Clearing Accounts Help Reconciliation
Hi, I have a new client who owns a Chiropractor practice. There is also an additional chiropractor, a naturopathic doctor and a massage therapist who operate in the practice. All the credit card and debit sales for all the services go through the owner's bank account. Each practitioner receives and keeps their own cash.
Currently the entries for the "practitioners" are to:
Undeposited funds asset DR
Due to "practitioner" Liability acct CR
(They make these entries for EVERY transaction)
Then they clear the undeposited funds to the chequing account.
Once a month a cheque is cut to the "practitioner" and the entry is:
Due to "practitioner" Liability acct DR
Chequing asset account DR
The entries for the owner are a little more typical using a revenue account for the sales, accounts receivable, etc.
My question is...should the "practitioners" sales not be run through the revenues of the practice and then paid out as an expense? The balance sheet shows amounts owing that never clear because their is no "accounts payable" owing to each practitioner.
Any suggestions would be appreciated. Cheers!
I haven't done the books for medical practitioners ... but I have done the books for business / companies that use clearing accounts.
Clearing accounts assist in reconciling transactions that come from / go to various sources. For example, I often used a payroll clearing account where I code the actual payroll entry to the clearing account and once the cheque is issued, the offsetting entry is to the payroll clearing account rather than all the regular payroll entries. I do this because payroll can be messy. It makes my bank reconciliation easier especially if payroll correcting entries are necessary.
A clearing account is balanced when all the entries come to zero.
It looks as if this practice is using the "due to practitioners" account as a clearing account. It also appears, from what you say, that the practitioners are sharing/renting space with each practitioner responsible for recording their own income and expenses ... as opposed to a partnership. This is common for some (not all) hair salons. One way to tell if this is the case would be if you deduct from or bill to the practitioners any expenses and/or overhead charges?
If this is in fact the arrangement, their sales do not impact the owner's income statement. I'm not sure why you feel the amounts never clear. If the "due to practitioners" account is operating properly, it should clear to zero each month. If not, you need to reconcile and determine why it isn't clearing. It is possible there may be some timing issues.
As you say the owner's reporting seems okay, you must have some kind of reports that are produced that shows you what the owner's sales are versus the other practitioners. I'm guessing the information is coming from the POS machine because you said every transaction goes through the clearing account. That tells me the owner's sales entry must also be "cleared" from this account.
It would be nice to know who did the books before you took over. Does an accountant review the books at year-end and prepare the income tax return(s)? The reason I ask is I use this "test" as a criteria for how comfortable I am when taking over a set of books. If a certified accountant has been overseeing the books ... my comfort level with the accounting setup would be high.
Without seeing the books, the chart of accounts, or a bit more information on the process ... I can only keep guessing on how the flow of information is working. Feel free to post back if you feel I didn't understand your question or you have more questions and/or details.P.S. I would like to remind you there is a difference between information and advice. The general information provided in this post or on my site should not be construed as advice. You should not act or rely on this information without engaging professional advice specific to your situation prior to using this site content for any reason whatsoever.