Managing Practice Finances Chapter 45

Questions and Answers

What is the difference between the cash basis and the accrual basis of accounting?

Cash basis: enters income when payment is received, accrual basis: entered at the time of sale even if they have not yet been paid.

What generates income in the medical office?

Charging patients for services and receiving patient payments.

What are three types of financial records used in a bookkeeping system?

Single entry bookkeeping, double entry bookkeeping, and pegboard system.

If patient charges are recorded using a computer billing program, where must the data about the charge be entered?

When a charge or payment is entered, automatically posted both to the daily journal and patient account. Signup and view all the answers

Why does a charge slip usually contain diagnosis and procedure codes?

For billing and insurance purposes. Signup and view all the answers

How does the medical assistant know what to charge a patient for a specific procedure?

Charges are entered from the fee schedule. Signup and view all the answers

How is information arranged in the patient account ledger?

Transactions recorded in chronological order on the patient ledger screen. Signup and view all the answers

What are four ways that payments are made to a patient account?

Cash, check, credit/debit card, or online payment. Signup and view all the answers

What is the difference between a credit adjustment and a debit adjustment?

Credit: (negative) adjustments are subtracted, debit: (positive) adjustments are added. Signup and view all the answers

When an insurance company pays an amount that is lower than the usual charge, how is the patient's balance due returned to zero?

Adjustments are subtracted from the patient balance, and credit adjustments include discounts for payment at the time of service. Signup and view all the answers

What information is recorded on a day sheet?

Charge, payments, previous balance, and adjustments. Signup and view all the answers

What does it mean to 'close the day' and why is this important for accurate financial record keeping?

That additional entries cannot be entered using that date and prevents alterations to the financial record. Signup and view all the answers

Describe three types of bank accounts.

Checking: money drawn by writing a check on funds, savings: money to be saved and less accessible, money market: funds for a bigger business. Signup and view all the answers

Describe the services and function of a checking account.

Checking slips are used by the account owner to authorize payments to a third party for the amount written. Signup and view all the answers

What is the advantage of maintaining a savings account or money market account compared with a checking account?

You may earn interest on the money in a savings account or money market, but in a checking account, you may not. Signup and view all the answers

Differentiate between a cashier's check and a certified check.

Cashier's check: drawn on the bank itself rather than the individual account; certified check: the bank will guarantee a personal check. Signup and view all the answers

What is the MICR line on a check and what information does it contain?

On the bottom of the check, it contains the ABA routing number for the bank. Signup and view all the answers

What should the medical assistant do if he or she writes a check incorrectly?

Write VOID on the check and the check stops; do not destroy it because the check goes into filing. Signup and view all the answers

If a medical office accepts credit or debit cards, what policies should be in place?

Make sure the office accepts cards and have them sign the receipt. Signup and view all the answers

What are common precautions for accepting checks in the medical office?

Train employees to detect signs of a fraudulent check and never accept a third-party check. Checks must not be post-dated, must include the name of the office, and be signed by the patient. It cannot be written for a higher amount to get change. Signup and view all the answers

How is the cash drawer balanced at the end of the day?

Keep the amount that you started with in your drawer and everything else should be taken out. Signup and view all the answers

What is necessary before a check can be cashed or deposited?

Check must be endorsed on the back. Signup and view all the answers

What is special endorsement?

Specific to who the check is made out to. Signup and view all the answers

Identify five reasons why the monthly bank statement may not agree with the medical office's calculation of the bank balance in a checking account.

Take about a week from the time the statement period ends until the office receives the statement; a check written near the end of the statement period may not have cleared by the time the period ends; some vendors and others do not promptly deposit or cash checks; interest may accrue on the balance during the month; bank charges are added to the statement. Signup and view all the answers

What financial accounts does a medical office usually have and what do those accounts include?

Petty cash, which is the small amount of cash for incidental things. Signup and view all the answers

How is a petty cash fund managed?

Money is added to the amount from a bank account in case of an emergency. Signup and view all the answers

What is the function of the day sheet of a bookkeeping system?

A chronological record of transactions each day. Signup and view all the answers

What is the function of the ledger?

Keeps track of all charges and payments for each individual patient. Signup and view all the answers

Who determines the level of service or procedures provided to the patient?

Physician. Signup and view all the answers

Example of a debit adjustment.

Check returned for non-sufficient funds. Increases what the patient owes. Signup and view all the answers

Example of a credit adjustment.

Discounts for payment, decreases what the patient owes. Signup and view all the answers

What precautions should be taken when accepting credit cards?

The name on the credit card should be the name of the patient. Signup and view all the answers

What is restrictive endorsement?

Used in the medical office, specifies how the check can be paid out (for deposit only) followed by the signature of the party. Signup and view all the answers

What is a copay?

The amount the patient must pay at each office visit, part of managed care and established by the insurance company. Signup and view all the answers

Study Notes

Accounting Methods

Cash basis accounting recognizes income only when payments are received, while accrual basis records income at the time of sale, regardless of payment status.

Income Generation in Medical Offices

Revenue is generated by charging patients for services rendered and collecting patient payments.

Financial Record Types

Three main bookkeeping systems:
- Single entry bookkeeping
- Double entry bookkeeping
- Pegboard system

Charge Data Entry

In a computer billing program, patient charges are automatically posted to both the daily journal and the patient's account upon entry.

Charge Slips Purpose

Include diagnosis and procedure codes primarily for billing and insurance claims.

Determining Charges

Charges for specific procedures are derived from a predetermined fee schedule.

Patient Account Ledger

Transactions in the patient account ledger are organized chronologically.

Payment Methods

Accepted payment forms include cash, checks, credit/debit cards, and online payments.

Adjustments Explanation

Credit adjustments (negative) are subtracted from the patient's balance, while debit adjustments (positive) are added.

Insurance Payments Impact

When insurance pays lower than billed, adjustments reduce the patient balance to zero, and credits may include discounts for timely payments.

Day Sheet Records

A day sheet records charges, payments, previous balances, and adjustments.

Closing the Day

"Closing the day" prevents further entries on that date, ensuring the accuracy of financial records.

Types of Bank Accounts

Checking accounts for everyday transactions, savings accounts for saving money, and money market accounts as higher-interest accounts typically for larger balances.

Checking Account Functions

Checking accounts allow account holders to authorize payments via checks written for specific amounts.

Interest Earning Accounts

Savings and money market accounts can earn interest, unlike standard checking accounts.

Check Differentiaion

Cashier's checks are drawn on the bank itself, while certified checks are personal checks guaranteed by the bank.

MICR Line

The MICR line located at the bottom of a check contains the bank's ABA routing number.

Handling Check Errors

If a check is written incorrectly, it should be marked as VOID without destruction for filing purposes.

Credit and Debit Card Policies

Ensure proper procedures are in place for accepting cards, including obtaining patient signatures on receipts.

Check Acceptance Precautions

Fraud prevention involves training employees to identify fraudulent checks, and checks must meet specific criteria (not post-dated, signed by the patient, etc.).

Balancing Cash Drawer

At day's end, the initial cash amount should remain in the drawer, while all other funds are removed.

Check Handling in Medical Offices

Checks must be endorsed on the back before cashing or depositing.

Special Endorsement Definition

A special endorsement specifies the individual or entity for whom the check is intended.

Bank Statement Discrepancies

Monthly bank statements may not align with office balance calculations due to timing of check clearing, vendor delays, interest accrual, and bank fees.

Medical Office Financial Accounts

Typically includes petty cash for incidental expenses.

Managing Petty Cash Fund

Petty cash is replenished from a bank account to ensure availability for emergencies.

Day Sheet Function

A day sheet serves as a chronological record of daily transactions.

Ledger Function

The ledger tracks all charges and payments for individual patients.

Service Level Determination

The physician is responsible for deciding levels of service or procedures for patients.

Debit Adjustment Example

Returned checks due to insufficient funds increase the patient's outstanding balance.

Credit Adjustment Example

Discounts for prompt payment decrease what the patient owes.

Credit Card Acceptance Precautions

Ensure the name on the credit card matches the patient's name.

Restrictive Endorsement Use

Specifies that a check can only be deposited and not cashed, noted with "for deposit only" followed by a signature.

Copayment Definition

A copay is the fixed amount a patient pays at each visit, established by the insurance provider as part of managed care.

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Description

Explore the key concepts of managing practice finances in this chapter quiz. Learn the differences between cash basis and accrual basis accounting, and understand the ways income is generated in a medical office. This quiz is designed to help reinforce your understanding of financial practices in healthcare.