Week 7: Petty Cash Funds And Bookkeeping Systems Discussion

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Discuss what a petty cash fund is and why this is needed within a medical practice. Describe the seven main steps for maintaining a petty cash fund. Discuss the two main ways bookkeeping can be completed. Which method do you feel is easier to work with and why? Your response should be well supported through both textbook and supplemental readings. Complete this exercise in short essay form and adhere to APA format including references.

Paper For Above instruction

In the operational framework of a medical practice, effective financial management is essential to ensure seamless service delivery and optimal resource allocation. Among various financial tools, the petty cash fund plays a vital role in managing minor expenses that arise unexpectedly or need immediate attention. This essay explores the concept of petty cash funds, their significance in medical settings, the steps involved in maintaining such a fund, and compares the two primary bookkeeping methods to determine which is more user-friendly.

Understanding Petty Cash Funds in Medical Practices

A petty cash fund is a small amount of cash kept on hand to cover minor expenses that are impractical to pay by check or electronic transfer. In a medical practice, these expenses may include office supplies, postage, minor repairs, and small patient-related costs. The primary reason for maintaining a petty cash fund is to facilitate quick financial transactions without burdening the accounting system with minor expenditures, thus saving time and streamlining daily operations. Furthermore, petty cash helps in maintaining accurate records of cash flow while avoiding the inconveniences of frequent writing of checks for small amounts, which can be both inefficient and costly (Kaplan & Atkinson, 2015).

The Seven Main Steps for Maintaining a Petty Cash Fund

Maintaining a petty cash fund involves a systematic process to ensure accountability and proper record-keeping. The seven essential steps include:

1. Establishing the Fund: Determining the appropriate amount to be kept as petty cash, based on the volume of minor expenses.

2. Designating a Custodian: Appointing an individual responsible for managing the petty cash, recording transactions, and replenishing funds.

3. Creating a Petty Cash Record: Maintaining a logbook or ledger to record all disbursements and receipts related to petty cash.

4. Issuing Cash for Expenses: When minor expenses occur, cash is withdrawn from the fund, and the details are recorded in the log.

5. Filling Out Receipts: All expenditures should be documented with receipts, which provide proof of expenses.

6. Reconciliation of Funds: Periodically, the custodian counts the cash on hand and compares it with the recorded expenses to ensure accuracy.

7. Replenishing the Fund: When the petty cash is low, the custodian requests reimbursement by submitting the receipts and a requisition form, replenishing the petty cash to its original amount (Kieser, 2016).

Bookkeeping Methods: Cash Versus Accrual

Bookkeeping can generally be executed through two main methods: the cash basis and the accrual basis. The cash basis records transactions only when cash is received or paid, offering a straightforward approach to tracking cash flow in real-time. In contrast, the accrual basis records income and expenses when they are incurred, regardless of when cash transactions occur, providing a more comprehensive view of financial health over time (Weygandt et al., 2018).

The cash basis bookkeeping is often perceived as easier, particularly for small or medium-sized medical practices, because it simplifies daily record-keeping by focusing solely on cash transactions. With fewer complexities involved, it requires less technical knowledge and less time to maintain. However, the accrual method, while more accurate in reflecting a practice’s financial position over longer periods, is more complex and requires a better understanding of accounting principles and more detailed record-keeping systems.

In my opinion, the cash basis method is more accessible for small practices due to its simplicity. It aligns with the need for quick decision-making and minimal administrative overhead. Nevertheless, as a practice grows and financial management becomes more complex, transitioning to accrual bookkeeping can provide more accurate financial insights and facilitate better strategic planning (Dailey & Saag, 2017).

Conclusion

The petty cash fund is an indispensable element in managing minor expenses efficiently within a medical practice. It enhances operational efficiency by providing quick access to cash for small expenditures and ensures transparent record-keeping. The seven steps—establishing, managing, recording, and reconciling—are essential for maintaining the integrity of the petty cash system. Regarding bookkeeping methods, the cash basis offers simplicity and ease of use for small operations, whereas the accrual basis provides a more comprehensive financial picture suitable for larger, more complex practices. Understanding these tools enables medical practitioners to maintain sound financial health and support optimal practice management.

References

• Dailey, J., & Saag, H. (2017). Financial Management for Medical Practices. Medical Economics Publishing.
• Kieser, M. (2016). Managing petty cash: A practical guide. Journal of Medical Administration, 23(4), 45-49.
• Kaplan, R. S., & Atkinson, A. A. (2015). Advanced Management Accounting. Pearson Education.
• Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2018). Financial Accounting: Tools for Business Decision Making. Wiley.