ACCOUNTING FOR MEDICAL PRACTITIONERS
Vijay C Panjabi
Family Physician, Nepean Sea Road, Mumbai 400 006.
Many Medical Professionals consider accounting and taxation a very complicated and boring affair. Hence they avoid this matter under the excuse of being very busy or trying to find a "Bliss in being ignorant". They forget that ignorance of law cannot be an excuse of non-compliance of the same. The ultimate result is that the accounts remain pending for years together and tax assessments are either made on estimated basis or not made at all. In the long term the policy of not maintaining accounts and estimated tax assessment creates problems of various types. Moreover the Income Tax Act has also made it compulsory for medical practitioners to maintain the accounts.
It is noticed that medical practitioners are not only averse to writing accounts but also find it dull and drab to even read about the accounts. Unfortunately accounts are never taught at undergraduate level. Keeping all these facts in mind this article is written considering the various common querries that come to medical practitioners’ mind. Taxation assessment and tax structure is beyond the scope of this article and therefore not considered here.
Q.1 What is Accounting?
Accounting is the process that analyses, records, classifies, summarises and reports information.
Q. 2 Why is it important to maintain Accounts?
It is not only important but is mandatory to maintain books of Accounts for the following reasons. As per the provision in section 44AA of the Income Tax Act it is compulsory for medical professional to maintain books of account if his gross fees in any of the three earlier years exceed the prescribed limits. The prescribed limits are:
a) If medical professional does not dispense drugs and medicine - Rs. 60,000/-
b) If medical professional dispenses drugs and medicines - Rs. 80,000/-
—Helps in filing of Income Tax returns and helps Income Tax officer to assess the amount of Tax liability.
—For personal information regarding the ‘earning’ efficiency to have clear picture of one’s income, expenditure, profits, losses, assets, property or investment and saving.
—For acquiring Bank loans.
—For assets and liabilities.
—Planning for the rainy day and investing in a proper manner.
Q. 3 What are the transactions entered by a medical professional?
i) Income - Professional fees, dividends from shares, interest from Bank, Fixed Deposits, Debentures, Government Securities etc.
ii) Expenditures - Payments of Salaries, rent, Medicine, Electricity, Equipment, Furniture, Fixtures, phone, Stationary etc.
iii) Transactions which neither result in income nor in expenditure e.g. taking a loan from the bank, LIC etc, repayment of a loan, purchase of an asset like car, premises etc.
Q. 4 What are the documents and books of Account required to be maintained? (Table 1)
It is better to maintain cash method of accounting system.
Q. 5 What Documents are required to be maintained?
TABLE 1 a) Documents Income Expenses 1. Carbon copies of serially numbered
Bills or receipts issued.
1. Bills and receipts for payments made
e.g. medicines, electricity.
2. Daily Cash register
(Form No. 3C)
2. Vouchers for expenses
e.g. Salaries, Miscellaneous
b) Book of Accounts Cash method of Accounting (Actual receipts and payments are recorded) Mercantile method of Accounting (Accrued income and expenditure is also recorded e.g. Pending Bills to be received). 1. Cash Book 1. Cash Book 2. Ledger 2. Journal 3. Ledger
i) Carbon Copy of Receipts issued if the professional fees exceeding Rs. 25 per patient.
ii) Form No. 3C i.e. the form of Daily Case Register.
i) Bills and Receipts for payments. It is better to make all payments exceeding Rs. 100/- by Cheque. Details of Payment including the name of the party and Bill No. should be written on the counter foil of Cheque issued.ii) Vouchers for salaries signed by employees on Revenue Stamp if amount exceeding Rs. 500/-
iii) Original receipts, Bills or vouchers for payments e.g. Petrol Bills, Sundry expenses like soap, phenyl etc.
Q. 6 What is daily cash register or Form No. 3C? (Table 2)
Form No. 3C is required to be maintained by all Medical Practitioners irrespective of the speciality.
Q. 7 What is the difference between cashbook and ledger?
Cash Book - means a record of all cash receipts and payments and maintained from day to day and giving the cash balance in hand at the end of each day or at the end of a specified period not exceeding a month. (Table 3)
Ledger is a summary of transactions during a period under each separate head recorded serially. It is a secondary book and the entries in the ledger are made from the primary book i.e. cashbook.
The Ledger is the Principal Book in any system of double entry bookkeeping. Transactions are ‘posted’ in ledger from the book of original entry i.e. cashbook. It is condensed, analysed and classified record of all transactions.
A ledger contains a number of "accounts", each account containing recording of all the transactions done with one party or item under one head and on one page of ledger. In absence of a ledger, if a person wants to know about all transactions done with one party, he has to search for a number of entries, which are scattered in various books. If
TABLE 2 Date S. No. Patient’s Name Nature of Professional Services rendered i.e. consultation, Medicine, Injections, Surgery etc. Fees Received Date Received Cash Cheque 1.2.2000 1. DS Raju House Visit 200/- 1.2.2000 2. Jaylaxmi Consultation 80/- 1.2.2000 3. Mr. Verma Immunisation 500/- 1.2.2000 4. Mr. Aggarwal Ear Syringing 80/-
Income Expenditures Date Particulars L/F Cash Bank Date Particulars L/F Cash Bank 2/1/00 Brought Forward Balance 1500 20,000/- 2/1/00 Medicine 2500/- Professional Fees
Interest on Debentures Dividend on Shares
Electricity Car Exp.
Name of the Account (e.g. Medicines A/C)
Dr. (Debit Side) (Credit Side) Cr. Date Particulars C.B.F. Amount Date Particulars C.B.F. Amount(C.B.F. = Cash Book Folio)
you want to know how much amount you have spend on say "salaries" during a period, you can refer to "Salaries Account" of the ledger. In the ledger all the accounts are opened on different pages, namely, the following.
1. Capital Account
2. Medicines Account; or Medicine Supplier’s Account
3. Motor Car Account
4. Salaries Account
5. Electricity Account
6. Practice Account
7. Property Account
8. Equipment Account
9. Furniture-Fixtures Account
10. Bank Account
Q. 8 What is meant by a summary statements?
At the end of the year, information recorded in the books of Account is prepared in summary Statements e.g.
a) Income and Expenditure Account or Profit and Loss A/C.
b) Trial Balance
c) Balance Sheet
d) Computation of Income from the point of view of income tax
Q. 9 What is the role of Computers in Accounting?
Computers are very useful and easier for maintaining of Accounts. There are many software packages available. But Tally package has proved the test of time and at this moment it is the best. One has to devote only half an hour daily to write personal accounts either hand written or on Computers. Summary Statements like profit and loss A/c and balance sheets can be obtained just by pressing one button.
This article is written in a simplified manner for busy medical practitioners. The purpose of this article will be fully accomplished if those Medical Practitioners have not been maintaining the accounts till now, shall start maintaining proper accounts and find the usefulness to them.