On The Second Part, The Memo You Correctly Identified Three

On The Second Part The Memo You Correctly Identified Threetransact

On the second part, the memo, you correctly identified three transactions- a real solid start! As you move forward, Introduction to Financial Accounting is a good resource as well as your Key Accounting Principles and Terms document. Here is some more specific feedback to reach mastery: · Water – this should be included as it is an expense as they are an allowable expense of the Practice; what Principle corresponds to expenses? · License - this should be included as it is an expense as they are an allowable expense of the Practice; what Principle corresponds to expenses? · Misc Expenses/ couch- should include but what principle supports expenses? · Text Books - you have the correct principle but why should they be included? · Sublease Income – should be included (as income) as what principle relates to revenue? · Saturday Clinic – there are two transactions generated from this activity, revenue and expenses. What two principles support this activity? · Bad Debt – should be included as an expense as they are an allowable expense of the Practice; what Principle corresponds to expenses? · Interest Income – this is revenue to the Practice so it should be included; what principle relates to revenue? · Landscape bills- should be included, but what principle for this expense? · Art Appraisal – correct principle but why should this be included? · Gifts – this should be included as they are an allowable expense of the Practice; what Principle corresponds to expenses? · Travel- there are two parts, including one that should be excluded. What is the other principle that allows recognizing expenses? · Old bills- should be excluded, but what principle relates to expenses? · Postage meter sale- it is revenue and should be included; what principle supports this? · Volunteering - should be excluded as was there an actual transaction? · Computer - should be excluded was there an actual transaction? · IRS - should be excluded was there an actual transaction? · Malpractice- should be included as it is an allowable expense of the Practice; what Principle relates to expenses? · CPA Appraisal – should be excluded, but what principle? (See Art) · Unemployment – should be included, as it is an expense, but not the Time Period principle. · Royalties – should be excluded was there an actual transaction? · Estimate of software- they should be excluded. Was there a transaction? While the list might look long, you are off to a solid start and are on track. Keep up the good work! Looking forward to your next submission. Account for Business, Making Sense of the Mess Key Accounting Principles and Terms As you read through the Project resources for this Project, use this document to record the definitions of essential accounting principles, terms and concepts. Note: the terms “principles” and “assumptions” are often used synonymously throughout the Project resources. Accounting Principles and Concepts · Purpose of Accounting Principles: · Accruals Principle: · Going Concern Principle: · Time Period Principle: · Historical Cost Principle: · Accounting Entity Principle: · Full Disclosure Principle: · Matching Principle: · Monetary Unit Principle: · Realization Principle: · Conservatism Concept: · Consistency Concept: · Materiality Concept: · Neutrality Concept: Key Terms Income Statement Definition: · Key elements of an income statement: Balance Sheet Definition: · Key elements of a balance sheet: Statement of Cash Flows Definition: · Key elements of a statement of cash flows: Types of Business Ownership · Sole Proprietorship: · Partnership: · Corporation: Account for Business, Making Sense of the Mess Dr. Fiddle’s Records The records in Dr. Fiddle’s file folder include: Receipts ★ A pile of receipts with dates from 2013–2014 for cash payments made to the Poland Springs water delivery man by the practice’s office manager, who advanced the money from her own pocket and was reimbursed in full in late 2014. Accounting entries to record the receipt of the water deliveries and the reimbursement of the office manager were never made. ★ Receipts for minor holiday gifts that Dr. Fiddle charged to her personal Visa card in 2012 and 2013 and gave to the doorman, janitor and others in her practice’s office building. Accounting entries to record the gifts as practice expenses and to reimburse Dr. Fiddle were made in the years the gifts were purchased. ★ Receipts for state fees that Dr. Fiddle’s practice has paid and recorded to renew her license to practice medicine every year since graduation from medical school. The fees were consistently paid by the practice manager and recorded by the practice’s accountant. ★ Receipts for travel expenses that Dr. Fiddle charged to her personal Visa card while traveling to and from a five-day continuing medical education seminar in Miami and another five days of relaxation in Miami Beach. ★ Miscellaneous receipts for about $5,500 of supplies, such as paint, wallpaper and upholstery materials, that Dr. Fiddle and her husband used to redecorate the office over a number of weekends. While at the design center, Dr. Fiddle also purchased a new couch for $5,300. The design center manager knows Dr. Fiddle well, so he just gave her an invoice and told her to have the practice mail a check, which it has not yet done. Letters ★ A letter from Dr. Fiddle’s ex-husband to her accountant, suggesting that she change from the accrual to the cash basis of accounting for her practice because it will “amp up” net income on a one-time basis, thus increasing the practice’s profitability and reducing his child support payments. No decision has yet been made. ★ A letter from the regional medical society announcing that Dr. Fiddle has been selected as “Physician of the Year” by her colleagues at the local hospital. Account for Business, Making Sense of the Mess Dr. Fiddle’s Records ★ A letter from the local Rotary Club thanking Dr. Fiddle for donating two boxes of cotton swabs (cost about $13.47) for use in their recent blood drive. They were pulled from inventory on short notice and no accounting entry was made. ★ A letter from Dr. Fiddle’s car leasing agency offering a large discount if she pays off her car in full by the end of next month. Bills ★ An envelope full of answering service bills paid and accounted for between 2005 and 2007. ★ A $450 unpaid bill from Dr. Fiddle’s landscaper for emergency plowing of the practice’s parking lot during a snowstorm in December 2014. The bill was just received and has not yet been paid or accounted for. ★ A credit card statement for college textbooks that Dr. Fiddle bought from Amazon and charged to the practice’s credit card when her daughter unexpectedly ran out of cash. The practice’s accountant has not yet recorded the transaction or paid the credit card company. Checks ★ Copies of 2014 cancelled checks from a psychologist to whom Dr. Fiddle subleases a spare exam room three days a week. They were deposited and recorded upon receipt. ★ A cancelled $100.00 check from Dr. Fiddle’s brother, who insisted on paying her for an old postage meter she got rid of when she converted her office to stamps.com last year. The meter was fully depreciated and worthless at the time she gave it away and no accounting transaction was recorded. Other ★ A schedule of revenues and expenses associated with a series of special Saturday flu shot clinics Dr. Fiddle conducted in her office but forgot to give to her accountant. ★ A schedule of outstanding charges for several patients who, upon insurance verification following treatment by Dr. Fiddle, were discovered to be uninsured and unable to pay. The charges had been recorded as both revenues and accounts receivable at the time of service. ★ A copy of Dr. Fiddle’s schedule that notes the time Dr. Fiddle spends as a Basic Life Support instructor at the local Red Cross. The schedule shows she volunteers one Monday per quarter. ★ A set of published guidelines from the Internal Revenue Service that require a change in the estimated useful life of diagnostic equipment in Dr. Fiddle’s office when recording depreciation in 2015 and beyond. ★ A court-ordered $100,000 malpractice judgment against the practice dated 08/31/2014 that the practice is obligated to pay at the rate of $20,000 per year beginning in 2015, even though Dr. Fiddle is considering early retirement in three years, when her daughter finishes college. This liability was never recorded. ★ An appraisal report from a local CPA that shows the estimated value of Dr. Fiddle’s practice if she decides to sell it. ★ A formal notice regarding a state unemployment payroll tax increase that was recently approved by the state legislature retroactive to July 2014 and for which payment will be due within six weeks. Dr. Fiddle has not yet given this notice to her accountant. ★ An estimate of 2015 royalties from a patent on a new, untested medical diagnostic device that Dr. Fiddle bought last year from a colleague who invented but sold it because she is about to retire in Bermuda. ★ An estimate of required software modifications to Dr. Fiddle’s computer system to make the system compliant with new ICD-10 coding rules that will take effect next October; the programmer has been clear that he cannot confirm the associated fees until he “gets into” Dr. Fiddle’s antiquated system and determines the full scope of work. ★ A recent insurance appraisal report showing that a painting in Dr. Fiddle’s office, which the practice purchased for $250 upon opening, has become a cult favorite that is now worth more than $50,000 on eBay. ★ Notes within Dr. Fiddle’s patient schedule, which indicate that she provides medical services for the practice’s janitor, accountant and collection agent at a discounted charge as a courtesy. This policy has not yet been reported to her accountant, who recorded the visits as if these people’s insurance companies were going to pay full charges. This policy has not yet been reported to her accountant, who recorded the visits as if these people’s insurance companies were going to pay full charges. Account for Business, Making Sense of the Mess Dr. Fiddle’s Records ★ An IRS form 1099-Int that summarizes interest paid by Last National Bank on the practice’s checking account last year. The practice’s accountant has been recording the interest income monthly.

Paper For Above instruction

Introduction

Proper financial accounting is fundamental to the successful management and operation of any medical practice. It involves systematically recording, classifying, and summarizing financial transactions to provide an accurate picture of the practice’s financial health. The principles that underpin these processes ensure consistency, reliability, and transparency. This paper analyzes various transactions and records related to Dr. Fiddle’s medical practice, applying key accounting principles to distinguish between revenues, expenses, assets, liabilities, and other financial elements.

Recognition of Revenue and Expenses

Understanding which transactions qualify as revenue or expenses necessitates adherence to specific accounting principles, chiefly the Realization and Matching Principles. For instance, income such as Sublease Income and Postage Meter Sale must be recognized when earned, aligning with the Realization Principle, which states that revenue should be recorded when earned and realizable, regardless of receipt. Conversely, expenses such as Water, License, Gifts, and Malpractice, should be recorded when incurred, following the Matching Principle, which mandates matching expenses to the revenues they help generate within the same period.

Asset and Liability Recognition

Assets like the painting valued at over $50,000, the appraised practice value, and the office furniture (including the couch purchased for $5,300) exemplify valuable resources owned by the practice, recorded at their historical cost or current appraised value, as per the Historical Cost and Fair Value Principles. Liabilities such as the malpractice judgment of $100,000 and the unpaid snow plowing bill of $450 are obligations that must be recognized in the financial statements when incurred, consistent with the Accounting Entity and Full Disclosure Principles.

Cost and Valuation

The valuation of assets like the office painting and diagnostic equipment modifications requires attention to the applicable guidelines, including the Internal Revenue Service rules and CPA appraisals. For example, the change in the useful life of diagnostic equipment prescribed by IRS guidelines necessitates adjusting depreciation schedules, adhering to the Cost and Matching Principles. Similarly, the artwork’s increased value on eBay might be recorded as an asset under Fair Value measurement.

Inventory and Supplies

Supplies such as paint, wallpaper, upholstery materials, and cotton swabs donated to the blood drive, initially unrecorded, should be incorporated into the practice’s assets at their fair market value or historical cost when they are acquired. Supplies used or consumed, like the paint and upholstery, are expenses and should be recognized as such when used, following the Consistency and Materiality Concepts.

Financial Liabilities and Payments

Outstanding bills, unpaid checks, and bills paid but not yet recorded illustrate the importance of timely financial recognition. The unpaid snow plowing bill of $450 and various other bills highlight liabilities that should be accrued and disclosed. Cancelled checks should be recorded to reflect payments accurately, adhering to the Moneteray Unit and Full Disclosure Principles.

Non-transactional Items

Several entries, such as volunteer activities for Red Cross, the valuation of the artwork, and volunteering hours, do not represent formal transactions and should be excluded from financial statements to maintain clarity and prevent distortions. Similarly, items like the change of accounting method suggestion and the valuation of intangible patents are notes or estimates that do not constitute immediate financial transactions.

Conclusion

Applying fundamental accounting principles to Dr. Fiddle’s practice records enhances the accuracy and transparency of financial reporting. Recognizing revenue when earned, recording expenses when incurred, valuing assets accurately, and disclosing liabilities promptly align with the core principles of accrual accounting. Proper segregation of transactional records from non-transactional notes ensures clarity in financial statements, ultimately supporting effective decision-making and compliance. As practices like Dr. Fiddle’s grow and evolve, adherence to these principles remains essential for maintaining financial integrity and operational success.

References

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