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PRACTICE FINANCES Chapter 8 © 2012 THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED
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. © 2012 THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED 8-2
absolute accuracyblank endorsement accountingbookkeeping accounts payable (A/P) cash basis accounts receivable (A/R) charge/receipt slips accrual methoddaily journal aging reportsdeductions annual summarydeposits auditdirect earnings balance sheetEFT blank reconciliationemployer identification number (EIN) e-signaturemonthly salaryRestrictive endorsements FICApatient ledger cards e-signaturepayroll full endorsementpetty cash fund FUTAposting income statement practice analysis report indirect earningsprocedure day sheet interestRed Flag Requirements © 2012 THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED KEY TERMS 8-3
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) © 2012 THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED 8-4
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 © 2012 THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED 8-5
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 © 2012 THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED 8-6
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 © 2012 THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED 8-7
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 © 2012 THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED 8-8
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 © 2012 THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED 8-9
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 © 2012 THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED 8-10
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 © 2012 THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED 8-11
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 © 2012 THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED 8-12
The financial records that are used daily in the practice The daily journal Charge/receipt slips Ledgers Summaries © 2012 THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED 8-13 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. 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 © 2012 THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED 8-14
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 © 2012 THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED 8-15
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 © 2012 THE MCGRAW-HILL COMPANIES, INC. ALL RIGHTS RESERVED 8-16
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