CHAPTER
21
Financial
Management
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21-2
Learning Outcomes (cont.)
21.1 Summarize the importance of and how to
establish good bookkeeping and banking
practices.
21.2 Compare single-entry, double-entry, and
write-it-once bookkeeping systems.
21.3 Outline patient related financial transactions.
21.4 Identify negotiable instruments and the items
that must be present for a check to be
negotiable.
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21-3
Learning Outcomes (cont.)
21.5 Describe the different types of check
endorsements and the steps in creating a
bank deposit.
21.6 Carry out the process of reconciling the
office bank statement.
21.7 List several advantages to electronic
banking.
21.8 Implement setting up, classifying, and
recording disbursements in a disbursement
journal.
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21-4
Introduction
• Medical practices require sound financial
management
• Employees must understand financial
management
procedures
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21-5
The Medical Practice as a Business
• To succeed - income must exceed
expenses.
• Accounting
• Responsibilities of medical assistant
– Bookkeeping ~ a systematic record of
business transactions
– Banking
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21-6
The Medical Practice as a Business
(cont.)
• Accuracy
– Strive for 100%
– Records form a chain of information
– Errors can result in
• Double billing
• Omitting bank deposits
• Improper payments to suppliers
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21-7
Establishing Procedures
• Be organized
• Be consistent
• Use markers
• Write clearly
• Check your work
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21-8
Apply Your Knowledge
What can be the result of errors in billing?
ANSWER: Errors can result in billing a patient twice
for same service, omitting bank deposits, and
making improper payments to suppliers.
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21-9
Medical Office Accounting Methods
• Computerized –
most common
• All methods record
– Income
– Charges
• Manual Systems
– Disbursements
– Single-entry
– Double-entry
– Pegboard
– Other financial
information
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21-10
Electronic Bookkeeping
• Bookkeeping on the computer
– Performs same tasks as manual method
– Saves time
• Performs repetitive tasks
• Performs math calculations
• Has built-in tax tables
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21-11
Manual Bookkeeping Systems
• Single-entry
– Transaction listed once each to
• Patient ledger
• Daily log
• Checkbook
– Disadvantages
• Not self-balancing
• Does not detect errors as readily
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21-12
Manual Bookkeeping Systems (cont.)
• Double-entry
– Transactions are listed twice
– Assets = Capital + Liabilities
– As payments are made on the asset both side
of the equation continue to balance
Example:
Asset - $15,000 ECG machine
Capital = amount of total cost paid
Liability = the amount still owed
$15,000 = $5000 + $10,000
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21-13
Manual Bookkeeping Systems (cont.)
• Write-it-once (pegboard) system
• Entry written one time
– Daily log sheet
– Patient ledger card
– Charge slip
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21-14
Manual Bookkeeping Systems (cont.)
• Daily log
– Chronological list of charges, payments, and
adjustments
– Journalizing
– Post from the log to patient
ledger
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21-15
Manual Bookkeeping Systems (cont.)
• Patient ledger card
– Patient information
– Financial transactions of patient account
• Payments
• Adjustments
• Balance owed
– Information from daily log
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21-16
Manual Bookkeeping Systems (cont.)
• Accounts receivable
– Total owed to the practice
– Total on accounts receivable = balances on
patient ledger cards
• Accounts payable
– Amount owed to vendors
– Keep accurate records
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21-17
Manual Bookkeeping Systems (cont.)
• Record of office disbursements
– List of payments made
– Information on record
•
•
•
•
•
Payee
Date
Check number
Amount paid
Type of expense
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21-18
Manual Bookkeeping Systems (cont.)
• Summary of charges, receipts, and
disbursements
– Comparison of income and expenses
– Analyzing summaries
• Areas of profitability
• Amount charged and payments
received
• Cost of running the office
• Categories of expenses
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21-19
Apply Your Knowledge
What types of bookkeeping methods might you use
in a medical office?
ANSWER: You might use these bookkeeping
systems in a medical office:
Single-entry
Double- entry
Pegboard
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21-20
In Office Patient Transactions
• Starting the Business Day
– Set up peg board with daily log sheet
– Layer superbills
• Patient Process – ledger card under next
superbill
• Attach the Superbill to the Patient Chart
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21-21
In Office Patient Transactions (cont.)
• Patient Checkout – place superbill and
ledger card on appropriate space of daily
log
• Payments After the Patient Visit
– Record payments appropriately
– Make adjustments as required
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21-22
In Office Patient Transactions (cont.)
• Returned Checks
– Add back to patient balance
– Add bank fees
• Overpayments
• End of day
– Total columns
– Correct errors
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21-23
Apply Your Knowledge
Mr. Adams check does not clear because of nonsufficient funds. What adjustments do you make to
his account?
ANSWER: The amount of the check is added back
to the patient’s balance. A fee for the returned
check as well as any fees incurred as a result of the
NSF check may also be added to the patient’s
balance.
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21-24
Banking and Negotiable Instruments
• Banking tasks
– Writing checks
– Accepting checks
– Endorsing checks
– Making deposits
– Reconciling bank statements
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21-25
Checks
• Bank draft or order for payment
• Negotiable
– Signed by payer
– Amount to be paid
– Payable to payee
– Dated
– Name of bank
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21-26
Checks (cont.)
• Cashier’s check – issued by bank
• Certified check – money certified
available
• Voucher check – stub for record keeping
• Limited check – time limited
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21-27
Checks (cont.)
• Counter check – withdrawals
• Traveler’s check – established
denominations
• Money order – guaranteed payment
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21-28
Checks (cont.)
• Check codes
– ABA number
• Fraction on upper edge
• Geographic area and bank
– Magnetic ink character (MICR) code
• Numbers and characters
• Read by computer
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21-29
Checks (cont.)
• Payer
• Payee
• Date line
• Amount box
• Check number
• Amount line
• ABA number
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21-30
Checks (cont.)
• Bank information
• Account number
• Memo line
• Check number
• Payer signature line
• MICR recording area
• Routing number
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21-31
Checks (cont.)
• Accepting checks
– Review check
before accepting it
– Third-party
checks
– Checks marked
“payment in full”
• Checking Accounts
– Personal
– Business ~ office
expenses
– Interest-earning ~
for special
expenses
– Power of attorney
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21-32
Apply Your Knowledge
What is a negotiable instrument?
ANSWER: A negotiable instrument is a check that
is legally transferable from one person to another.
A check must:
• Be signed by the payer
• Include the amount of money to be paid
• Be made payable to the payee or bearer
• Be made payable on demand or on a specific date
• Include the name of the bank that is directed to
make payment.
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21-33
Preparing a Bank Deposit
• Endorsement
– Blank ~ payee’s signature
– Restrictive ~ specifies
“for deposit only”
– Special ~ third-party
endorsement
– Qualified ~ used by
attorneys
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21-34
Preparing a Bank Deposit
• Endorsement
– Endorse immediately
– Endorse in appropriate place
– Endorse in ink or use
stamp
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21-35
Completing the Deposit Slip
• Post the payment to
the patient ledger card
BWW Medical Associates, PC
305 Main St.
Port Snead YZ, 12345-9876
xx
• Put the check with
others to be deposited
• Fill out a deposit slip
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21-36
Making the Deposit
• Make deposits in person
• Obtain deposit receipt
• Electronic Deposits –
Electronic funds transfers
(EFTs)
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21-37
Apply Your Knowledge
What are the types of check endorsements?
ANSWER: There are four principal types of
endorsement:
 Blank endorsement - simply the payee’s signature.
 Restrictive endorsement – specifies how the check
may be redeemed.
 Special endorsement – a third-party endorsement
 Qualified endorsement – used by attorneys, who
may accept a check on behalf of their client,
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21-38
Reconciling Bank Statements
• Reconciliation
– Comparing the office financial records with
the bank statement
– Ensure that they are consistent and accurate
– Performed once a month
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21-39
Reconciling Bank Statements
Bank Statement
Balance
10,900.00
(deposit)
+ 2,000.00
12,900.00
(Outstanding
checks)
-
Checkbook
12,600.00
(auto-pay)
- 500.00
12,100.00

800.00
12,100.00

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21-40
Apply Your Knowledge
How do you reconcile a bank statement?
ANSWER: You compare the office financial records (checkbook
or disbursements journal) with the bank statement to be sure
they are accurate. In the checkbook, you should mark all items
that have cleared the bank to be sure all are accounted for. Once
outstanding checks are subtracted from the bank’s balance it
should match the checkbook balance.
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21-41
Electronic Banking
Advantages - improves productivity, cash flow, and
accuracy
Traditional Banking
You record each check and
determine new balance
Electronic Banking
Computer calculates new
balance
You reconcile office bank
statement
You lock up banking
materials at end of day
Computer reconciles the
statement automatically
You use computer password
for security
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21-42
Electronic Banking (cont.)
• Computer software will
– Record deposits
– Pay bills
– Display checkbook
– Reconcile the bank
statement
• Check bank’s safeguards
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21-43
Electronic Banking (cont.)
• Record Deposits
• Display checkbook
– Enter each deposit
– Verify checks
– Print deposit slip
– Check withdrawals
and deposits
• Pay bills
– Check balance
– Log checks
– Electronic bill pay
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21-44
Electronic Banking (cont.)
• Balance checkbook
– Program displays checks and deposits
– Mark those appearing on the statement
– Enter balance from statement
– Program performs the reconciliation
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21-45
Apply Your Knowledge
What are the advantages of electronic banking?
ANSWER: Electronic banking improves productivity,
cash flow, and accuracy. Computerized banking
programs facilitate recording deposits, paying bills,
displaying the checkbook and reconciliation of the
account.
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21-46
Accounts Payable and Managing
Disbursements
• Three types:
– Payments for supplies, equipment, and
practice-related products and services
– Payroll
– Taxes
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21-47
Disbursements
• Payments for goods or services
• Recording disbursements
1. Set up disbursement journal
2. Enter check information and amount
3. Determine expense category
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21-48
Disbursements
4. Record check amount under appropriate
category
5. Split amount if necessary and enter total
in check amount column
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21-49
Writing Checks
• Account balance must cover the check
• Enter on disbursement log then write
check
• Have the doctor sign the check
• Mark invoice with date, check number, and
amount paid; place copy in file
• Mail check
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21-50
Writing Checks (cont.)
• Disbursement log
– Total and track expenses by category
– Check calculations
– Tracking
• Look for changes
• Helps control expenses
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21-51
Understanding Financial Summaries
• Statement of income and expense
• Cash flow statement – shows money
available to cover expenses
• Trial balance
– Check periodically
– Expenses should match
amount in check column
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21-52
Apply Your Knowledge
How do you record disbursements in a disbursement
journal?
ANSWER: To record disbursements:
1. Enter check information and amount
2. Determine expense category
4. Record check amount under appropriate
category
5. Split amount if necessary and enter total in
check amount column
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21-53
In Summary
21.1
Procedures to be established to help maintain
consistency in financial practices include being
organized and consistent.
Write clearly and use markers to keep track of your
current location.
Check your work frequently and correct any errors
using the approved. All entries must be kept
readable at all times.
Finally, keep all figure columns straight so that
decimal points line up.
Following through on these procedures can help
ensure that your work will be concise and accurate.
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21-54
In Summary (cont.)
21.2
The single-entry accounting system, where an entry
is written once on the patient ledger, on the daily log,
and in the checkbook, contains no checks and
balances for accuracy.
The double-entry system, based on assets = capital
& liabilities, has checks and balances, but can be
cumbersome and complicated.
The write-it-once system allows all transactions to
be recorded in one procedure, using carbonless
forms on all necessary documents.
Many computerized office management software
packages are based on the write-it-once concept.
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21-55
In Summary (cont.)
21.3 Patient related financial transactions include
starting the day, patient process, attaching
the superbill to the patient chart, patient
check out, after visit payments, returned
checks, refunds, uncollectable accounts,
and end of day procedures.
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
21-56
In Summary (cont.)
21.4
A negotiable instrument is one that is legally
transferable from one person to another.
To be negotiable a check
• must be written and signed by the payer or maker,
• include the amount of money to be paid,
• be made payable to the payee or bearer,
• be made payable on demand or on a specific date,
• include the name of the bank that is directed to
make payment.
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
21-57
In Summary (cont.)
21.5 The types of check endorsements are blank,
restrictive, special, and qualified. To make a
bank deposit, follow the steps outlined in
Procedure 21-5.
21.6 Following the guidelines outlined in
Procedure 21-6, the student should
successfully be able to reconcile a mock
bank statement with a mock office
checkbook.
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21-58
In Summary (cont.)
21.7
The computer software calculates each new
balance, reconciles the monthly bank statement
automatically and a computer password and security
system is used to keep the information safe and
confidential.
21.8
Following Procedure 21-7, the student should set up
a mock disbursements journal consisting of several
columns of expenses.
Once set up, given a list of several “bills” to be paid,
the student should document the check information
and record the disbursement amount in the correct
column(s) of the journal.
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21-59
End of Chapter 21
Never spend your
money before you
have earned it.
~ Thomas Jefferson
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in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.