Practicing Finances

AMAs help with accountingAccounting- methodical recording, classifying ,

and summarizing of business transactionsAudit- review of all financial data in order to

ensure the accuracy and completeness of the dataEither internal an accountant employed by the

practice or IRSBookkeeping-accurate recording of

transactions

Financial Records

Daily journalCharge/receipt slipsPatient ledger cardsAccounts payable/receivableMonthly summaryBalance sheet

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Financial Records Used Daily

Records are kept in paper format or in software

Accounting Software

Single-entry methodOldestOne entry for each transactionDifficult

Double entry methodRequires more knowledge of accounting Assets=liabilities + owners equityOne account is debited and another is credited for each

transactionMore time consuming

Pegboard methodMost commonly used system Efficient and easy to learn

Methods of Bookkeeping

Computer summariesPractice analysis reportAging reports

Computer Summaries

Absolute accuracy

Banking

Practices have 2 types of checking accounts:Regular business checking account (used most

frequently)Account that pays interestMay also be savings account

Money for taxes or expenses that are not immediate will be kept in interest earning account

Checks and Checking

Check-an order to a bank to pay a specific amount of money

Negotiable-to allow the legal transfer of moneyTo be negotiable:

Contain the specific amount to be paidBe made out (payable) to payee (could be the title of

company instead of a person’s name)Carry the name of the bank that is making the

paymentSpecify the date on which the payment is to be madeBe signed by the payer, person who is writing the

check and is promising to pay the money

Checks

Postdated-dated for the futurePredated-dated in the pastThird-party checks-written by an unknown

third partyCheck with an annotation of “Paid in Full”-

cannot accept this when it is not the full amount

Checks that are NOT Accepted

Blank endorsement-signature of the person to whom the check is payable is placed on the back of the check (can be cashed by anyone)

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

Restrictive endorsement-safest and most commonly used in businessRestricted: For Deposit Only

Check Endorsements

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

Deposit slipPreprinted or at bank (blank)Proof

Kept with check regsiter, checkbooks in secure place

Deposits

Bank may return a check if:Not completed properly

Missing date or signatureInsufficient funds (NSF)-not enough money in

the accountReturned with a fee of $25

Returned Checks

Physician must authorize with the bank who is allowed to sign all checksOne person to write and another to sign (safe-

avoid mistakes and misappropriations)2 signatures

Banking Policy of the Practice

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

Steps:Compare cancelled checks from bank to bank statementCompare checks listed on statement with checkbookCompare deposits recorded in checkbook with statement Interest: record in checkbookComplete reconciliation form If final amount = great! If not, do again.

Bank Reconciliation

Efficient and accurateActivities available online:

Checking balances in the accountsReceive electronic depositsFind out which checks have cleared Transfer money from one account to the otherPay bills

E-signature-a unique identifierGranted in June 2000, same as paper and pen

signature

Banking Electronically

Petty cash fund-fund containing small amounts of cash to be used for small expenses

Petty Cash

Payroll-total earnings of all the employees in the practice

If your job you will be responsible for these tasks:Calculate the earnings of employees Subtract the correct amount of taxes and other

deductions Create employee payroll recordsPrepare the salary checksSubmit payroll taxesKeep current with formulas and regulations

issued by the IRS that affect payroll

Payroll

Create a payroll information record with the following information:Name, address, SS#, marital status, # of dependentsPay schedule (how often they are paid: weekly or

biweekly)Type of payment (straight salary or hourly)Employee requested deductions (employer sponsored

insurance plan, contributions to a savings plan, additional taxes withheld)

If not a citizen, must be authorized to work in the USCompleted Employment Eligibility Verification Form

Form I-9- Verifies the person is legally admitted alien or authorized to work in this country

Employee Payroll Records

Employer identification number (EIN)-enables the IRS to track the financial activity; of employers in meeting payroll and tax obligationsAKA Tax identification number

Employer/ee ID Numbers

Direct earningsSalaries (fixed amounts paid regardless of

hours worked)Wages (pay based on an hourly or daily specific

rate)When first hired, employees must complete

the Employee’s Withholding Allowance Certification Form W-4

Number of allowances stated for exemptions to be used when calculating taxes withheld

Wage bracket tables supplied by the IRS

Taxes Deducted from Earnings

Federal Insurance Contributions Act (FICA)Governs the social security systemLaw requires that a certain amount of money

be withheld for SSEmployee pays half the required contribution

and employer pays other halfThe amount is deducted in two separate payroll

taxes:One helps finance MedicareThe other helps fund SS pension benefits

These amounts are dictate by the IRSAre a percentage of the employee’s taxable earningsCongress can change this amount yearly

FICA Tax

Offices use spreadsheet programs to calculate payrollGross earnings

Salary-amount of earnings for the period Hourly-number of hours times hourly rate

Exemptions; state and local tax deductions-find the # claimed by the employee on the W-4 form, refer to the IRS tax table for the amount to be deducted, subtract them from gross earnings

FICA taxes-withhold and deduct half the amount due for the pay period from gross earnings; other half paid by practice

Unemployment taxes-vary by state; withhold as necessaryVoluntary deductions-insurance, savings plan, additional tax

withholding, etc.Employer’s obligation-Post the employer’s FICA contribution

and taxes due to fed and state unemployment funds to physician’s account

Net earnings=Gross – total deductions

Calculating Payroll

Federal Unemployment Tax Act-FUTAEmployers are required to help fund this accountUsed to help those who have been without work for a specified

period of time as they seek new employmentPercentage of each employee’s gross salary but is not deducted

from employee’s salary-employer contributesSome states both employee and employer contributes

Payments into a state unemployment fund are applied as credit against the FUTA tax

Tax return obligations: practice must make federal tax withholding payments and FICA payments to a federal deposit account in a Federal Reserve Bank IRS imposes severe penalty for lack of monthly depositsEmployer has to file a quarterly tax return, Form 941 to report

federal income and taxes withheld from paychecks

Employer’s Tax Responsibilities

Law requires employer to retain payroll records for 4 years

Records must contain:NameSS#AddressNumber of exemptions claimedGross salary earnedNet salary paidIncome taxes withheldFICA, state and local taxes deducted

Payroll Records: Contents and Retention

Direct deposit-the employee’s net pay is automatically withdrawn from the practice’s account and deposited into the employee’s account

Electronic funds transfer (EFT)Physician office must contract with the bank for thisEmployees must give employers their checking account

numbersEmployee receives a deposit stub showing gross, net, and

deductionsAdvantages

Loss or theft of checks is eliminatedProductivity and cost-savings are increasedConvenience of eliminating trip to bank, money available

day of

Electronic Payroll: Direct Deposit