Ethan Rhodes
Hospital accounting is a complex process that involves managing the finances of a hospital, including tracking patient revenues, additional services, and staff salaries. Hospitals often operate as multi-entity organizations with multiple locations and departments, each with its own balance sheet and accounting processes. This makes it challenging to consolidate financial data and maintain accurate records. Furthermore, hospitals typically receive payments from multiple sources, including insurance providers and patients, which can slow down the payment process and create complexities in accounting. To address these challenges, hospitals use specialized accounting software like Tally, which offers features such as inventory management, taxation, and payroll. In this tutorial, we will explore how to use Tally for hospital accounting, covering topics such as creating company profiles, managing ledgers, and recording transactions. By the end of this tutorial, you should be able to efficiently manage hospital accounting and generate accurate financial reports using the Tally software.
| Characteristics | Values |
|---|---|
| Purpose | Hospital accounting is a system of accounting that accumulates, communicates, and interprets historical and projected economic data to determine a hospital's financial position and operating results. |
| Accounting Software | Tally ERP 9, Tally Prime |
| Accounting Features | Ordinary bookkeeping, inventory, taxation, payroll, multi-entity capabilities, real-time data, integration flexibility, multi-currency consolidation |
| Hospital Accounting Complexities | Diverse parties involved (patients, insurance providers, healthcare suppliers, government programs), multiple locations or independent departments, accounts receivables, insurance disputes, patient payments |
| Accounting Practices | Standardized cost assignments, specific cost tracking, doubtful allowances, separate registers for incomes, balance sheet, income statement, revenue expenditure |
| User | Doctors, hospital accountants, hospital CFO |
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What You'll Learn
Recording patient revenues, additional services, and staff salaries
Patient Revenues
Recording patient revenues in Tally involves creating sales vouchers for each patient encounter or transaction. Here are the steps you can follow:
- Go to the Gateway of Tally and select Accounting Vouchers.
- Choose the appropriate voucher type, such as Cash Sales or Credit Sales, depending on the nature of the transaction.
- Enter the patient's name or account number in the "Party's A/C Name" field.
- Select the relevant service or item from the list of stock items.
- Specify the quantity and rate of the service or item.
- Enter the applicable tax details and additional charges, such as transportation or insurance.
- Save the voucher, and the revenue amount will be recorded against the patient's account.
Additional Services
Recording additional services provided to patients can be handled similarly to patient revenues. Here's an outline:
- Create a sales voucher as mentioned above.
- If the additional service involves purchasing items or services from a supplier, record the transaction using a Purchase Voucher.
- Include any additional costs, such as transportation charges or insurance, in the voucher.
- You can also record free items or samples received from suppliers by mentioning the actual quantity and billed quantity.
- Save the voucher to accurately track the expenses associated with the additional services provided.
Staff Salaries
Recording staff salaries in Tally can be done through payroll vouchers or payment vouchers. Here's a step-by-step guide:
- Go to Gateway of Tally > Accounting Vouchers > F5: Payment.
- Change the voucher date if needed using F2.
- Select Payroll Auto Fill and choose the "Salary in Process" for the relevant period.
- Enter the from and to dates for the salary payment.
- Select the appropriate employee category and the specific employee from the list.
- Choose the correct bank or cash ledger from the list of ledger accounts.
- Enter the salary amount and save the voucher to record the salary payment.
By following these steps, you can effectively record patient revenues, additional services, and staff salaries in Tally, ensuring accurate financial reporting for your hospital.
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Managing multi-entity accounting
Hospitals often operate as multi-entity organisations, with multiple locations or independent departments, which makes hospital accounting more complex. Each entity within the hospital system has its own balance sheet and accounting processes, but all financials must be consolidated to give an accurate overview of the parent company's finances. This can be done manually, but it is time-consuming and requires accountants to conduct intercompany eliminations to avoid double-counting.
To streamline this process, hospital accounting software with built-in multi-entity capabilities can be used. This allows for accurate and efficient consolidation of data. When selecting such software, it is important to consider the unique needs of hospitals, such as the need for real-time data, integration flexibility, and multi-entity and multi-currency consolidation.
Additionally, hospitals have more complex accounts receivables than traditional businesses as they receive payments from multiple sources, including insurance providers and patients. To address this, hospital accountants use a doubtful allowance—an adjustment based on an estimated percentage of revenue expected to be collected. This adjustment helps reflect the revenue likely to be collected more accurately and aids in effective cash flow management.
When managing multi-entity accounting in Tally, it is possible to create a group company to view all your companies in one place. This allows for the consolidation of financial reports such as balance sheets, profit and loss accounts, and trial balances without impacting the transactions of the member companies. To ensure proper consolidation of accounts and accuracy of reports, it is recommended that member companies have the same base currency symbol, formal name, and uniform books/charts of accounts.
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Creating a company for medical professionals
Medical professionals can create a company in Tally to maintain their records and record all transactions of their medical profession. Here is a step-by-step guide on how to do this:
Firstly, navigate to the "Company Info" section in Tally by selecting "Tally → Company Info". From there, you can choose the “Create” option to initiate the company creation process. During this step, it is important to fill out the company creation form accurately, ensuring that you select the “Account only” option for maintenance. This is because, as a medical professional, you are a service provider and not involved in the purchase or sale of goods.
Once the company is created, you can proceed to create a ledger for accounting purposes. Navigate to “Gateway of Tally → Account Info → Ledger → Create”, and input the relevant account information under different groups. For example, you can include the capital account of the doctor, office expenses (rent, lighting, water, employee salaries, telephone expenses), depreciation on equipment and furniture, and any other indirect expenses. It is important to note that gross profit calculation is not required for medical professionals as they are neither salesmen nor selling any products.
After setting up the ledger, you can start recording transactions. When fees are received from patients, you can enter this data into a receipt voucher. Additionally, you can use different voucher types for various transactions, such as the F4 - Contra Voucher for depositing or withdrawing amounts from the bank, the F5 Payment Voucher for recording payment expenses, and the F7 Journal Voucher for any other voucher entries.
By following these steps, medical professionals can effectively create a company in Tally, enabling them to maintain their financial records and gain valuable insights into their practice's performance.
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Tracking costs for stock items
Enabling Cost Tracking
To enable cost tracking in TallyPrime, go to the stock item master by pressing Alt+G (Go To) > Create Master/Alter Master > type or select "Stock Item" > press Enter. Alternatively, navigate through the Gateway of Tally to Create/Alter and type or select "Stock Item". In the Stock Item Creation screen, press F12 (Configure) and set "Is Cost Tracking applicable for Stock Items" to "Yes". You can also enable cost tracking specifically for the current stock item by pressing Ctrl+I, selecting "Cost Tracking", and setting it to "Yes". Don't forget to enter other required details and accept the screen.
In Tally.ERP 9, cost tracking can be enabled from the Inventory Features screen. Go to Gateway of Tally > Inventory Info > Stock Items > Create/Alter. Set "Enable Cost Tracking" to "Yes". Make sure you have selected the unit of measure for the stock item; otherwise, the "Enable Cost Tracking" option will not appear. Enter other required details and press Enter to save the stock item.
Tracking Costs
Once cost tracking is enabled, you can track various costs associated with a particular quantity of a stock item. This includes procurement costs, landing costs, manufacturing costs, order costs, and job costs. You can view the Item Cost Analysis report in TallyPrime to track the overall expense of a stock item and check the cost price per piece. The balance at cost is also available in this report, along with expense and revenue details.
Cost tracking can be applied to accounting ledgers grouped under Expenses & Incomes (Direct/Indirect), Purchases & Sales accounts. When recording an expense in a Payment transaction, you can select the cost tracking details in the Stock Item Allocations screen. Ensure that the "Enable Cost Tracking" option is set to "Yes" in the expense ledger.
Creating Cost Tracking Numbers
In TallyPrime, you can create a cost tracking number to track expenses, revenue, and profit and loss for a specific order. When you receive a customer order, raise a sales order and create an item cost tracking number. Mention this number in all related documents, such as purchases, payment vouchers, and sales documents. This allows you to track the complete financial details of each item in the order.
Tracking Costs in Transactions
Cost tracking can be applied to various transactions, such as sales orders, job orders, receipt notes, and delivery notes. When creating a sales order, go to Gateway of Tally > Vouchers > press F10 (Other Vouchers) > type or select "Sales Order". Select the Party A/c name, specify buyer details, and select the Sales ledger with cost allocation enabled. Choose the item, enter the quantity and rate, and press Enter. The List of Cost Tracking Numbers will appear, where you can specify the New Number.
In Tally.ERP 9, cost details can be tracked in the Stock Item Allocations screen of purchase transactions. Ensure that the "Enable Cost Tracking" option is set to "Yes" in the stock item master. Cost tracking details are also available in Manufacturing Journals.
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Using standardised cost assignments or specific cost tracking
Hospitals use two primary approaches to cost accounting: standardised cost assignments and specific cost tracking. This answer will focus on these two approaches and how they can be applied in hospital accounting in Tally.ERP 9.
The standardised method assigns a set cost to each procedure or type of care. This can simplify processes, but may lead to inaccuracies in complex cases where resource usage varies. For example, two nurses might use different amounts of medical supplies, affecting the true cost of care. This approach can be useful for creating a standard unit cost for each delivered service, such as setting a bone or delivering a baby. However, it is important to note that this method may not capture the true cost of care in all cases.
Alternatively, tracking specific costs provides a more nuanced view of hospital finances. This approach allows hospitals to control costs more precisely, improve financial forecasting, and make strategic decisions about service offerings and resource allocation. For instance, by tracking specific costs, hospitals can identify areas where costs are higher than expected and make adjustments accordingly. This method also supports better patient outcomes by giving medical staff insights into care-related trends and enhancing patient care management.
In practice, hospitals often use a combination of these two approaches. Standardised cost assignments can be used as a starting point, and then specific cost tracking can be employed to identify and address any variances. This allows for a more flexible and responsive approach to hospital accounting.
When using Tally.ERP 9 for hospital accounting, it is important to customise the software to meet the specific needs of the hospital. This may involve setting up different cost centres for each department or entity within the hospital, as well as creating ledgers for various types of expenses. By utilising the customisation features of Tally.ERP 9, hospitals can streamline their financial processes and improve accuracy in their accounting practices.
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Frequently asked questions
Hospital accounting is a system of accounting that records, communicates and interprets historical and projected economic data to determine a hospital's financial position and operating results.
Hospital accounting is more complex than traditional businesses due to the involvement of diverse parties such as patients, insurance providers, healthcare suppliers, and government programs. Hospitals often receive only partial payments and must deal with insurance disputes, leading to delays in receiving full payment. Additionally, hospitals have complex accounts receivables and may operate as multi-entity organisations, making financial consolidation challenging.
Hospital accounting software should provide real-time data, easy integrations, and support multi-entity and multi-currency consolidation. It should also allow for accurate financial overviews, effective cash flow management, and streamline financial operations.
Tally is a popular accounting software that can be customised for hospital accounting. To use Tally for hospital accounting, you can follow these steps:
- Create a company for the medical profession, selecting the "Account only" option as doctors provide services instead of selling goods.
- Set up the company features, enabling "Maintain Accounts", "Enable Bill-wise Entry", and "Enable Cost Centres".
- Create ledgers for different accounts, such as the capital account of the doctor and office expenses.
- Record all transactions, including fees received from patients, using voucher entries.
- Utilise the Sushruta module for effective management and error-free patient data handling.
