This article, "What is the Difference Between Bookkeeping and Accounting in Medical Practices?," originally appeared on TheDailyCPA.com.
Bookkeeping and accounting are two functions that while closely related, serve distinct roles in supporting the financial health of a medical practice. This blog will help you understand the differences between these roles, the kinds of professionals you should engage to help you with your books and taxes, and the benefits of financial hygiene for a doctors office or other medical practice.
The Differences Between Bookkeeping and Accounting For Doctors
How Do Bookkeepers Help Doctors & Other Medical Professionals?
Bookkeeping involves the day-to-day recording of financial transactions, including patient billing, payments to suppliers, payroll, and other operational expenses. The precision of bookkeeping processes ensures that every dollar spent or received is accurately accounted for, creating a transparent and reliable financial record. This record-keeping is necessary for a medical practice, as it not only facilitates smooth financial operations but also supports compliance with the stringent regulatory requirements prevalent in the healthcare industry.
Specific regulations, such as the Health Insurance Portability and Accountability Act (HIPAA), enforce strict standards for handling patient information and billing records. Compliance with these regulations is crucial for protecting patient privacy, ensuring accurate billing practices, and preventing fraudulent activities. Furthermore, adherence to the Sarbanes-Oxley Act (SOX) mandates integrity in financial reporting, reinforcing the importance of precise and reliable financial management.
A significant aspect of bookkeeping for doctors is managing the complexities of healthcare billing. This includes submitting claims to insurance companies, tracking reimbursements, and handling patient invoices. These tasks require a detailed understanding of various insurance plans, billing codes, and regulatory guidelines, underscoring the specialized nature of bookkeeping within the healthcare sector. Efficient bookkeeping practices enable a medical practice to optimize its revenue cycle, ensuring timely reimbursements and minimizing billing errors that can lead to financial losses or disputes.
How Accountants Differ From Bookkeepers
Accounting, on the other hand, takes a broader view of the financial landscape of a medical practice. It includes the analysis, interpretation, and reporting of financial data, transforming the detailed records maintained by bookkeeping into actionable insights. Accounting involves preparing financial statements such as the balance sheet, income statement, and cash flow statement, which collectively offer a comprehensive overview of the practice’s financial health. These reports are instrumental for practice owners and managers, providing them with the information needed to make informed decisions about investments, cost control, and strategic planning.
Beyond financial reporting, accounting plays a pivotal role in strategic financial management, including tax planning, budgeting, and financial forecasting. It enables a medical practice to plan for future growth, manage its tax liabilities efficiently, and navigate the financial challenges unique to the healthcare industry. Accountants also provide valuable advice on financial strategy, leveraging their understanding of the practice’s financial position to recommend initiatives that can enhance profitability and sustainability.
How Bookkeeping and Accounting Work Together
While bookkeeping ensures the accuracy and integrity of financial data, accounting translates this data into insights and strategies that drive the practice forward. Together, these functions provide a comprehensive financial management framework that supports operational efficiency, compliance, and strategic growth.
It is also worth noting that the nature of the healthcare industry, with its evolving regulatory landscape and technological advancements, places a premium on adaptability in financial management practices. The integration of bookkeeping and accounting with electronic health records (EHR) systems and specialized medical billing software represents a significant step towards achieving this adaptability. These technologies streamline financial operations, enhance the accuracy of financial data, and provide real-time access to financial insights, further supporting the financial health of the practice.
Should You Outsource Your Books?
The decision to manage bookkeeping and accounting in-house or to outsource these functions depends on several factors, including the size of the practice, its financial complexity, and the availability of skilled personnel. Small practices, like a functional medicine clinic, may find it ideal to manage these functions internally, while larger practices like hospitals or regional therapy clinics with more complex financial operations might benefit from the expertise of professional accountants and bookkeepers who specialize in healthcare finance.
All things considered, healthcare practices need to keep their books in order, have easy access to important reports, and have a good understanding of cash flow and revenue. This helps your staff support patients better, and it provides the owner with a better quality of life.