Financial Pt 1 - 17 %

Question 1

Maximizing inventory turnover is key strategy in creating an efficient and profitable inventory system. Name four ways to increase your inventory turnover.

Answer 1

1)Product consolidation
2) Order quantities that make sense
3) Measure and increase compliance
4) Doctor and Staff product education

Question 2

What is a “Chart of Accounts” -

Answer 2

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 3

What is a “Profit and Loss Statement” -

Answer 3

The Profit and Loss statement is also known as the Income Statement. The Profit and Loss Statement (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 that period. (Generally no less than 1 month).

Revenue - Expenses = net income during that period.

Question 4

What is a “Balance Sheet” -

Answer 4

The Balance Sheet is a statement of the financial condition of the practice listing its assets, liabilities, and owner’s equity. It is measured at a specific point in time only. It doesn’t forecast and it provides no historical function. It provides all of the information to create the accounting equation ……. Assets = Liabilities + Owner equity.

Question 5

What is a “Cash Flow Statement” -

Answer 5

Shows where the cash in the practice comes from and how it is used.

Question 6

What is “Net Income (profit) “ -

Answer 6

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 general practice produces in a given year is 10% - 12%. Managers must maximize income and minimize expenses to achieve that goal.

*Profit trumps revenue to an extent especially when you are looking at the bottom line as to how healthy your hospital is.

Question 7

What is “Intangible property” -

Answer 7

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

Question 8

What are “Assets” -

Answer 8

Assets are everything of value owned by the practice. Assets can be tangible such as land, equipment, inventory, lease hold improvements. Or they can be intangible such a computer software licenses, copyrights, covenants not to compete or even client or community goodwill (What do you mean to the clients and community - there is a value to that).

Question 9

Describe current assets -

Answer 9

Current assets are items that will be consumed within a short period of time, often a year.

*Inventory is considered a current asset.

Question 10

What are fixed or long term assets -

Answer 10

Fixed or Long Term Assets are extended longer than a year.

Ex - Your building and your land (assuming your practice isn’t leasing), your equipment, and some intangibles such as those copyrights and goodwills (those last, those aren’t quick fixes).

Question 11

What are “Liabilities” -

Answer 11

Liabilities are practice debts or money owned 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 12

What is “Equity” —

Answer 12

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

Assets - liability = Equity.

Question 13

Describe “Cost of Goods Sold (COGS) -

Answer 13

Cost of Goods Sold (COGS) is defined as the products used to produce a service for the client, or products sold to clients.

Cost of Goods Sold is generally considered a variable expense that follows a very serious current trend of business at your practice. *The more patients seen, diagnosed, and treated, the higher your cost of supplies.

Question 14

What are the four major areas of a Financial Statement ?

Answer 14

1) The Theories
2) The Purpose
3) The Practicality
4) The Effect

The next, and most important step, is using the financial statements as a management tool to make sound and thoughtful business decisions.

Question 15

1 Theories of Financial Statements - areas of a Financial Statement

What is cashed base accounting?

Answer 15

Cashed 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 are paid in a timely manner to avoid overstating its net income.

The majority of practices use cash-based accounting. (SINGLE OWNER PRACTICES, NOT CORPORATE)

Question 16

1 Theories of Financial Statements -

Accrual Based Accounting (Usually used by corporate practices - very few self owned practices use this form of accounting due to its complexity). The IRS requires this method for all companies with a gross revenue of over 10 million dollars annually.

Accrual Based Accounting - recognizes revenue when it is earned and expenses when they are incurred. When goods are received, and services are performed. **As a general rule accrual based accounting is considered more accurate. **Does a poor job of tracking cash for the practice.

Answer 16

Let’s say that you purchased a large stock order of HWP for $3000.00 in June. Let’s say that you sold all of the HWP in June, July, and August for $6500.00. Under the accrual method of accounting, you would show sales of $6500.00 and expenses of $3000.00 which would result in a net profit of $3500.00 ($6500 - $3000) for the month of June. Since sales and purchased count immediately, you can record them on your books immediately and show the actual profit made for the month of June.

Question 17

The Purpose #2 - areas of a Financial Statement

Understanding the purpose - Financial reports enable ownership and management to properly review what has happened in the period being measured.

Answer 17

Some considerations:

• Thorough review of the financial statements should be part of the monthly routine of the owner and manager of the practice. Key employees and department heads should also be part of the review.
• Statements may be segmented by department, for example a separate income statement exclusively for boarding to isolate that department as a “Stand-alone” profit center.
• One purpose of the financial statements is to understand the past performance of the practice and use past performance as a basis for future trends.

Question 18

Understanding Financial Statements -

#3 the Practicality - areas of a Financial Statement

Answer 18

Basic financial statement review will identify trends or may recognize problems or issues that need attention.

Applying a day-to-day approach to financial statements is not only beneficial butt necessary to running a successful practice.

The practice owner should not be apprehensive about a lack of extensive accounting training or knowledge.

Question 19

The Effect #4 - areas of a Financial Statement

Financial statements provide information about many things and enable the financial performance of the practice to be measured in historical and prospective terms.

Answer 19

One example of a possible effect of financial statement review is realizing higher than expected expenses which would warrant further investigation. Without regular financial statement review expenses could become out of control without noticing and being able to implement strategies to reverse it.

**It is insufficient to just accurately report financial performance. The next, and most important step, is using the financial statements as a management tool to make sound and thoughtful business decisions.

Question 20

The Income Statement (profit and loss statement or P & L) - Is the most important of the financial statements.

Answer 20

Beginning with the entry of income and entry of expenses that are subtracted from the income to show a profit or loss.

It is important that the income statement (profit and loss or P&L ) sheet is detailed as possible to aid in determining where inconsistencies may lie by comparing benchmarks.

All entries must be entered consistently in the correct “category” (more about chart of accounts in section 5.08), in order to be able to compare income Vs expense for each income center to be sure they are producing an acceptable profit.

**THE LINE ITEMS OF THE INCOME STATEMENT/ PROFIT AND LOSS/ P&L ARE COMPARED BY PRESENTING BOTH PRIOR YEAR AND CURRENT YEAR UNDER REVIEW.

Stating expenses as a percentage of revenue is an extremely valuable tool to ensure accurate interpretation and comparing to historical performance. Percentages will give a more accurate picture than dollar amounts.

Question 21

What is an expense?

Answer 21

Any outflow of money that is owed to another company to pay for a service or product.

Question 22

________________in general they are a set cost to the hospital and do not fluctuate with how busy the practice may or may not be.

An example would be rent, most utilities, medical insurance, managers salary, a doctors salary.

Answer 22

This would be a fixed expense.

Question 23

_____________ will change with the amount of business produced by the practice.

Example would be COGS (cost of goods sold…example the # of vaccines is variable depending on the amount of business the practice experiences), DVM wages if paid on production, Staff payroll.

Answer 23

This would be variable expense.

Question 24

What are the three steps in analyzing P&Ls when unexpected figures are present?

Answer 24

1)Compare percentages ( if you are a whole lot busier or slower this year than you were last year you might have spent a whole lot more or a whole lot less dollars in a category, but if the percentages remain constant your looking pretty good)
2) Ask questions of the percentages (Do they look correct, did the percentages change)
3) Implement Change ( if you can based on the information from your P&L)

Question 25

Comparing Income and Expense Center on the P&L - if a center is not managed, it cannot be improved. Steps to take to evaluate the profitability of a service: *Gross revenue per month (or year) of the specific service. *Square footage used by the service *Fixed costs per square foot for service.

Answer 25

Example: 1) Dental center produced $9889.45 and used 100sq ft of the practice. 2) Fixed cost are $1583.33 /month 3) Variable costs are $525.39 / month 4) Net income for the center is $7880.73 **Equipment used for this category is in with fixed costs**

Question 26

Financial Report Construction and Details of the Balance Sheet (Also know as the Statement of Financial Condition of the Practice) The Balance Sheet - *Summarizes assets, liabilities, and equities of the practice at the time of the statement and offers no historical figures. *Represents the very basic accounting equation of Assets = Liability + Owner Equity *Balance sheets may require the assistance of an accountant to complete. **Although real estate may be increasing in value, this increase is generally not represented on the balance sheet **

Answer 26

Financial Report Construction and Details of the Balance Sheet (Also know as the Statement of Financial Condition of the Practice) The Balance Sheet - *Summarizes assets, liabilities, and equities of the practice at the time of the statement and offers no historical figures. *Represents the very basic accounting equation of Assets = Liability + Owner Equity *Balance sheets may require the assistance of an accountant to complete. **Although real estate may be increasing in value, this increase is generally not represented on the balance sheet **

Question 27

__________________ are things of value such as cash, equipment, inventory or buildings.

Answer 27

Assets.

Question 28

_______________ is the practice debts; money owed to the creditors.

Answer 28

Liabilities.

Question 29

_________________ is the owners claim on the practice assets; portion of the practice assets that belongs to the owner not the creditor.

Answer 29

Owner Equity.

Question 30

Financial Report Construction and Details of the Cash Flow Sheet - (Cash flow sheet is rarely used. Slightly more complicated to create. **illustrates the cash that has been generated by the business minus the cash that has flowed out of the business, rendering the cash total at the end of the year. **The Cash Flow Statement seems to be rarely used, and some reasons include that they can be slightly more complicated to create, and also because the information is not much different from the P&L….

Answer 30

Except as author Pendergast states : Managers are often under the impression that the bottom line on a Profit and Loss statement should equal the balance that is in the checking account wich is actually not true. There is a lot of reasons for that, inventory has been purchased but not sold yet. Accounts receivable hasn’t been settled yet, expenses have been paid but they haven’t cleared the checking account yet…. So on and so forth.

Question 31

The Financial reporting process — Reports should be generated within _________ business days after the end of the month.

Answer 31

5-10 business days.

Question 32

The financial reporting process -

Answer 32

Timeliness - reports should contain recent historical results and be created quickly at the end of the reporting period. Accuracy - Reliable and accurate data is essential if financial statements are to be useful for decision making. **Accuracy is ensured through an independent audit Simplicity - The typical veterinary practice should use reports that are east to interpret. Sufficiently Detailed - maintain simplicity while being sufficiently detailed to aid decision making. Analytical - the information should be worthy of analysis containing data from the previous year (or other comparison period) and also industry benchmarks and budgets.

Question 33

Financial Analysis Perspectives - what are principles to consider when analyzing finances?

Answer 33

*Safeguarding assets - assets should be protected and should be accounted for. *Pricing/Fee Structure - is it adequate? (Poorly calculated pricing can absolutely cripple your revenue). *Cost evaluation - consider the cost of services and sales. *Procurement of Capital (financing and/ or investors) - obtaining resources from the owners and creditors, repaying borrowed amounts, and assuring and measuring owners return on investment. *Incremental performance - can be itemized via departments of profit centers. The key ingredients of measuring incremental performance included; change in costs, cash flow, profit, and/or investment in that category.

Question 34

Financial Analysis Perspectives - Principles to consider when analyzing finances.

Answer 34

*Accountability via departmentalization - profit centers (such as boarding, grooming, retail sales) that have THEIR OWN STATEMENT OF PERFORMANCE may offer additional insights into the profitability of the various centers. *Profitability analysis - there is true profitability for measuring fiscal health and then the profitability numbers used for tax purposes. When measuring true profitability take into consideration ; depreciation of assets, owner compensation, rent to owner, and any discretionary expenses. *Return on capital analysis - (Minus) income/average total assets = returns on capital % Typically measured before interest, taxes, depreciation, and amortization.

Question 35

Key Performance Indicators (KPI) - basic statistics used to measure performance, compare benchmarks, and identify and explain changes. KPIs are usually entered into a spreadsheet that compares the same period from the previous year. A practice can measure /track and KPI that is helpful. **Measure what matters to you and what you can do something about.

Answer 35

The common KPIs Include: *Total revenue and total transaction by month. *Average transaction charge by month. *New client and lost clients by month. *Revenue, transactions, and average transaction charge per DVM per month. *Accounts receivable by age classification (30, 60, 90 days)

Question 36

Final Considerations Regarding Financial Analysis -

Answer 36

*Percentage statement analysis - all expenses should be stated as a percentage of revenue on the income statement and should be compared with benchmarks, prior periods, and budget performance. *Variance analysis - Identifies the variance of a financial metric and may help explain why. Example; wage expense that is significantly over budget will prompt investigation.

Question 37

Final Considerations Regarding Financial Analysis - *Ratios - represent financial relationships between various financial metrics. Examples include;

Answer 37

Net Profit Margin = practice profit / practice revenue. Measures simple profit of the practice. A higher value indicates more revenue that falls to the bottom line instead of being consumed by expenses. Gross Profit Margin = gross profit/ revenue. Measure how much profit is in a product or service. Average Transaction Charge = practice revenue/ practice transactions. Ideally should be continually increasing. Revenue per full time DVM = Practice revenue / full time DVMs Accounts receivable Turn-over = credit sales/ average accounts receivable. A higher number is better as it indicates the accounts receivable balance is converted to cash more often (This is your goal)

Question 38

Net Profit Margin - Measures simple profit of the practice. A higher value indicates more revenue that falls to the bottom line instead of being consumed by expenses. What is the equation?

Answer 38

Net Profit Margin = practice profit / practice revenue.

Question 39

Gross Profit Margin - Measure how much profit is in a product or service. What is the equation….

Answer 39

Gross Profit Margin = gross profit/ revenue

Question 40

Average Transaction Charge - Ideally should be continually increasing. What is the equation….

Answer 40

Average Transaction Charge = practice revenue/ practice transactions.

Question 41

Revenue per full time DVM. What is the equation…

Answer 41

Revenue per full time DVM = Practice revenue / full time DVMs

Question 42

Accounts receivable Turn-over = A higher number is better as it indicates the accounts receivable balance is converted to cash more often (This is your goal) What is the equation…

Answer 42

Accounts receivable Turn-over = credit sales/ average accounts receivable

Question 43

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

Answer 43

Accrual based accounting is more accurate.

Question 44

Which financial statement is considered the most important for small businesses? A) Cash Flow Statement B) Balance Sheet C) Profit and Loss Statement

Answer 44

C) The Profit and Loss Statement

Question 45

Is staff payroll considered a fixed expense or a variable expense?

Answer 45

Staff payroll is considered a variable expense.

Question 46

There are three types of payroll methods what are they?

Answer 46

Manual payroll - involves totaling the amount of time worked; calculating gross wages; calculating and deducting all appropriate taxes, deferrals, and deduction; then writing the check. *This method is the highest risk for errors. Automated in house processing - utilizes a payroll specific software program such as Quick pay to create paychecks. **More efficient than manual payroll. *Reliable calculations * Offers the option to schedule regular reoccurring deductions. *Automatically creates and maintains legible payroll records. Third Party Payroll Service - Offers convenience, expertise, and savings. It is expected that these companies remain up to date with the most current regulations and tax tables that lower errors.

Question 47

Payroll Period is a length of time covered by each payroll session. A pay period can start on any day that you choose as long as there are no gaps between pay periods.

Answer 47

*Weekly payroll - issued 52 weeks a year *Bi weekly payroll - issued 26 times a year and can reduce costs of payroll due to decreased time invested in managing it. *Semi monthly payroll - issued 24 times a year. Typically on the 1st and 15th of each month. It divided into 6 pay periods per quarter. *Shift differential - a wage premium used in 24 hour facilities to make the less desired shifts more rewarding.

Question 48

Federal Payroll Taxes -

Answer 48

Employers are responsible for withholding federal income tax and forwarding it to the IRS. The amount of the Federal Income Tax withheld depends on the amount of the employees salary and the number of allowances the employee has taken.

Question 49

The Federal insurance Contribution Act (FICA) -

Answer 49

A tax paid by both the employer and the employee to fund social security and Medicare.

Question 50

The Federal Unemployment Tax Act (FUTA) -

Answer 50

A tax paid by employers only, and ONLY the first $7,000 of an employees earnings is taxed for FUTA.

Question 51

Payroll deductions…. State payroll taxes - vary from state to state, but often include State Income Tax and Unemployment Tax.

Answer 51

Miscellaneous Deductions - Can vary significantly from state to state and Employer to Employer. *Employee portion of medical/dental/ insurance premiums *The balance on the employees account with the practice *Some states require school district tax, state disability insurance tax, city income tax, and others.

Question 52

Requirements for wage and tax reporting …

Answer 52

*Obtain an employer identification number (EIN) *Obtain a completed I-9 form for each employee. The I-9 verifies the identity of eligibility for employment in the US. *Confirm each employee has completed a W-4 (indicating requested withholdings) * Calculate and deduct employees income tax. *Make required deposits of withheld taxes as determined by the IRS *File form 941 (Employers quarterly Federal Tax Return) quarterly. *File form 940 ( Employers Annual Federal Unemployment Tax Return) annually. *Prepare and distribute W-2 (Wage and Tax Statement) to each employee by January 31st *Prepare W-3 (Transmittal of Wage and Tax Statement) and file with the IRS along with W-2’s *All taxes should be automatically deducted from the practice checking account to ensure all tax payments are on time. There can be significant penalties for late tax payments. ** Much of this is completed by the outside payroll service and significantly reduces the burden on the practice. **Highly recommended**

Question 53

Payroll internal controls - Steps to protect your practice from payroll fraud. Maintain a written policy that provides clarity to employees on:

Answer 53

*Definitions of full and part time *Define how and when paid time off is accrued and if it rolls over ant year end or is paid out at termination. *Segregate the duties for upholding personnel data from the duties of payroll accumulation, recording, and reporting. *Require management approval to any changes made to payroll records and/or personnel information. *Restrict access to payroll and personnel files to a “need to know” basis. *Consider mandatory direct deposits to eliminate written payroll checks. * Process new hires and terminated employees in a timely manner *Personnel records should include; date of hire, PTO paid Vs used, non-paid time off vs used, tardiness. *When using an outside company for payroll, internal records should be compared to the payroll company’s records to catch discrepancies immediately. Also periodically review all payroll transactions. * Monitor the time clock to be sure employees not clocking in and out for each other *Track employee payroll advances very carefully and payback should be via payroll deduction.

Question 54

Independent contractors and Payroll —

Answer 54

*Contractors are responsible for their own payroll taxes and are paid a straight fee by the practice. *At the end of the year, any contractor who received more than $600 in wages from the practice must be issued a 1099 Form. *Form 1099 states all monies paid to the contractor on an untaxed basis. *The contractor submits the form with their taxes. *If the contractor fails to file and pay their taxes, and the practice did not issue a form 1099 at the end of the year, the practice can be held responsible to pay all back taxes, interests, and penalties.

Question 55

The Federal Insurance Contribution Act or (FICA) is a payroll tax that is paid by the employer or employee? A) Both the employer and employee. B) Employer C)Employer

Answer 55

A) Both the employer and employee.

Question 56

Which payroll tax is paid by employers only and only on the first $7000 of an employees earnings? A) State Unemployment Tax Act (SUTA) B) Federal Unemployment Tax Act (FUTA) C) Workers Compensation Tax

Answer 56

B) Federal Unemployment Tax Act (FUTA)

Question 57

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 that 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 earnings.

Answer 57

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

Question 58

In regards to accounts payable (AP) - Amounts owed to you by suppliers that are payable in the future. What are the steps in order for receiving goods at the practice?

Answer 58

*All employees who unpack a shipment should initial the packing slip/invoice confirming all items on the invoice were included with the shipment. *Prices should be compared to the current price in your practice management soft ware for updating. *All packing slips / invoices should then be compared to the monthly statement and should reconcile exactly. *All reviewed and confirmed supporting documentation should be passed on to the bookkeeper or manager responsible for preparing the unsigned check, that then goes to the responsible party (typically the owner) for review and a signature.

Question 59

How often should accounts payable (amounts owed to your suppliers that can be payed in the future) be monitored?

Answer 59

Accounts payable should be monitored monthly to safeguard against spending more than receiving.

Question 60

Some smaller and younger practices may experience months where they spend more than they generate. In this situation, early detection is critical to avoid financial damage to the practice. If it is discovered that the practice is spending more than it is generating there must be a plan in place immediately to stop the financial hemorrhage. What are some ways that this can be done?

Answer 60

*Decrease spending and increase revenue *Hold employees accountable for wasted. *Consider reevaluating your fee structure. *Review charges to be sure they are being captured correctly and not missed. *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 61

Accounts Receivable (AR) - is monies owed to the practice for services rendered or products sold that have not been paid for at the time of service or when the product was dispensed. Practices should keep AR no higher than ______ % of gross revenue .

Answer 61

Practices should keep AR no higher than 1.5 % of gross revenue *Gross revenue is the of all money generated by a business, without taking into account any part of that total that has been or will be used for expenses. AR over 3% should get the focus of the entire team to follow the practice policy that tightly manages AR *One compromise to enable the team the opportunity to help the occasional charity case is to institute a flex or indigent account that can be financially sustained by client contributions or fundraisers. The creation of such an account should be discussed with a CPA and state laws should be reviewed. The team can develop guidelines for what cases are eligible to potentially use the fund.

Question 62

When a check is returned for non-sufficient funds (NSF) the practices has three choices; accept the financial loss, attempt to collect, or use a third-party collection agency. If the delinquent amount is collected, a collection agency will deduct their fee from the total amount collected. A practice can avoid NSF checks by…..

Answer 62

A practice can avoid NSF checks by using a check machine or verification service that will either verify funds in the account or transfer the funds in real-time into the practice bank account. **The real time transfer of funds method is the most cost-effective. **

Question 63

When a practice becomes aware of a NSF check from a client, the practice should place returned check fee on the client account to recoup bank charges, lost time, and money. *What should be documented from every client who writes a check to increase the chances of successful collection in the event a check is returned for NSF?

Answer 63

A drivers license number! In the case of stollen checks, the district attorney may require a drivers license number for prosecution. Lastly, a drivers license number is part of a best practice plan to help prevent fraud.

Question 64

In regards to accepting payments on Accounts Receivable (AR) - there are two basic ways of accepting payment on an account with an outstanding balance, what are they?

Answer 64

*Manually - Must be managed carefully to prevent internal embezzlement. All charges, statements, interest, account aging and payments are recorded separately and typically on an individual ledger. When a payment is received, a receipt should be provided to the client and forwarded to the accounts receivable manager, who will update the ledger manually. The aged accounts can be flagged with different colors, and then appropriate notices sent to client. *Computerized accounts receivable management - A significant advantage over the manual method. All calculations, interests, and statement fees are automatically calculated and added to the clients account. This eliminates errors and can decrease employee embezzlement.

Question 65

No charge Policies - practice managers are responsible for creating and enforcing client credit policies. *Posting a sign stating that all accounts must be paid in full at time of service is not considered adequate What steps must be taken?

Answer 65

Estimates must be given to all clients whose pet will receive services, and a client signature is critical for legal documentation that the client authorized the services. A deposit of at least 50 % of the expected total of the service must be collected. *All team members need to understand and accept this!!

Question 66

Holding checks for delayed payment (not recommended for multiple reasons) - is defined as accepting a check dated with the date it was accepted by holding the check for deposit on a later date.

Answer 66

not recommended for multiple reasons….. It can add another level of difficulty for the receptionist in storing, tracking payment date and depositing that check on the correct date. There is no guarantee that the funds will be available when the check is deposited. If the team member accidentally deposits the check on the incorrect date the client will likely be alienated from the practice and will often ask to be reimbursed for returned check fees due to the practices negligence. Accepting post dated checks (dated PAST the date that the check is accepted) is illegal in some states.

Question 67

Collection procedure for Accounts Receivable — Accounts should be paid within 30 days of charging, however some clients may have higher balances that require longer collection times. Practice software should age accounts at 0-30, 31-60, 61-90 days and over 90days. (This offers the practice manager a more accurate review of accounts receivable) Clients should be sent a statement immediately after services are preformed. The likelihood of collection increases when the service is still fresh in the clients mind.

Answer 67

*Clients with no payment in over 60 days should be notified of the overdue account. **A hand written note on the statement **An overdue sticker (usually bright colored) place on the statement. Be advised; according to the Fair Debt Collection Practices Act stickers cannot be placed on the outside of the envelope.

Question 68

Collection procedure for Accounts Receivable — accounts past due beyond 90 days can be very difficult to collect. Some strategies include :

Answer 68

*Clients should be notified that the account will turned over to a collection agency if payment is not made. *Have a team member call the client to discuss the account status and attempt to collect a payment or make payment arrangements. *Once all attempts have been exhausted, turn the account over to collections. If the agency is unable to collect the amount will be reported to a credit bureau or consumer reporting agency and the clients credit will be affected for 7 years. *Small claims court is also an option for collection, be sure to weigh the amount owed against the time and filing fees you will invest in trying to collect. It is sometimes more practical to write the amount off as bad debt. *A delinquent account should always be flagged in the practice management system to avoid providing future services.

Question 69

Fair Debt Collections Act - regulates collection procedures of past due accounts.

Answer 69

The Act was passed to protect the public from unethical collection procedures and mainly applies to collection agencies, but these same regulations must be considered as the veterinary team attempts to collect outstanding accounts. Debtors cannot be subject to harassment, oppressive tactics, or abusive treatment. Prohibits collectors from making false statements to the client such as claiming to be an lawyer. Clients may not be called at work if the employer or client objects, and clients cannot be called at inconvenient times or places including before 8 am or after 9 pm. Account details can only be discussed with the client themselves.

Question 70

Employee accounts receivable - all practices should have a written policy. *Best practice says that employees should not be allowed to charge. —Practices may not be able to collect on an account when/if an employee leaves.

Answer 70

Since many practices offer generous employee discounts, the practice can actually lose money allowing employees to carry a large balance. *If the practices does allow an employee to carry a balance, it should not exceed $100 * If a balance does exist on an employee account, mandatory monthly payments should be expected. *Practices that deduct money from the employee’s paycheck must check state laws. *Managers must have documentation that the employee authorizes any payroll deduction. *Federal laws prohibit money from being withheld that would take the wages realized lower than minimum wage.

Question 71

Collection Agencies - The longer an account is delinquent, the less likely it is that you will collect on it, regardless of the method used.

Answer 71

*Agencies will typically charge between 40% - 60% of the balance being collected. Some only charge the practice if they are able to collect.

Question 72

Accounts receivable calculations - accounts receivable should be analyzed to provide insight on how well the practice is performing. Using the accounts receivable turnover and the days in accounts receivable ratios are the two most common ways of analyzing AR status. These calculations can help determine liquidity, solvency, and profitability.

Answer 72

*Average accounts receivable - Beginning AR + Ending AR / 2 = Average Accounts Receivable. *Accounts receivable turnover - how many times the accounts receivable balance is converted into cash. Credit sales / Average accounts receivable = Accounts receivable turnover. ~Credit sales should only include credit sales, not cash sales or cash revenue. ~The credit sales and average accounts should be from the same time period. ~ A higher value for the accounts receivable turnover ratio is better because it indicates the AR balance is turned into cash more often. **If the number is low, the practice should analyze its collection efforts and consider changes.

Question 73

Days in Accounts Receivable - indicates how many days a clients account sits in AR before being collected. Number of Days in Period/ AR Turnover = Days in AR

Answer 73

Example: AR Turnover equals 12 for the year. So, divide 365 (days in a year) by 12 to get 30.42 This means AR turns over every 30 days. *If the number is consistent, it means the practice would need 30 days of working capital to maintain the practices cash flow needs.

Question 74

AR that are over _______ % need to get the entire team to follow an AR policy. A) 2% B) 3% C) 4% D) 5%

Answer 74

B) 3%

Question 75

Which Act prohibits placing “delinquent account” stickers on the outside of an envelope when mailing statement to clients? A) The Fair Debt Collections Practices Act B) The Consumer Protection Act C) The Consumer Confidentiality Act

Answer 75

A) The Fair Debt Collections Practices Act

Question 76

What does the accounts receivable turnover calculation tell us (Multiple choices)? A) The fiscal health of the practice as it relates to accounts receivable as a percentage 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 76

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 77

What three financial responsibilities are typically out sourced in most practices?

Answer 77

1) Primary tax preparation and advice. 2) Valuation of the practice 3) Large Financial Issues

Question 78

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

Answer 78

Fixed.

Question 79

Define Cost Of Goods Sold (COGS)

Answer 79

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

Question 80

Offer 5 examples of products that would be included in COGS (Cost of Goods Sold)

Answer 80

The cost of goods sold (COGS) is the sum of all directs costs associated with making a product. It appears on an income statement and typically includes money mainly spent on raw materials and labour. It does not include costs associated with marketing, sales, or distribution.

Question 81

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 or Accrual-based?

Answer 81

This is Accrual - Based accounting.

Question 82

Which type of accounting is typically considered more accurate?

Answer 82

Accrual

Question 83

What is another name for the profit and loss statement?

Answer 83

The income statement

Question 84

When comparing expenses on the Profit and Loss Statement it is important to express expenses in the dollar amounts but also as ____________________.

Answer 84

A percentage of gross

Question 85

The basic accounting equation is Assets = _____________ + ___________

Answer 85

Assets = Liability + Owner Equity

Question 86

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

Answer 86

FICA stands for the Federal Insurance Contribution Act - a tax paid by the employer and the employee to fund Social Security and Medicare.

Question 87

At the end of the year, any independent contractor who received more than $___________in wages from the practice must be issued a 1099 form.

Answer 87

$600

Question 88

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

Answer 88

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

Question 89

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

Answer 89

1)Decrease spending and increase revenue. 2) Hold employees accountable for waste. 3) Consider reevaluating your fee structure. 4) Review charges to be sure they are being captured correctly and not missed. 5) 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 90

AR should be no higher than _______ % of gross revenue

Answer 90

AR should be no higher than 1.5 % of gross revenue.

Question 91

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

Answer 91

*Accept the financial loss *Attempt to collect * Use a third party collection agency.

Question 92

Which Act regulates collection procedures of past due accounts?

Answer 92

The Fair Debt Collection Practices Act

Question 93

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

Answer 93

Credit sales/ Average Accounts Receivable = Accounts Receivable Turnover.

Question 94

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

Answer 94

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

Question 95

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

Answer 95

Beginning AR + Ending AR / Average Accounts Receivable

Question 96

Define benchmarking, and describe the difference between internal and external benchmarks.

Answer 96

Benchmarking is the process of comparing a practice to others on a local, state, region, or national level. Internal benchmarks look at the practice’s historical figures; external benchmarks are the average numbers or percentages across the industry.

Question 97

What is the difference between CPA and a bookkeeper?

Answer 97

A CPA has a degree in accounting and has sat for numerous exams. CPAs must also attend continuing education each year to maintain their professional status. A bookkeeper generally learns by trade.

Question 98

Why should a budget be created?

Answer 98

A budget should be created to prevent overspending and shortfalls when paying bills. A practice must budget for taxes and expenses and be able to reinvest money back into the practice in order to purchase equipment.

Question 99

Define some areas that could have a cash flow crunch.

Answer 99

A cash flow deficit could be caused by improper inventory management, fraud or embezzlement, excessive payroll, or higher than profit distributions paid to the owner(s)

Question 100

How can a manager increase the value of a hospital?

Answer 100

A manager can increase the value of a hospital by ensuring medical records are complete, recommendations are made to clients, and that clients accept the recommendations being made. Increased client compliance and retention drive value, along with low turnover of team members. Building maintenance, modern equipment, and good financial records will also help.

Question 101

Define the red flags rule, and discuss why it should be implemented by the veterinary practice.

Answer 101

The Red Flags Rule has been established by the Federal Trade Commission to try and decrease fraud, embezzlement, and identify theft in businesses. All three of these factors occur in veterinary medicine, and it is up to every practice to protect the clients and team members.

Question 102

What is the Fair Debt Collection Practices Act, and why was it established?

Answer 102

The Fair Debt Collection Practices Act was established to protect the consumer and set guidelines for credit collectors to abide by. Practices must abide by the guidelines set forth when attempting to collect accounts. Guidelines include only speaking with the client that owes money, not calling before or after specified hours, and not placing debt collection notices on the outside of statement envelopes.

Question 103

What characteristics should be considered when choosing a collection agent?

Answer 103

Professional, ethical, reliable.

Question 104

What is an insufficient funds charge?

Answer 104

A check that is returned to a depositor because of lack of funds in the payee account.

Question 105

What is a held check?

Answer 105

A check that is given to a practice, the the date of acceptance written on the check, and asked to be deposited at a later date.

Question 106

If a practice reports services when they are invoiced, they are reporting by which standard? A) Cash basis B) Accrual basis

Answer 106

B) Accrual basis

Question 107

Staff payroll is considered a ___________expense for benchmarking purposes. A) Fixed B) Variable

Answer 107

B) Variable

Question 108

Accounts receivable should not exceed ________ % A) 1.5 % of gross revenue B) $2.00 C) 5% of gross revenue D) 10% of gross revenue

Answer 108

A) 1.5 % of gross revenue.

Question 109

Holding checks for clients is recommended when they cannot pay for services the same day.

Answer 109

False - It is never a good idea to hold checks.

Question 110

Which of the following is mandated by the Fair Debt Collection Act A) Notification stickers can be placed on the outside of the envelope. B) Conversations to collect outstanding AR can be held with any of the family members residing in the home. C) Collection calls can only be made between 8 am and 9 pm D) Clients can be threatened withholding veterinary services.

Answer 110

C) Collection calls can only be made between 8 am and 9 pm.

Question 111

Withdrawing employee accounts receivable from the employee paycheck is an acceptable form of payment? A) True B) False

Answer 111

A) False

Question 112

Third party payment plans include: A) Care Credit B) Veterinary Pet insurance C) PaymentBanc D) All of the above

Answer 112

A) Care Credit

Question 113

Pet health insurance: A) Improves Patient Care B) Increases Patient Examinations C) Decreased stop treatment threshold D) A and B

Answer 113

D) A and B A) Improves Patient Care B) Increases Patient Examinations