Session 8 Flashcards
Chart of Accounts
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
Profit and Loss Statement
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.
Balance Sheet
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.
Cash Flow Statements
shows where the cash in the practice comes from.
Net Income (profit)
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.
Intangible Property
Non-Physical property that has value. Examples are: copyrights, goodwill, and non-compete agreements.
Assets
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
Liabilities
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.
Equity
Equity is assets-liability. In theory; it shows the net worth of the practice. Equity is sometimes referred to a net book value.
Cost of Goods Sold (COGS)
is defined products used to produce a service for a client, or products sold to clients.
Cash-based accounting
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.
Accrual-based accounting
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.
What three financial responsibilities are typically outsourced in most practices?
a. Primary tax preparation
b. Valuation of the practice
c. Large financial issues
Are wages of doctors who are paid on salary basis considered a fixed or variable expense?
a. fixed
Define Cost of Goods Sold
the products used to produce a service for the client, or products sold to clients
Offer 5 examples that would be included in COGS
vaccines, pharmaceuticals, anesthesia, OTC products, dietary products
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?
Accrual
Which type of accounting is typically considered the most accurate?
Accrual
What is another name for a Profit and Loss Statement?
Income Statement
When comparing expenses on the profit and loss statement it is important to express expenses in dollar amounts but also as
Percentage of gross
The basic accounting equation is Assets+
Assets=Liability+owner equity
Regarding payroll deductions; what does FICA stand for, what does it fund, and is it paid by employer, employee, or both?
FICA (Federal Insurance Contribution Act) a tax paid by both employer and employee to fund social security and medicare.
At the end of the year, any independent contractor who received $___ in wages from the practice must be issued a 1099 form
$600
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?
The practice can be held responsible to pay all back taxes, interest, and penalties.
If the practice is found to be spending more than it is generating, what steps can be taken to gain control?
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
AR should be no higher than ____% of gross revenue?
%1.5
When a non-sufficient funds check has been written to the practice, the practice has three choices of action, what are they?
- Accept the financial loss
- Attempt to collect
- Use a third party collection agency
Which act regulates collection procedures of past due accounts?
Fair Debt Collection Practices Act
Accounts receivable turnover—-how many times the accounts receivable balance is converted into cash. What is the formula for AR turnover?
Credit sales/average accounts receivable=accounts receivable turnover
Regarding the value of the accounts receivable turn-over; is it better to have a higher or lower number?
A higher value for the accounts receivable turnover ratio is better because it indicates the AR balance is turned into cash more often.
How can you calculate the average age of the accounts receivable entries?
Beginning AR+Ending AR/2=Average Accounts receivable
What is considered more accurate, cash based or accrual based accounting?
Accrual based accounting
Which financial statement is considered the most important for small businesses?
Profit and Loss Statement
Is staff payroll considered a fixed or variable expense?
Variable
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
a. Both employer and employee
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
b. Federal Unemployment Act (FUTA)
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.
b. It is a business identification number assigned by the IRS to identify tax accounts of employers.
AR that are over ____% need intervention to get the entire team to follow an AR policy.
a. %2
b. %3
c. %4
d. %5
%3
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
a. The Fair Debt Collections Practice Act
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
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.
Future Value (FV)
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.
Internal Rate of Return (IRR)
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.
Net Present Value
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.
Present Value
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.
Rate of Return (ROR)
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.
Rule of 72
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.
Net Book Value
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.
