Session 8

Question 1

Chart of Accounts

Answer 1

systematic listing of all account names and numbers used by a company. It is recommended that practices include on the Chart of Accounts only those they will use in the normal course of business

Question 2

Profit and Loss Statement

Answer 2

Also known as the income statement. The P&L is the core financial report, which covers a specific period of time and reports revenue minus expenses to show the net income during the period.

Question 3

Balance Sheet

Answer 3

is a statement of the financial condition of the practice listing its assets, liabilities, and owners’ equity. It is measured at a specific point in time only.

Question 4

Cash Flow Statements

Answer 4

shows where the cash in the practice comes from.

Question 5

Net Income (profit)

Answer 5

is determined when the expenses are subtracted from the income, with the obvious goal of having a positive number as the result. According to the AVMA the average net income a general practices produces in a given year is 10%-%12. Managers must maximize income and minimize expenses to achieve that goal.

Question 6

Intangible Property

Answer 6

Non-Physical property that has value. Examples are: copyrights, goodwill, and non-compete agreements.

Question 7

Assets

Answer 7

Are everything of value owned by the practice.
-current assets are items that will be consumed within a short period time, often a year
-Fixed or Long Term Assets are extended longer than a year

Question 8

Liabilities

Answer 8

are practice debts (money owed to lenders or other parties). They can include short term liabilities such as accounts payable, as well as long term liabilities like a mortgage on the practice.

Question 9

Equity

Answer 9

Equity is assets-liability. In theory; it shows the net worth of the practice. Equity is sometimes referred to a net book value.

Question 10

Cost of Goods Sold (COGS)

Answer 10

is defined products used to produce a service for a client, or products sold to clients.

Question 11

Cash-based accounting

Answer 11

recognizes revenue when cash is received and recognizes expenses when they are paid. This method allows for a more clear vision of day to day operations. It is important when running on a cash based system that the practices expenses. Most practices use cash-based accounting.

Question 12

Accrual-based accounting

Answer 12

Recognizes revenue when it is earned and expenses when they are incurred. When goods are received, ad services are performed. As a general rule accrual-based accounting is considered more accurate.

Question 13

What three financial responsibilities are typically outsourced in most practices?

Answer 13

a. Primary tax preparation
b. Valuation of the practice
c. Large financial issues

Question 14

Are wages of doctors who are paid on salary basis considered a fixed or variable expense?

Answer 14

a. fixed

Question 15

Define Cost of Goods Sold

Answer 15

the products used to produce a service for the client, or products sold to clients

Question 16

Offer 5 examples that would be included in COGS

Answer 16

vaccines, pharmaceuticals, anesthesia, OTC products, dietary products

Question 17

This type of accounting recognizes revenue when it is earned and expenses when they are incurred. When goods are received and services are performed. Is this cash based accounting or accrual based?

Answer 17

Accrual

Question 18

Which type of accounting is typically considered the most accurate?

Answer 18

Accrual

Question 19

What is another name for a Profit and Loss Statement?

Answer 19

Income Statement

Question 20

When comparing expenses on the profit and loss statement it is important to express expenses in dollar amounts but also as

Answer 20

Percentage of gross

Question 21

The basic accounting equation is Assets+

Answer 21

Assets=Liability+owner equity

Question 22

Regarding payroll deductions; what does FICA stand for, what does it fund, and is it paid by employer, employee, or both?

Answer 22

FICA (Federal Insurance Contribution Act) a tax paid by both employer and employee to fund social security and medicare.

Question 23

At the end of the year, any independent contractor who received $___ in wages from the practice must be issued a 1099 form

Answer 23

$600

Question 24

If the contractor fails to pay their taxes, and the practice did not issue a form 1099 at the end of the year, what risk is the practice subject to?

Answer 24

The practice can be held responsible to pay all back taxes, interest, and penalties.

Question 25

If the practice is found to be spending more than it is generating, what steps can be taken to gain control?

Answer 25

a. Decrease spending and increase revenue
b. Hold employees accountable for waste
c. Consider reevaluating your fee structure
d. Review charges to be sure they are being captured correctly and not missed
e. If a line of credit is necessary to keep the practice viable in the short term, have a plan to pay back the loan as soon as possible

Question 26

AR should be no higher than ____% of gross revenue?

Answer 26

%1.5

Question 27

When a non-sufficient funds check has been written to the practice, the practice has three choices of action, what are they?

Answer 27

1. Accept the financial loss
2. Attempt to collect
3. Use a third party collection agency

Question 28

Which act regulates collection procedures of past due accounts?

Answer 28

Fair Debt Collection Practices Act

Question 29

Accounts receivable turnover—-how many times the accounts receivable balance is converted into cash. What is the formula for AR turnover?

Answer 29

Credit sales/average accounts receivable=accounts receivable turnover

Question 30

Regarding the value of the accounts receivable turn-over; is it better to have a higher or lower number?

Answer 30

A higher value for the accounts receivable turnover ratio is better because it indicates the AR balance is turned into cash more often.

Question 31

How can you calculate the average age of the accounts receivable entries?

Answer 31

Beginning AR+Ending AR/2=Average Accounts receivable

Question 32

What is considered more accurate, cash based or accrual based accounting?

Answer 32

Accrual based accounting

Question 33

Which financial statement is considered the most important for small businesses?

Answer 33

Profit and Loss Statement

Question 34

Is staff payroll considered a fixed or variable expense?

Answer 34

Variable

Question 35

The Federal Insurance Contribution Act—or FICA is a payroll tax that is paid by the employer or employee?
a. Both employer and employee
b employer
c. Employee

Answer 35

a. Both employer and employee

Question 36

Which payroll tax is paid by employers only and only on the first $7000 of an employee’s earnings?
a. State unemployment Tax Act (SUTA)
b. Federal Unemployment Act (FUTA)
c. Workers Compensation

Answer 36

b. Federal Unemployment Act (FUTA)

Question 37

What is an Employer Identification Number (EIN)?
a. It is a number assigned by the Federal Trade Commission in order for the IRS to track revenue earned and taxes paid on the revenue.
b. It is a business identification number assigned by the IRS to identify tax accounts of employers.
c. It is a federally required identification number assigned by the IRS for purposes of tracking the federal taxes on business earning.

Answer 37

b. It is a business identification number assigned by the IRS to identify tax accounts of employers.

Question 38

AR that are over ____% need intervention to get the entire team to follow an AR policy.
a. %2
b. %3
c. %4
d. %5

Answer 38

%3

Question 39

Which act prohibits placing “delinquent account” stickers on the outside of an envelope when mailing statements to clients?
a. The Fair Debt Collections Practice Act
b. The Consumer Protection Act
c. The Consumer Confidentiality Act

Answer 39

a. The Fair Debt Collections Practice Act

Question 40

What does the accounts receivable turnover calculation tell us (multiple choice)?
a. The fiscal health of the practice as it relates to accounts receivable as a % of gross revenue
b. How many times the accounts receivable balance is converted into cash
c. The ratio shows how efficient a company is at collecting its credit sales from customers

Answer 40

b. How many times the accounts receivable balance is converted into cash
c. The ratio shows how efficient a company is at collecting its credit sales from customers.

Question 41

Future Value (FV)

Answer 41

The monetary value of some defined investment at some point in the future, given a specified rate of return.

Ackerman, Lowell. Blackwell’s Five-Minute Veterinary Practice Management Consult (Blackwell’s Five-Minute Veterinary Consult) (p. 725). Wiley. Kindle Edition.

Question 42

Internal Rate of Return (IRR)

Answer 42

The calculated rate of return, given the cost and future value of an investment.

Ackerman, Lowell. Blackwell’s Five-Minute Veterinary Practice Management Consult (Blackwell’s Five-Minute Veterinary Consult) (p. 725). Wiley. Kindle Edition.

Question 43

Net Present Value

Answer 43

The net return on a project, given all costs and revenues, in terms of current monetary value.

Ackerman, Lowell. Blackwell’s Five-Minute Veterinary Practice Management Consult (Blackwell’s Five-Minute Veterinary Consult) (p. 725). Wiley. Kindle Edition.

Question 44

Present Value

Answer 44

The current monetary value of some defined investment return, given a specified rate of return.

Ackerman, Lowell. Blackwell’s Five-Minute Veterinary Practice Management Consult (Blackwell’s Five-Minute Veterinary Consult) (p. 725). Wiley. Kindle Edition.

Ackerman, Lowell. Blackwell’s Five-Minute Veterinary Practice Management Consult (Blackwell’s Five-Minute Veterinary Consult) (p. 725). Wiley. Kindle Edition.

Question 45

Rate of Return (ROR)

Answer 45

The amount an investment appreciates or depreciates over time, often expressed as a decimal (e.g., 0.06) or a percentage (6%).

Ackerman, Lowell. Blackwell’s Five-Minute Veterinary Practice Management Consult (Blackwell’s Five-Minute Veterinary Consult) (p. 725). Wiley. Kindle Edition.

Question 46

Rule of 72

Answer 46

A simple method for estimating the time it would take for an investment to double in value, given a fixed compounding annual rate of interest.

Ackerman, Lowell. Blackwell’s Five-Minute Veterinary Practice Management Consult (Blackwell’s Five-Minute Veterinary Consult) (p. 725). Wiley. Kindle Edition.

Question 47

Net Book Value

Answer 47

Another name for equity; that is, the difference between the practice’s assets and its liabilities. Net book value is not the practice’s current value, since all assets are recorded at original cost, not current value, and goodwill is often not shown at all, unless it has been purchased.

Ackerman, Lowell. Blackwell’s Five-Minute Veterinary Practice Management Consult (Blackwell’s Five-Minute Veterinary Consult) (p. 730). Wiley. Kindle Edition.