1. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 21 Accounting Practices

2. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Bookkeeping and Accounting Systems

3. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Bookkeeping and Accounting Systems Financial records should provide following at all times: –Amount earned in given period –Amount collected in given period –Amount owed in given period –Where expenses were incurred in given period

4. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Bookkeeping and Accounting Systems Single-entry system –Daily journal or log –Patients’ statements –Ledgers –Checks –Disbursement records –Simple and inexpensive –Difficult to find errors –Financial analysis information inadequate

5. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Bookkeeping and Accounting Systems Pegboard system –“Write-it-once” system –Control over collections, payments, charges –Uses No Carbon Required (NCR © ) forms layered over pegs on a board –Many use charge slip or encounter form –Accurate

6. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Bookkeeping and Accounting Systems Double-entry system –Two aspects involved in every transaction –Assets equal liabilities plus owner’s equity Assets: properties owned by business Liabilities: what is owed to creditors Owner’s equity: amount by which business assets exceed business liabilities –Orderly, fairly simple, flexible, accurate

7. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Bookkeeping and Accounting Systems Total practice management system (TPMS) –Computerized systems Patient information data and scheduling EMRs and EHRs Insurance coding and billing Processing claims electronically

8. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Bookkeeping and Accounting Systems Total practice management system (TPMS) –Computerized systems Management and human resources Payroll, purchases, personnel records Bookkeeping and accounting Generation of financial records including business income and expenses

9. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Bookkeeping and Accounting Systems Total practice management system (TPMS) –Can be customized to meet needs of practice –Capability of including procedure and diagnostic codes –Flexibility of assigning codes in other categories –Used in preparation of billing statements, insurance forms, collection letters, financial ratios

10. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Bookkeeping and Accounting Systems Computer and billing service bureaus –Through office’s own computer terminal; tied directly to bureau’s mainframe computer –Through online servicing; allows direct communication with service bureau’s computer

11. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Bookkeeping and Accounting Systems Computer and billing service bureaus –Through off-line batch processing –Negotiate and sign contract to ensure confidentiality, HIPAA compliance, privacy of all patient information

12. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Day-End Summary Gives quick analysis of end-of-the-day financial status –Identifies all financial transactions –Includes month-to-date totals –Identifies year-to-date accounts –May include deposit slip for day’s bank deposits

13. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Day-End Summary Tips for finding errors –Check addition of all columns, horizontally and vertically –Compute difference in totals that are out of balance –Search day sheet and patient accounts for exact amount –If error divisible by 9, may be error in transposition of numbers –If error divisible by 2, amount may have been posted in wrong column

14. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Day-End Summary Tips for finding errors –Check entries when manually carrying forward previous balances –Errors in electronic system caught earlier –Error that occurs when keying in certain data will create warning notice that indicates data incorrect –Any time entering data into system, errors can occur

15. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Accounts Receivable Trial Balance Prepared prior to creating monthly statements Will indicate any problem between daily journal and ledger End of month accounts receivable must be same as figure received when adding all patient account balances

16. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Accounts Payable Unwritten promise to pay supplier for property or merchandise purchased on credit or for service rendered –Medical and office supplies –Salaries –Equipment –Services Most common liability in provider’s office

17. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Accounts Payable Payments made by check to ensure complete, accurate records of money received and disbursed Note in tickler reminder so payment is made to receive any discount Prepare check, write check number on invoice indicating amount paid

18. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Disbursement Records Track disbursements and post to appropriate accounts –Computer systems have check registers for recording and categorizing all checks –Pegboard system requires manual entries –Computer software has check-writing file that presents checks on screen –Pegboard system will have check register that records all checks written

19. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Accounting Function Accounting: monitoring financial status of facility and financial results of its activities Financial accounting: provides information for external entities

20. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Accounting Function Managerial accounting: generates financial information that can enable more efficient internal management Cost accounting: helps to determine what it costs to perform particular services; integral part of managerial accounting

21. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Cost Analysis Determines cost of each service Fixed costs: do not vary in total as number of patients vary Variable costs: vary in direct proportion to patient volume

22. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Financial Records Income statement –Cumulative profit and total expenses Balance sheet –Itemized statement of assets, liabilities, owner’s equity –Provides information regarding status of basic accounting elements –Double-entry system with debit and credit entries –Total dollar amount of debit entries must equal total dollar amount of credit entries

23. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Useful Financial Data Accrual basis: reports income at time charges generated Cash basis: income recognized when money collected

24. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Useful Financial Data Accounts receivable (A/R) ratio –Measures speed at which outstanding accounts paid –Goal of collecting policy should be turnaround time of 2 months or less –Formula: Total Accounts Receivable Divided by Monthly Receipts = Turnaround Time

25. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Useful Financial Data Collection ratio –Shows percentage of outstanding debt collected –Goal should be 90% collection ratio –Formula: Total Receipts Divided by Total Charges = Collection Ratio After Adjustment –Receipts must include any adjustments

26. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Useful Financial Data Cost ratio –Shows cost of procedure or service –Can help determine cost effectiveness –Formula: Total Expenses Divided by Total Number of Procedures for One Month = Cost per Procedure

27. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Legal and Ethical Guidelines Embezzlement can occur even when using very careful hiring practices –Accountant and managing provider(s) should conduct regular and irregular audits of practice accounts –Separate duties among employees –Only one person use signature stamp; or do not use one –Signature card on file at bank must include names of each individual authorized to sign checks –Seek employees whose personal honesty sets example

28. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Legal and Ethical Guidelines Bonding –Fidelity bonds reimburse practice for any monetary loss caused by practice employees Position-schedule bond covers position rather than specific individual Blanket-position bond covers all employees Personal bond covers specific individual by name

29. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Legal and Ethical Guidelines Bonding –Protects providers, practice, employees should there be problem with finances during their shift –Cost depends upon risk, but well worth protection

30. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Legal and Ethical Guidelines Utilization review –Review of patient service required before it may be performed Payroll –W-4 form –Salary calculations –Withholding taxes –Social Security calculations