Accounting Terminology Every Doctor Should Know
For other Membership Medicine Doctors, the moment they can stop asking a friend, buddy, Patient or brother-in-law to stop ‘doing the books’ is a moment of significant relief. When you realize you are hiring an expert in an area of business you are not strong in, you will begin to examine your needs differently. When you find the right tax preparation expert or accountant, you want one who not only can help save you some money and avoid potential trouble with the IRS, you may also want someone who can provide helpful information specific for your Subscription-based medical practice. A good accountant will communicate with you often and clearly tell you what the numbers mean to you and will do it without delay. That’s priceless and provides a your practice with a great amount of peace.
By Michael Tetreault, Editor-in-Chief
As a proud but humble Concierge Medicine Physician, you wear a lot of hats.
From the person who unlocks the front door, answers the phone, to accountant, your medical bag is typically full 24/7.
Once you begin expanding your message and forgo other working capital opportunities in your local community you usually start looking around for better expertise. Or, at least you should. After all, bootstrapping and financing a your practice out of your personal assets has to stop at some point. At this point in time, you’re ready to bring in business professionals to help you create some margin, gain some peace of mind and ease the pressure of the typical tasks you’re not exactly qualified to specialize in (e.g. Accounting, tax preparation, membership acquisition, marketing, operations, staffing, etc.).
For most Doctors, the first area these DocPreneurs begin to see a weakness and need is in the area of accounting and tax preparation in their practice. You might think you already have a basic understand about accounting and ‘Oh, it’s easy.’ For a lot of Doctors we talk to every day, the hardest thing for them to do in the first two to three years of startup is = stop doing everything. You should start mitigating your weaknesses.
An article written by Tami Brehse In Profitability stated “Instead of spending all day putting out fires in areas where you don’t have expertise, you can leave it to a real expert and zero in on what you do best. In short, you can’t be the best leader without hiring people who, well, aren’t you.”
For reference only about possible areas of accounting you may not know that you should know, here’s a quick list of questions and terms to help you self-evaluate your own understanding and decide for yourself whether you might need a little more help in this area than you might have realized.
Do you understand and can explain the following:
As a Doctor, can you explain what the difference is between Working Capital and Liquidity?
- What are accounting ratios?
- What is the profit margin (after tax) ratio?
- What is the difference between gross margin and markup?
- What is the difference between financial accounting and management accounting?
- As a Doctor, explain Accrual Method of Accounting.
- As a Physician, do you understand how to manage your practice liquidity?
- What is a general ledger account?
- What is the difference between gross margin and contribution margin?
- Sample quiz question. Your practice receives $5,000 of cash as an additional investment in the practice by the Physician. The practice’s Cash account is increased and Capital is increased. Should the $5,000 entry to the Cash account be a debit?
- How do you compute a selling price if you know the cost and the required gross margin?
- What is meant by reconciling an account?
- What is EBIT?
- What is meant by non-operating revenues and gains?
These are just a few questions you should know as a Physician and owner/operator of your independent practice. If you are unsure of the answers, it is probably time to seek the expertise of a competent professional who understands these questions and more. After all, you went into this practice model to be a better Doctor and help people, not become a brilliant healthcare accountant.
We also understand that for some Doctors, the moment you can stop asking a friend, buddy, Patient or brother-in-law to stop ‘doing the books’ is a moment of relief. When you begin to examine your need for a tax preparation expert and accountant, you want one who not only can help save you some money and avoid potential trouble with the IRS. You may also want someone who can provide helpful information specific for your practice and state. A good accountant will communicate what the numbers mean to you and will do it without delay.
Different Accountant Terminology You Should Know
- book·keep·er | /ˈbo͝o(k)ˌkēpər/ noun | noun: bookkeeper; plural noun: bookkeepers; noun: book-keeper; plural noun: book-keepers | 1. a person whose job is to keep records of the financial affairs of a business.
- ac·count·ant/əˈkount(ə)nt/nounnoun: accountant; plural noun: accountants; noun: acct.a person whose job is to keep or inspect financial accounts. synonyms: bookkeeper, CPA, certified public accountant, comptroller; informal bean counter” | a good accountant is up on all the new tax laws”
- Enrolled Agent (E.A.) | An enrolled agent is a person who has earned the privilege of representing taxpayers before the Internal Revenue Service by either passing a three-part comprehensive IRS test covering individual and business tax returns, or through experience as a former IRS employee. Source: IRS.gov 
- Certified Public Accountant (CPA) is a designation given by the American Institute of Certified Public Accountants to those who meet education and experience requirements and pass an exam. For the most part, the accounting industry is self-regulated.
What does a bookkeeper do?
According to AccountingCoach.com, a bookkeeper is responsible for processing the paperwork for a company’s business transactions. The bookkeeper’s work is usually overseen by an accountant and/or the small business owner. Ultimately the transactions will be recorded in accounts within the company’s general ledger. Today this often involves the use of cost effective software such as QuickBooks from Intuit. Bookkeepers are expected to be accurate, efficient, and knowledgeable about debits and credits, the chart of accounts, accounts payable procedures, sales and accounts receivable, payroll, and more. Each bookkeeper’s specific responsibilities will vary by type and size of the business. The bookkeeper’s role may be expanded to include adjusting entries in order for the bookkeeper to generate income statements and balance sheets from the accounting software.
It’s helpful to shop around and ask the local community of business owners around you for references. Simply asking another peer whom they recommend may not be helpful. You don’t always know what type of financial condition a friendly competitor may be in so choose wisely and do your homework with any accountant or tax preparer you may select. Interviewing your next Accountant is a good way for you to secure your financial future and figure out which firm is the best fit for you and your practice.
Here are some critical questions to ask a tax preparer and/or accountant to help you make the decision easier for your practice.
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How do the responsibilities of a bookkeeper differ from those of an accountant?
What kinds of clients do you typically work with?
Your first question you want to ask should be about their experience. Membership Medicine practice’s have certain compliance rules to follow. Just as a construction company may deal with issues related to contract workers or a real estate firm will have certain criteria about how income is reported — you need an accountant, tax preparer and/or bookkeeper who has worked with other healthcare practices in your state and understands the ins and outs of a complex healthcare industry.
You might think it is just a numbers solution and that it doesn’t matter what type of clients a tax preparer or accountant has. Some firms specialize in helping healthcare organizations. Some specialize in law firm tax preparation. Some specialize in personal accounting and others may specialize in corporate accounting. Do your homework. While it may seem more like a mathematical solution to you, every industry and business, small, medium or larger has its own set of unique needs. You want someone you can trust with your financial future.
Affordable Care Act & Taxes – At a Glance
This chart explains how the health care law affects you. Use the Health Care Law and Your Tax Return chart to see how the law will affect your tax return. Under the recently enacted Tax Cuts and Jobs Act, taxpayers must continue to report coverage, qualify for an exemption, or pay the individual shared responsibility payment for tax years 2017 and 2018.
How do you bill for your services?
There’s nothing worse than the “worry” that your firm or person handling your finances is going to gouge you or take a huge fee out of your hard earned dollars. After all, how would you know? That’s why its important to take the process of interviewing your Accounting and tax preparer slow and methodically.
You should know that some accountants charge by the hour; others bill a flat rate. What if you don’t have much work for them? How do they bill you? Regardless of the billing approach, you should be sure to get an estimate of an accountant’s likely fees. You may even want to provide them with a copy of your previous year’s tax returns so the accountant can familiarize himself with your business before giving a quote. But again, don’t just take another Doctor’s word for it or the advice of a buddy of Patient. This is your financial future and you should carefully and cautiously examine what your needs are and what exactly you need and want to accomplish.
Are you available all year round? Am I going to need you all year round?
Some accounting firms shut their doors after April 15. Some only reopen for the following tax season. How often are you going to have questions? What type of documents do you need to be setting aside to make the reporting and documentation process easier for you both when the time comes? When you’re running a small practice, you’re going to need help all year. Should a questions arise, you don’t want to wait until the next tax season to get your major or minor question addressed.
Who will be doing the work?
Are you going to be working with a small firm of people with a dedicated representative or will your Accounting firm outsource your work to a third party? Neither one is necessarily a negative, but you should know the names, emails, physical office location and telephone numbers of these individuals for your own peace of mind. Be sure they are forthright with you about who is actually doing the work. Remembering, your interviewing them and the reward if they answer your questions to your delight is that they receive your business. You want to feel comfortable with their answers. If your not comfortable with them, keep looking. You want to talk with someone familiar with healthcare bookkeeping and if that’s a third party, it likely will be difficult to speak with that person directly. So, do your homework.
What’s your experience with the IRS?
There’s always an elephant in the room and this is usually the critical question. You hope you never have to lean into this expertise or experience but you want them to have it. After all, you’re a Doctor, a small business owner/operator and you kind of do something a lot of healthcare practices don’t. Will this raise a red flag?
Enrolled Agent (E.A.) | An enrolled agent is a person who has earned the privilege of representing taxpayers before the Internal Revenue Service by either passing a three-part comprehensive IRS test covering individual and business tax returns, or through experience as a former IRS employee. Source: IRS.gov 
Certified Public Accountant (CPA) is a designation given by the American Institute of Certified Public Accountants to those who meet education and experience requirements and pass an exam. For the most part, the accounting industry is self-regulated.
Often people will tell you it’s important to hire a CPA or Certified Public Accountant rather than an EA, or Enrolled Agent. This might be because CPAs have more comprehensive certification requirements. Rather than focusing on certification, focus on how your accountant’s experience is relevant to your DPC practice.
What tax program(s) do you use?
QuickBooks is commonly used for small businesses, which means your information would likely be easily transferred between different accountants. Experts say you shouldn’t choose accountants based on the tax program they use, but it’s a good detail to ask them about. When hiring a tax professional who uses more unpopular tax software may affect the quality of the work, it could might make it tedious when you try to switch accountants.
How often will we communicate with you about tax issues?
Every bookkeeper will be different when it comes to frequency of communication for tax planning purposes. The final question to ask, ask about a prospective accountant’s approach and be sure you’re satisfied with the degree of communication. You want to feel comfortable calling them with issues relating to your taxes.
The time, energy and thought you put into this decision will have a lasting impact on your future, your finances, your patients, your practice and your peace of mind. There’s no distinct answer or point in time when every Doctor needs to hire a tax consultant, bookkeeper or accountant. But when you do, make sure to use vet them thoroughly.
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