Practicing Finances

1. Practicing Finances

2. Financial Records • AMAs help with accounting • Accounting- methodical recording, classifying , and summarizing of business transactions • Audit- review of all financial data in order to ensure the accuracy and completeness of the data • Either internal an accountant employed by the practice or IRS • Bookkeeping-accurate recording of transactions

3. Financial Records Used Daily • Daily journal • Charge/receipt slips • Patient ledger cards • Accounts payable/receivable • Monthly summary • Balance sheet 255

4. Accounting Software • Records are kept in paper format or in software

5. Methods of Bookkeeping • Single-entry method • Oldest • One entry for each transaction • Difficult • Double entry method • Requires more knowledge of accounting • Assets=liabilities + owners equity • One account is debited and another is credited for each transaction • More time consuming • Pegboard method • Most commonly used system • Efficient and easy to learn

6. Computer Summaries • Computer summaries • Practice analysis report • Aging reports

7. Banking • Absolute accuracy

8. Checks and Checking • Practices have 2 types of checking accounts: • Regular business checking account (used most frequently) • Account that pays interest • May also be savings account • Money for taxes or expenses that are not immediate will be kept in interest earning account

9. Checks • Check-an order to a bank to pay a specific amount of money • Negotiable-to allow the legal transfer of money • To be negotiable: • Contain the specific amount to be paid • Be 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 payment • Specify the date on which the payment is to be made • Be signed by the payer, person who is writing the check and is promising to pay the money

10. Checks that are NOT Accepted • Postdated-dated for the future • Predated-dated in the past • Third-party checks-written by an unknown third party • Check with an annotation of “Paid in Full”-cannot accept this when it is not the full amount

11. Check Endorsements • 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 business • Restricted: For Deposit Only

12. Deposits • Deposits-checks and cash placed into the account belonging to the practice • Deposit slip • Preprinted or at bank (blank) • Proof • Kept with check regsiter, checkbooks in secure place

13. Returned Checks Bank may return a check if: • Not completed properly • Missing date or signature • Insufficient funds (NSF)-not enough money in the account • Returned with a fee of $25

14. Banking Policy of the Practice • Physician must authorize with the bank who is allowed to sign all checks • One person to write and another to sign (safe-avoid mistakes and misappropriations) • 2 signatures

15. Bank Reconciliation • 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 statement • Compare checks listed on statement with checkbook • Compare deposits recorded in checkbook with statement • Interest: record in checkbook • Complete reconciliation form • If final amount = great! • If not, do again.

16. Banking Electronically • Efficient and accurate • Activities available online: • Checking balances in the accounts • Receive electronic deposits • Find out which checks have cleared • Transfer money from one account to the other • Pay bills • E-signature-a unique identifier • Granted in June 2000, same as paper and pen signature

17. Petty Cash • Petty cash fund-fund containing small amounts of cash to be used for small expenses

18. Payroll • 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 records • Prepare the salary checks • Submit payroll taxes • Keep current with formulas and regulations issued by the IRS that affect payroll

19. Employee Payroll Records • Create a payroll information record with the following information: • Name, address, SS#, marital status, # of dependents • Pay 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 US • Completed Employment Eligibility Verification Form • Form I-9- Verifies the person is legally admitted alien or authorized to work in this country

20. Employer/ee ID Numbers • Employer identification number (EIN)-enables the IRS to track the financial activity; of employers in meeting payroll and tax obligations • AKA Tax identification number

21. Taxes Deducted from Earnings • Direct earnings • Salaries (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

22. FICA Tax • Federal Insurance Contributions Act (FICA) • Governs the social security system • Law requires that a certain amount of money be withheld for SS • Employee pays half the required contribution and employer pays other half • The amount is deducted in two separate payroll taxes: • One helps finance Medicare • The other helps fund SS pension benefits • These amounts are dictate by the IRS • Are a percentage of the employee’s taxable earnings • Congress can change this amount yearly

23. Calculating Payroll • Offices use spreadsheet programs to calculate payroll • Gross 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 necessary • Voluntary 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

24. Employer’s Tax Responsibilities • Federal Unemployment Tax Act-FUTA • Employers are required to help fund this account • Used to help those who have been without work for a specified period of time as they seek new employment • Percentage of each employee’s gross salary but is not deducted from employee’s salary-employer contributes • Some 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 deposits • Employer has to file a quarterly tax return, Form 941 to report federal income and taxes withheld from paychecks

25. Payroll Records: Contents and Retention • Law requires employer to retain payroll records for 4 years • Records must contain: • Name • SS# • Address • Number of exemptions claimed • Gross salary earned • Net salary paid • Income taxes withheld • FICA, state and local taxes deducted

26. Electronic Payroll: Direct Deposit • 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 this • Employees must give employers their checking account numbers • Employee receives a deposit stub showing gross, net, and deductions • Advantages • Loss or theft of checks is eliminated • Productivity and cost-savings are increased • Convenience of eliminating trip to bank, money available day of