCOUNTING TERMINOLOGY, THE PROCEDURES FOR MAINTAINING TWO ESSENTIAL FINANCIALRECORDS

8.2 SUMMARIZE THE MAIN FOCUS OF THE RED FLAG REQUIREMENTS AS THEY RELATE TO THE MEDICAL OFFICE AS A BUSINESS.

Just as HIPAA regulations were implemented to protect patients’ nonpublic personal data, new regulations, known as Red Flag Requirements ,focus on identifying and verifying individuals in relation to information presented to the practice.

Who Must Comply: financial institutions creditors

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8.3 LIST THREE BANKING DUTIES OF THE ASSISTANT

Three banking duties performed by the assistant are Accepting valid checks in payment for services

rendered Depositing cash, checks, and other forms of payment

into the practice’s account(s) Reconciling bank statements

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8.4 EXPLAIN HOW AN EMPLOYEE’S NET SALARY IS DETERMINED.

Calculating gross earnings Determining the proper exemptions Subtracting FICA tax Subtracting voluntary deductions Subtracting the total deductions from the gross

earning Posting the taxes

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