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The Three Methods of Medical Office Accounting
By Dr. Gary L. Bode; CPA, MSA
Did you know that there are three recognized methods of financial accounting used in medical offices today? If not, this brief rundown on all three methods will help:
1) Cash method
Here, money is counted only as you deposit it, and “spent” only when write a check. Simplistic, but intuitively obvious, this resembles your check register.
Unfortunately, the true cash flow method is seldom seen. Most accountants use a tax-modified version of the cash flow method, as required by the IRS for tax reporting purposes.
2) Accrual method
Here, income is counted as you earn it, so your accounts receivable is counted as income when you treat patients, despite receiving no cash for it as yet. Expenses get entered as you incur them.
In other words you enter a supply order as an expense as it’s placed, not just when you pay for it. This method affords logical treatment of a wider variety of accounting issues than does the cash method and the IRS requires it once certain criteria are met.
3) Modified cash (tax) method
This is the cash method modified by depreciation and amortization as required by the IRS.
Now, which accounting method is used in your situation, and why?
Conclusion
And so, your thoughts and comments on this Medical Executive-Post are appreciated.
Speaker:If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com
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Filed under: Accounting | Tagged: Accounting in Medicine |
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CPAs are Lucky
It looks like the CPAs have wriggled out from under the June 1 deadline for compliance with the FTC’s Red Flags Rule. Those accountants have all the luck.
“Court Delays Red Flags Rule for AICPA Members” Washington, D.C. (April 28, 2010)
A district court has granted a delay in the enforcement of the Federal Trade Commission’s Red Flags Rule governing identity theft prevention for members of the American Institute of CPAs in public practice …”
http://www.webcpa.com/news/Court-Delays-Red-Flags-Rule-AICPA-Members-54047-1.html
Source: WebCPA Staff
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Activity Based Costing (ABC) is a costing model which identifies the cost pools or activity centers in an organization and assigns costs based on the number of events or transactions involved in the process of providing a service. This allows the identification of the most and least profitable customers and services. It allows for easy identification of the root causes of poor financial performance. In the medical practice setting, the ABC method can be very helpful in evaluating the economic impact of a managed care contract.
Brian J. Knabe MD CMP™
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The Cash method (modified for depreciation and amortization) makes sense for most medical practices and yields more reliable reports. Industry surveys by groups such as MGMA, AMA use the cash method when comparing practices.
Accrual method overstates revenues especially when managed care contracts and high uncollectable accounts are involved.
Oddly banks prefer usually the accrual method when judging the credit worthiness of a practice for a loan.
David K. Luke MIM
CMP™ Candidate
http://www.CertifiedMedicalPlanner.org
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