Why Bookkeeping Services Are Vital for Doctors

Doctors are often called the representatives of the god in this world. They give their heart and soul to save patients’ lives and make them fit as fiddle. But what about the financial side of the medical sector?

So, If you are a doctor, you must perform many things in your clinic besides treating the patients. You must hire other medical helpers, go to conferences to stay updated on medical developments and maintain the books of accounts for your healthy financial records.

However, doctors’ priority is the patient, and in these scenarios, bookkeeping is sometimes ignored. These are some of the core issues with the medical profession if you are indulged in bookkeeping. But no worries! There is always a light at the end of the tunnel. This article will touch on every possible aspect of the Bookkeeping services for doctors. So, let’s get started.

Understanding Bookkeeping for Doctors

The term we are trying to understand here is bookkeeping for doctors. Now, everyone understands what doctors do. There is no secret recipe here. Now, the term that remains is bookkeeping. 

Daily recording of the financial activities of your business into well-organized accounts is called bookkeeping. It also describes the many recording methods that bookkeeping services for doctors can utilize. For several reasons, bookkeeping is a crucial component of your Medical Accounting & Financial Planning. You can generate precise financial reports that help assess a company’s performance when transaction data are kept up to date. Additionally, accurate documentation will be helpful if a tax audit is possible.

Now, understand what bookkeeping is. Now, you must be thinking why bookkeeping is so significant in the healthcare industry. Well, the answer is simple. The most significant significance is that if you keep your bookkeeping accurate and current, you can eschew errors. 

You already know the worry that having inaccurate accounts may cause if you’ve ever neglected to record a payment you made from your checking account. They may result in overdraft fees, temporary utility problems, and embarrassment when you phone your creditors to explain what occurred. The effects, however, might be far worse for a business.

Patients will only be happy if you accurately measure the amount of money coming in compared to the amount of money leaving and your gas or electric supplier stops providing service. Patients will only return if they are happy, so make them pleased.

How a facility is delivered may have a good or bad impact on patient satisfaction, another reason why bookkeeping and Medical Accounting & Financial Planning are crucial in the healthcare industry.

Accounting Methods Used in the Healthcare Industry

The healthcare industry deals with patients and their treatments. Like any other industry, healthcare also needs proper accounting methods to record all their financial transactions. Here are the main accounting methods used in the healthcare sector and how they help in managing their finances effectively:

Cash Basis Accounting

One of the simplest accounting methods used by small clinics and practices is cash basis accounting. In this method, revenues and expenses are recorded only when the actual cash transaction takes place. 

For example, if a hospital provides treatment to a patient worth $500 but receives the payment after 2 months, it will record the revenue only when it receives the cash and not when the service was provided. While this keeps the accounting simple, it does not give the true financial picture as receivables and payables are not considered.

Accrual Basis Accounting

To get a true financial picture, most large hospitals and healthcare organizations follow accrual basis accounting. In this method, revenues are recorded when a service is provided or goods are delivered, even if payment is not received yet. 

Similarly, expenses are recorded when incurred, regardless of whether the amount is paid or not. For example, if a hospital provides treatment worth $500 but the amount is yet to be paid, it will record a $500 receivable and revenue in its books of that accounting period. This ensures all revenues and expenses of that period are captured accurately.

Types of Accounts

There are mainly four types of accounts seen commonly in healthcare accounting – asset accounts, liability accounts, equity accounts and income/expense accounts. Asset accounts include cash in hand or in bank, accounts receivable from patients or insurance companies. 

Liability accounts are accounts payable to suppliers. Equity accounts represent the owner’s capital. Income accounts capture revenues from treatments while expense accounts record costs incurred like staff salaries, supplies, utilities, etc. Proper classification of transactions under relevant accounts helps generate financial statements systematically.

Cost Accounting

Since healthcare involves huge costs, hospitals also implement cost accounting methods to track the costs of individual patients, treatments, doctors and departments. This allows them to determine profitable and non-profitable areas. Using tools like activity based costing, they can trace overhead costs to specific activities and patients. For example, tracking the costs of a major surgery versus a routine check-up helps to set charges appropriately. Cost accounting data helps in budgeting, rate negotiations and improving efficiencies.

What is GAAP in the Healthcare Sector?

All businesses maintain financial records and reports to understand their financial health. The healthcare sector is no different. Financial reporting in healthcare follows standards called Generally Accepted Accounting Principles or GAAP.  

GAAP standards are a common set of accounting rules, controls and procedures. These are developed by an independent body to ensure consistency. In the US, GAAP standards are set by the Financial Accounting Standards Board or FASB. 

The standards cover areas like recognizing revenues and expenses, reporting assets and liabilities, disclosure rules and formats of financial statements. All healthcare organizations need to follow these principles for their accounting and financial reporting.

There are several benefits of following GAAP standards:

• Consistency: GAAP brings consistency in preparing and presenting financial reports across the industry. This allows for easy comparison between healthcare providers.
• Credibility: Adhering to GAAP increases the credibility of financial reports in the eyes of users like boards, investors, lenders and regulators. It ensures the accuracy and reliability of information.
• Compliance: Many US governments require GAAP compliance for activities like reimbursing Medicare/Medicaid costs, issuing tax-exempt bonds etc. Non-compliance can lead to penalties.
• Decision Making: Comparable and consistent GAAP reports help management, boards and investors in analyzing performance, budgeting, planning and making strategic financial decisions.

Some key GAAP standards applicable to the healthcare sector are:

• Revenue Recognition: Rules for recording revenue from patient services, insurance reimbursements and other sources.
• Medical Supplies Inventory: Guidance on valuing inventory like pharmaceuticals, medical equipment and supplies.
• Property, Buildings, Equipment: Depreciation policies for fixed assets as per their expected useful lives.
• Estimated Uncollectible Accounts: Guidance on estimating and recording bad debts expense based on past collection trends. Ko
• Pension Obligations: Standards for recording pension and other retirement benefit costs and liabilities.
• Reporting by Not-for-Profit Hospitals: Special rules for financial reporting by charitable not-for-profit hospitals.

Benefits of opting for Bookkeeping services for Doctors

Before providing any extra benefits, bookkeeping service lets doctors focus on their patients, and hiring an expert enables the accounts to be managed efficiently. To know more, we have bifurcated the benefits of Accounting services for doctors in a few points.

Avoid Mistakes

Your financial statements may have errors and inaccuracies if you employ inexperienced bookkeeping, requiring expensive corrections. You may feel secure knowing that your company’s financial records are always correct if you hire a specialist bookkeeper for doctors. 

Payroll Management

Your HR management will improve using appropriate payroll solutions, leading to more satisfied staff members and excellent retention rates. To handle timesheets, overtime, allowances, and leave transactions, we can assist you in implementing straightforward and user-friendly solutions. We can handle the intricate agreements with workers and contractors that come with medical payroll for you.

Save on financial management costs.

You can benefit from the many advantages of best-practice bookkeeping if you have a team of qualified bookkeepers. They keep you updated on the pertinent accounting guidelines, tax regulations, and compliance issues so you can concentrate on your work. They are cost-effective professionals ready to support the growth of your company.

Compliance and Tax Considerations

Accurate bookkeeping and accounting are crucial for compliance since doctors must adhere to complicated tax requirements. Doctors can ensure they meet their tax requirements and stay out of trouble by keeping accurate records of their earnings, expenditures, and reductions.

Doctors can use a presumptive taxation system if their gross yearly income is less than 50 lakhs. Under this clause, a doctor’s income is presumed to be 50% of gross revenues. (Only individuals and businesses) -Besides the aforementioned, doctors can claim tax advantages, exemptions such as HRA and deductions under Chapter VI-A (80C, 80D, and so on). 

If their yearly income exceeds INR 2.5 lakh, they must file an income tax return under Section 139. -Need to keep a book of accounts if their income from profession surpasses 1,20,000 rupees or his total sales or gross revenues in business or profession exceed or exceed 10 lakh rupees in any of the three years immediately preceding the previous year.

Common Bookkeeping Mistakes to Avoid

Here are some pointers designed to assist you to avoid mistakes and become more efficient in bookkeeping:

• Never make the error of doing inconsistent accounting. Improper Medical Accounting & Financial Planning can result in a significant waste of time and money. Accounting correctly may save you a lot of money. Furthermore, regularly having a clean and honest accounting and bookkeeping record is critical for IRS audits.
• It is critical to have formal bookkeeping knowledge and expertise. If you engage someone unfamiliar with correct bookkeeping methods, it might lead to significant complications. Only by accurately documenting and categorizing revenue and spending can effective bookkeeping be accomplished. Good bookkeeping is required to determine the correct profitability of the company.
• It is usual for all new organizations and small doctors to function with only a small amount of funding. One of the most common bookkeeping errors is failing to keep track of cash flow. Keep a small cash lock box to prevent such bad cash management. Once petty cash is managed correctly and receipts are maintained, all reimbursements are simple to record and handle.
• Overlooking sales tax is a typical error made by most owners. This ignorance may cost you in the form of penalties and fines. Instead of dismissing this as a small blunder, pay close attention to all sales tax data.

How to Choose Best Accounting services for doctors?

The medical profession is full of intricacies. So, choosing the right Accounting services for doctors is the top priority for any doctor or medical organization. Here are a Few Ways a Business Can Narrow the Search for the Best Bookkeeping Service Provider for doctors.

• Estimating the business demands before finding the best accounting service provider is like a piece of knowledge. Outsourcing a business’s bookkeeping services aims to unload many chores, saving the company time and money. In addition to lowering the barriers to staff training, it may allow a company to invest the same resources in medical professions.
• Time is undoubtedly the most critical part of everything. Saving time is essential when selecting the best bookkeeper for the company’s requirements. Set up some time to look for a bookkeeping service provider who meets most of your budgetary specifications and financial visualizations.
• While most social networks have included end-to-end encryption in data transfers, organizations should also focus on establishing appropriate security requirements for sensitive and classified information. The numerous methods by which a service provider fosters his customers’ data security might establish a wide range of safe strategies by which the service provider can speed up data transfer arrangements for his clients.

In-house bookkeeping vs. outsourcing options

Now that we’ve discussed the Benefits of bookkeeping for doctors, it’s time to assess the pros and negatives to choose which (In-house bookkeeping vs. outsourcing options) is best for your company. Consider the following aspects:

• Outsourcing your accounting relieves you of concern and gives you confidence that your data will be kept safe. Accounting businesses are obligated by law to keep their clients’ information private. If you have an in-house accounting department, your information may be exposed if your personnel are not adequately trained in data security.
• Hiring and training internal accountants may be costly. You will be responsible for paying them salary, benefits, and training. Accounting services might be less expensive to outsource because you pay for the services you receive.
• Accounting outsourcing can improve the accuracy and efficacy of your financial reports. Accounting specialists will have the books if you outsource your accounting needs, resulting in a lower mistake margin. In-house accounting may also be precise and effective. Still, if your team is inexperienced, their level of attention may miss specific critical data, which can cost your company money.
• Commitment of Time : Accounting outsourcing demands less time investment from business owners. You must provide your accounting company access to your financial data and meet with them regularly to review your money. Maintaining an in-house accounting staff requires a significant time investment for business owners. You will be responsible for training your staff, reviewing their work, and dealing with accounting concerns.

Steps to Get Started

Doctos’ accounting consists of four significant steps: recording transactions, categorizing transactions, publishing recorded transactions to journals and ledgers, and compiling financial statements.

Recording Transactions

Every activity made by the doctor of its staff and throughout their day-to-day operations is recorded in the transaction record. Some examples are receiving money from patients or paying bills for supplies.

Classifying Transactions

The classification of transactions is where things become more sophisticated and complicated. In the cash receipts journal, for example, tracking how much patients paid for their treatment would be recorded as cash income.

Posting the Recorded Transactions to Journals and Ledgers

When each of the company’s entries are transferred from their separate journals into their corresponding accounts in the corporation’s main ledger, the process is known as posting transactions.

Preparing Financial Statements

Financial statements are known by many different names, such as report writing, reporting, closing entries, and so on. Still, they all serve the same purpose: to summarize everything that happened during a month/year so management can determine whether the business made a profit or a loss. 

Cost Considerations

The cost of bookkeeping for a physician varies based on factors such as the number of hours worked per day and the sort of medical business. If your practice is very complicated, you may want to engage someone with the specialist knowledge required to complete your books correctly, which may be more expensive. In addition, if you have many patients and workers, your bookkeeping bill will be more significant.

Conclusion

Doctors and healthcare providers understand that there is minimal room for mistakes in a medical practice or the physician’s office, particularly regarding their patient’s health and well-being. But what about financial blunders? Compliance with tax rules, regulations, and healthcare billing is critical for increasing office profitability and productivity.

Frequently Asked Questions

1 . Why is bookkeeping important in healthcare?

Healthcare accounting assists you in keeping track of your financial flow, which leads to improved cash management. This means you can give more budget to departments or services requiring additional funding to improve.

Q.2 Does bookkeeping for doctors need to be done daily?

Because bookkeeping is an essential accounting procedure, you must fulfil all bookkeeping obligations accurately and without fail every day. You must establish a comprehensive bookkeeper’s to-do list for offline and online bookkeeping services to keep your firm on track.

Q.3: Is there a need to perform bookkeeping? Why?

Bookkeeping is essential for any organization since it simplifies budgeting. Assessing your financial resources and charges is simple when your income and spending are well organized. A budget serves as a financial blueprint for your company.

Q.4: What is Bookkeeping in Medical Terms?

In medical terms, bookkeeping refers to the process of recording and managing financial transactions, such as patient billing, payments, and expenses, within a healthcare facility.

Q.5. How to Choose Best Bookkeeping Services for Doctors in USA?

When choosing bookkeeping services for doctors in the USA, look for providers experienced in healthcare and HIPAA-compliant, with great reviews. Ensure they offer customized solutions that fit seamlessly with your practice and provide clear, transparent financial reporting.

Q.6. What is HealthCare Accounting?

Healthcare accounting involves managing the financial aspects of healthcare organizations, including budgeting, billing, and financial reporting. It ensures compliance with regulations and helps maintain financial stability and efficiency in healthcare facilities.

Also Read:

• Bookkeeping Services For Real Estate in 2024: A Step By Step guide
• Outsource Bookkeeping Services for the Hospitality Industry: A 2024 Informative Guide