Chapter 12; Accounting Responsibilities

Accounting Cycle
a consecutive 12-month period for financial record keeping following either a fiscal year (starting on a specific date) or the calendar year (January to December)
Accounts Payable
a record of all monies owed
Accounts Receivable
a record of all monies due
Adjustment
a change in a posted account
Audit
a review of an account; inspection of records to determine compliance and to detect fraud
Balance
equally between the debit and credit sides of an accounting equation; that which is left over after additions and subtractions have been made to an account; remainder; amount due
Bookkeeping
organized and accurate record keeping for financial transactions
Charge Slip
a pre-printed three-part form that can be placed on a daysheet to record the patient’s charges and payments along with other information in an encounter form
Check Register
place to record checks that have been written
Check Stub
indicates to whom a check was issued, in what amount, and on what date
Credit
balance in one’s favor on an account; promise to pay a bill at a later date; record of a payment received
Daysheet
a daily business record of charges and payments
Debit
a charge or money owed on an account
Encounter Form
a pre-printed statement that lists codes for basic office charges and has sections to record charges incurred in an office visit; the patient’s current balance, and next appointment
Internal Revenue Service (IRS)
a federal agency that regulates and enforces various taxes
Invoice
a statement of debt owed; a bill
Ledger Card
a record of the patient’s financial activities; a continuous record of business transactions with debits and credits
Liabilities
amounts the practice owes
Packing Slip
a document that accompanies a supply order and lists the enclosed items
Payroll
the total amount of wages and salaries paid by a company to its employees
Posting
listing financial transactions in a ledger
Profit-and-Loss Statement
statement of income and expenditures; shows whether, in a given period, a business made or lost money and how much
Purchase Order
a document that lists the required items to be purchased
Returned Check Fee
amount of money a bank or business charges for a check written with insufficient funds
Service Charge
a change by a bank for various services
Summation Report
any report that provides a summary of activities, such as a payroll report or a profit-and-loss statement
Accounting Responsibilities
Bookkeeping and banking are important facets of medical office management. In most medical practices, bookkeeping and banking involves maintaining both patient and office account records, including petty cash, accounts receivable, and accounts payable.
Accounts Receivable and Daily Bookkeeping
Bookkeeping is defined as an organized and accurate record keeping system of financial transactions for a business. The daily financial transactions of a medical office include patient payments that arrive through the mail, patient payments from patients seen in the office, and patient charges that are added to the accounts receivable. Most medical practices use a single-entry bookkeeping system. The foundation of accounting is this equation:

Assets = Liabilities + Equity

Assets are all things of value owned by or relating to the practice. Liabilities are monies owed. Equity refers to the amount of capital the physician has invested in the practice.

Because the two sides of the accounting equation must always balance (be equal), each transaction requires a debit (charge) on one side of the equation and a credit (payment) on the other side of the equation, the amount of the debit and credit must be equal.

Pegboard Bookkeeping System
The pegboard, or write-it-once, bookkeeping system uses a board with pegs running down the left side. The pegs hold a daysheet, or daily journal, in place on the board. All transactions for the day are recorded on this daysheet. Each patient has a ledger card (record of the patient’s financial activities). When a patient transaction occurs, the bookkeeper places the ledger card over the daysheet and the charge slip (preprinted patient bill) over the ledger card on the next available entry line and makes the appropriate entry on the ledger card. At the end of the day, all the transactions are added.
What is an asset?
An asset is a thing of value owned by or related to a business.
Daysheet
The daysheet keeps track of daily patient transactions, such as charges for services to patients, payments received from patients and insurance carriers, and adjustments to patient accounts.

The daysheet has several sections: a deposit slip, distribution columns, a section for payments, a section for adjustments, and a section for posting proofs.

The deposit slip is a detachable portion of the daysheet. All payments received are noted on the deposit slip, and at the end of the day, it is separated from the daysheet and deposited with that day’s payments.

The distribution columns are used to assign charges for the areas services.

An adjustment is an entry to change an account. The adjustment section allows for reduction in office fees, as with professional courtesy discounts and insurance disallowances.

The posting proofs section is where the day’s totals are entered and the daysheet is balanced, much as one would balance a checkbook. If the posting proofs do not balance, an error has been made on the daysheet.

You should perform a trial balance at the end of each month.

What are the five sections of a pegboard daysheet?
The five sections of a pegbored daysheet include the distribution columns, adjustment column, deposit slip, payments section, and posting proofs section.
Ledger Cards
The ledger card is a financial record for each patient. Most ledger cards include areas for the responsible person’s name, address, telephone number, and insurance information.

The ledger card is a legal document and should be kept for the same length of time as the patient’s medical record.

Encounter Forms and Charge Slips
The encounter form and the charge slip are preprinted patient statements that list codes for basic office charges and have sections for the patient’s current balance and next appointment. Most encounter forms and charge slips have three-part copies:

1. The first copy is kept by the facility for auditing purposes (all are numbered).

2. The second copy is sent to the insurance company along with the insurance claim.

3. The third and final copy, which has a carbon line at the top to match your ledgers and daysheet, is given to the patient as a receipt of services.

What is a ledger card?
Ledger cards include the name, address, phone number, and insurance information of the patient.
Posting Charges
The charge column of the daysheet is for original charges incurred for services received by the patient from the physician or staff on a specific date.
Posting Payments
Payments received by the practice may include insurance checks received in the mail, money orders, credit card payments, or cash received from patients.
Processing a Credit Balance
Sometimes an account is overpaid, either by the patient or the insurance company. Such an overpayment is termed a credit (money owed to the patient or insurance carrier). This will show on the patient’s ledger card as the last balance, with brackets indicating a credit. Brackets indicate the opposite of the column’s usual meaning.
Processing Refunds
Credits are handled in one of two ways: the credit stays on the account and is subtracted from the charges on the patient’s next visit, or the patient is mailed a refund for the amount of the overpayment.
Posting Credit Adjustments
The adjustments section is used to indicate nonstandard office fees and to credit an account for uncollectible monies.
Posting Debit Adjustments
Generally, a credit adjustment reduces the patient’s account balance, whereas a debit adjustment adds to the patient’s account balance.
How does a credit adjustment differ from a debit adjustment?
Generally, a credit adjustment reduces the patient’s account balance, whereas a debit adjustment adds to the patient’s account balance.
Posting to Cash-Paid-Out Section of the Daysheet
Some insurance carriers adjust for money overpaid to your facility by holding that amount out of money they are paying your facility for other patients.
Computerized Accounting
Most medical office accounting software available today is easy to use and requires a minimum of computer skills.

Computer bookkeeping programs have a variety of advantages over pegboard bookkeeping. Computer programs work as expanded calculators and perform the arithmetic functions, such as balancing individual accounts and the day’s totals.

Posting to Computer Accounts
If you understand the fundamentals of accounting and how to post entries manually, you will be able to use a computer system with ease. To post payments, first retrieve the patient’s account. The software will take you through the process. You enter the source and amount of the payment, the allowed amount for the service, and any necessary adjustments. As in a manual system, this information is provided on the insurance carrier’s explanation of benefits (EOB). Calculations are automatic and error-free.
Computer Accounting Reports
Depending on the software package, you can easily generate daily, monthly, and yearly reports on transactions of an individual physician in a group practice. Daily and weekly reports provide the same information found at the bottom of a daysheet in a manual accounting system. At any given time, you can request a report that displays the practice’s period-to-date and year-to-date financial status.
What is a local or access code?
A local or access code is one that indicates a certain procedure or service for one particular system.
Banks and Their Services — Types of Accounts
Besides physical location, several factors are important went choosing a bank for the office business account. These factors include the monthly service fees, overdraft protection program (protection against bouncing checks), interest-bearing accounts, and returned check fees.
Checking Accounts
A checking account allows you to write checks for funds that are deposited in the account.

The administrative medical assistant must maintain the checkbook and ensure that checks are recorded as needed.

Banks offer a variety of options for checking accounts. Variables include monthly service charges, maximum amounts of checks written, minimum balance requirements, and so on.

Savings Accounts
The medical practice may use a savings account for money that is put aside for long-term plans or money that is not needed for writing checks. A savings account pays interest at a higher percentage rate than a checking account, allowing the money to grow. Funds can be transferred to the checking account as needed.
Money Market Accounts
Money market accounts are a combination of a savings account and an interest-bearing checking account. The minimum balance is usually much higher than that of a checking account, but the interest rate also is much higher.
Bank Fees
Banks charge fees for services. In an effort to get new business, banks offer special services and plans for small businesses, including medical offices.
Monthly Service Fees
Bank policies concerning monthly fees or service charges vary widely. A service charge is a fee charged monthly for using an account. The charge can be a fixed amount or may be an individual charge for each check written on the account.
Overdraft Protection
Overdraft protection guarantees that checks written against the account will be paid even when there is not enough money in the account at that time.
Returned Check Fee
Some banks charge a returned check fee, which is a fee charge for any check that is deposited into the checking account but that is later returned to the bank because the account it was issued from had insufficient funds with which to pay the check. Such a check is often referred to as a bounced check. Most facilities charge this amount to the patient. Because this is an original charge, the bad check fee is listed in the charges column of the patient’s ledger and daysheet, with the amount of the check being recorded as a debit adjustment.
Types of Checks
Most medical offices use the standard business check, but when certain circumstances require, there are other types available:

• Certified checks are stamped and signed by the bank to verify that the amount of the check is being held in the account for payment. The check is written from the customer’s account.

• Cashier’s checks are sold to the customer for cash or a personal check. The check is written by the bank, giving the recipient be added guarantee that the check is good.

• Traveler’s checks are a convenient and safe way to carry cash when traveling. They are available in denominations of $10, $20, and $50, and if lost, they can be replaced. Traveler’s checks are signed when purchased and are countersigned (signed again) in the presence of the payee.

• Money orders, although not checks, can be purchased with cash from a bank or the US Postal Service. Money orders, which guarantee payment to the recipient, are often used for mailing payments since it is not safe to mail cash.

Writing Checks for Accounts Payable
Another financial responsibility of the medical assistant may be to handle accounts payable, or pay the bills. The accounts payable in a medical office usually include rent, utilities, taxes, salaries, vendors of supplies & services, patient refunds, and petty cash reimbursement. The accounts are usually paid by check. Banks require signature cards for each person authorized to sign checks.
Receiving Checks and Making Deposits
When checks are received in the office, there first endorsed. To endorse a check requires writing on the back of the check the name and number of the account into which it will be deposited. This way, if the payments are lost or stolen, no one else can cash them. It also ensures that the bank deposits the payment to the correct account.
Reconciling Bank Statements
All banks mail monthly statements to account holders on which are listed all transactions since the last closing date. This bank statement must be reconciled, or compared for accuracy, with your records each month.

The statement consists of a list of all checks written and their amounts, all deposits made and their amounts, any electronic transactions, and any service charges.

What information is found on a bank statement?
The statement consists of one or more pages that lists all checks written and their amounts, all deposits made and their amounts, any electronic transactions, and any service charges.
Honesty IS the Best Policy
A physician-employer puts his trust in his employees every day. In the clinical area, he trusts that his assistants will be conscientious and careful. In the administrative area, he trusts that employees will be completely honest and trustworthy. Borrowing $5.00 out of the petty cash for lunch is not acceptable. When handling money for the facility, follow established procedures to the letter. Cross every “t” and dot every “i” so there will be no reason to doubt you. Fortunately, most physicians and their medical assistants enjoy a mutual respect and loyalty. By following the rules, you will prove to your employer that you are worthy of his trust.
Petty Cash
A petty cash account is a cash fund kept in the office specifically for small purchases, such as buying postage stamps or office supplies. The value of the petty cash account should always remain the same. A petty cash fund is always a designated sum of money. When money is taken from the fund, a voucher or receipt is placed in the fund to verify the purchase. The remaining cash and the sum of the vouchers should always equal the designated sum.
List six guidelines for managing petty cash.
These are the six guidelines for managing petty cash.

• Keep petty cash separate from patient cash payments
• Keep in a secure, locked area
• Designate one person to maintain the petty cash fund and issue vouchers
• Place a voucher with an attached receipt in the petty cash fund
• Replenished the petty cash fund once a month
• Remove and file all vouchers

Correct It Correctly
It is illegal to falsify any financial documents. Accurate record keeping is essential. The IRS will examine the practice’s financial records. You may be held liable for errors or omissions to these documents.

White-Out is a great product, but should never be used in a medical office. There are documented cases of suspected fraud when financial records were corrected with White-Out.

Corrections to ledger cards, daysheets, petty cash records, etc. are made just as they are in the medical record. Draw a single line through the wrong number, and place the correct one above or below it. You should be able to see the item being corrected. If the space is too small for this, cross out the entire transaction and start a new one. Initial the correction.

Overview of Accounting
Accounting is a compilation of a business’s financial records. It is necessary for assessment of the practice’s financial history and current financial stakes, which serves as the basis for sound financial management. The medical office, like other businesses, requires strict adherence to sound record-keeping practices. Records must be maintained in an orderly fashion so you can retrieve financial information at any time and to present an organized picture of the business’s finances.
Accounting Cycle
The finances of medical practices operate in one of two 12-month intervals or durations. The office accounting cycle follows either a fiscal year (a consecutive 12-month period starting with a specified date) or a calendar year (January through December).

The federal Internal Revenue Service (IRS) examines a business’s income statements for the amount of profit and owed taxes four times a year by quarterly estimated tax returns.

There are many reasons for a physician along with an accountant to review financial data on a regular basis. Financial records reflect growing expenditures and growth in the business.

Tax records must be available in case of an IRS inquiry or audit (review of accounts).

Record-Keeping Components
The practice’s financial records should include a running record of income, accounts receivable, and total expenditures, including payroll (employees salaries), cash on hand, and liabilities (amounts the practice owes).

Software packages offer the most sophisticated way to maintain financial records, not just for the categorization of expenses but also for the rapid formation of financial reports.

If financial data are entered diligently into the bookkeeping system, preparing monthly, quarterly, or yearly reports should not be a daunting task.

Ordering Goods and Services
There are many economical ways to purchase office supplies or equipment. Researching and cost-comparing office products and medical supplies can be time consuming, but it is worth the effort, especially for items used frequently.

Besides cost, other considerations come to bear when purchasing office supplies, such as free delivery. Quality also plays a role. Supplies should be off standard quality as well as economical.

Office supplies or equipment can be ordered in a number of ways. Offices can place orders by telephone, fax, mail, or email. When placing orders for supplies, give the office’s account number to the vendor or write it on the order form. It is a good idea to use a purchase order that lists the supplies ordered and their order numbers, so that order numbers for frequently ordered items can be pulled from the previous purchase order; this saves time with subsequent orders.

When purchasing office supplies, what factors besides price should you consider?
Besides price, you should consider delivery charges and product quality when purchasing office supplies.
Receiving Supplies
When goods are delivered to the office, a receipt or packing slip listing the enclosed items should always accompany the order.
Paying Invoices
Invoices for supplies and other types of bills payable by the practice should be kept together in a bills pending file to avoid loss or misplacement of a bill. Bills can be paid daily, weekly, bi-weekly, or monthly.
Manual Payments
Manual payment of bills requires a checkbook and checks. Memos or notations on check stubs can be referenced later if a question arises concerning payment by a particular check.
Pegboard Payment
The same pegboard system that is used for accounts receivable maybe use for bill paying; it has several advantages over the ordinary manual method of paying bills. Instead of using a daysheet, a check register page is used to record the checks that have been written.
Computer Payment
A computer accounts payable system has all the advantages that a pegboard system offers: access at a glance to check registers, itemized categories and their totals, payroll records, and entries for bank deposits.

Whether using a manual, pegboard, or computer accounts payable system, two steps must always occur when ordering and receiving supplies. What are they?

The bookkeeper must write out a purchase order and compare the packing slip and final invoice to that purchase order.

Preparation of Reports
The bookkeeper must also prepare reports for the practice’s accountant or the IRS based on financial data stored in the office’s bookkeeping system. For this reason, care should always be taken when recording financial data.
Audits
An audit may be informal (in-house) and used to assist the practice’s accountant with tax preparation, or it may be a formal audit by the IRS.