Meaning and Usage of Elements of Book Keeping in Health Economics

Meaning and Sample Preparation of the following elements of book keeping in detail for public health.

1. Single Entry and Double Entry Book Keeping
2. Books: Day Book, Petty Cash Book
3. Voucher
4. Journal
5. Ledger
6. Balance Sheet

What is Book Keeping?

Bookkeeping is the systematic process of recording, organizing, and maintaining financial transactions and information related to an organization’s or individual’s financial activities. It involves keeping track of income, expenses, assets, liabilities, and equity in a structured manner to ensure accurate financial records and facilitate informed financial management.

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In bookkeeping, every financial transaction is documented, classified, and recorded in a systematic way to create a clear and traceable financial trail. This process helps individuals and organizations understand their financial health, make informed decisions, prepare financial statements, and comply with regulatory requirements.

Bookkeeping involves several key components, including:

1. Recording Transactions: Every financial transaction, whether it involves receiving money, spending money, or transferring assets, is recorded in a standardized format.
2. Classification: Transactions are categorized into specific accounts based on their nature (e.g., revenue, expenses, assets, liabilities) for accurate reporting and analysis.
3. Journal Entries: Transactions are initially recorded in a chronological order in a journal or daybook, along with relevant details such as date, description, and amount.
4. Posting to Ledger: Journal entries are transferred to a ledger, which is a collection of individual accounts. Ledger accounts provide a detailed view of the financial activity within specific categories.
5. Balancing: Double-entry bookkeeping ensures that each transaction is balanced by recording both a debit and a credit. This maintains the accounting equation (Assets = Liabilities + Equity) and helps detect errors.
6. Financial Statements: Bookkeeping forms the basis for creating financial statements such as the Balance Sheet (shows assets, liabilities, and equity) and the Income Statement (displays revenues and expenses).
7. Reporting and Analysis: Accurate and well-maintained records allow for analysis of financial performance, decision-making, budgeting, and forecasting.

Elements of Book Keeping in Health Economics

a. Single Entry Bookkeeping

Single Entry Bookkeeping is a simplified method of recording financial transactions where only one aspect of a transaction is recorded. Typically used by smaller organizations, it involves keeping track of income and expenses without the need for a formalized system of balancing debits and credits. In the context of Health Economics and Public Health, single entry bookkeeping might involve recording basic financial transactions, such as revenue from patient services and expenditures for medical supplies. However, this method may lack the precision and detailed tracking needed for complex financial management, especially in larger public health institutions.

b. Double Entry Bookkeeping

Double Entry Bookkeeping is a comprehensive method where each financial transaction is recorded twice, ensuring that debits and credits are balanced. It forms the foundation of modern accounting and is crucial for accuracy and accountability in financial reporting. In the context of Health Economics and Public Health, double entry bookkeeping ensures that every transaction affecting the financial position of the organization is accurately and comprehensively recorded. This method facilitates the creation of financial statements like the Balance Sheet and Income Statement, providing a clear picture of the organization’s financial health.

c. Books: Day Book, Petty Cash Book

• Day Book: Also known as the Journal or Daybook, this is where all daily transactions are initially recorded in chronological order. In the realm of Health Economics and Public Health, the Day Book could include entries related to patient payments, healthcare service revenues, procurement of medical equipment, and other financial activities.
• Petty Cash Book: This book is used to record small, regular expenses that don’t require detailed invoicing. In a public health context, petty cash might be used for minor expenses like office supplies, transportation costs for healthcare staff, or small-scale community health initiatives.

d. Voucher

A voucher is a document that serves as evidence of a financial transaction. It provides information about the transaction, including date, description, amount, and the parties involved. In Health Economics and Public Health, vouchers might be used to document expenditures for specific activities, such as training programs, medical outreach events, or research projects. Vouchers contribute to the transparency and accountability of financial transactions.

e. Journal

The Journal is where transactions are initially recorded before they are classified and transferred to the appropriate accounts in the Ledger. In Health Economics and Public Health, the Journal might include entries related to patient fees, salaries of healthcare professionals, grants received for research projects, and more.

In the context of accounting, transactions are recorded in the Journal using certain rules for different types of accounts: Personal, Real, and Nominal accounts. These rules are designed to maintain the fundamental accounting equation and ensure accurate financial records. Here are the rules for each type of account:

Personal Accounts: Personal accounts relate to individuals, organizations, or entities with whom a financial relationship exists. They can be classified into three types: Individuals, Firms/Companies, and Organizations.

1. Debit: Increase in the receiver’s account.
2. Credit: Decrease in the receiver’s account.

For example, if you receive money from a customer, you would debit the customer’s account to show an increase in their balance. If you pay money to a supplier, you would credit the supplier’s account to show a decrease in their balance.

Real Accounts: Real accounts represent tangible assets, liabilities, or equity. These accounts do not involve personal relationships but deal with actual resources or obligations.

1. Debit: Increase in the asset account.
2. Credit: Decrease in the asset account.

For example, when you purchase equipment (an asset), you would debit the equipment account to increase its balance. If you repay a loan (a liability), you would credit the loan account to decrease the liability.

Nominal Accounts: Nominal accounts relate to revenues, expenses, gains, and losses. They are temporary accounts that are closed at the end of an accounting period.

1. Debit: All expenses and losses are debited.
2. Credit: All incomes and gains are credited.

For example, when you incur an expense like salaries, you would debit the expense account. If you generate revenue from services, you would credit the revenue account.

It’s important to note that these rules are based on the principles of double-entry bookkeeping, where each transaction has equal and opposite effects on different accounts. These rules ensure that the accounting equation (Assets = Liabilities + Equity) is maintained for every transaction.

f. Ledger

The Ledger is a collection of accounts that provide a detailed record of all financial transactions, classified by categories such as assets, liabilities, revenue, and expenses. In the context of Health Economics and Public Health, the Ledger would include accounts for items like healthcare services revenue, medical supplies expenses, salaries and wages, and any other financial categories relevant to the organization’s operations.

g. Balance Sheet

A Balance Sheet is a financial statement that provides a snapshot of an organization’s financial position at a specific point in time. It presents the organization’s assets, liabilities, and equity. In Health Economics and Public Health, a Balance Sheet could reflect the value of medical equipment, outstanding liabilities like unpaid bills, and the organization’s financial stability.

Sample Preparation of Book Keeping Elements in Health Economics

Suppose a small public health clinic maintains a single entry bookkeeping system to track their financial transactions. Let’s consider a few sample transactions:

Date	Transaction Description	Amount (Nepalese Rupees)
2023-08-01	Received patient fees	10,000
2023-08-03	Paid for medical supplies	2,500
2023-08-06	Received donation for health campaign	5,000

Single Entry Bookkeeping Example:

Solution: The single entry bookkeeping records only one aspect of each transaction, usually the cash received or spent. For the above transactions, the recorded information might look like this:

Date	Receipts (NPR)	Payments (NPR)
2023-08-01	10,000
2023-08-03		2,500
2023-08-06	5,000

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Double Entry Bookkeeping Example:

Now, let’s consider the same transactions using a double entry bookkeeping system:

Solution: In double entry bookkeeping, each transaction affects at least two accounts (debit and credit) to maintain the balance between assets, liabilities, and equity.

Date	Account	Debit (NPR)	Credit (NPR)
2023-08-01	Cash	10,000
	Patient Fees Revenue		10,000
2023-08-03	Medical Supplies Expense		2,500
	Cash	2,500
2023-08-06	Cash	5,000
	Donation Income		5,000

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Sample Day Book:

A Day Book is used to record daily transactions before they are posted to the ledger. Here’s how the Day Book might look for the above transactions:

Date	Description	Debit (NPR)	Credit (NPR)
2023-08-01	Received patient fees		10,000
2023-08-03	Paid for medical supplies	2,500
2023-08-06	Received donation for health campaign		5,000

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Sample Petty Cash Book:

A Petty Cash Book tracks small and frequent cash expenses. Let’s consider some petty cash expenses for the clinic:

Date	Expense Description	Amount (NPR)
2023-08-02	Office Supplies	300
2023-08-04	Transportation	150
2023-08-05	Refreshments for Staff	200
2023-08-07	Medicines Sold	28,000

Solution: The Petty Cash Book records the petty cash expenses:

Date	Expense Description	Amount (NPR)
2023-08-02	Office Supplies	300
2023-08-04	Transportation	150
2023-08-05	Refreshments for Staff	200

Sample Voucher:

A voucher is a document that provides details about a financial transaction. Let’s consider a sample voucher for a healthcare equipment purchase:

Voucher Number: V001
Date: 2023-08-15
Description: Equipment Purchase
Amount: 15,000 Nepalese Rupees
Account: Medical Equipment

Journal Entries Sample:

1. Patient Services Revenue: On January 15, 2023, a public health clinic received NPR 20,000 from patients for various healthcare services provided. Record the journal entry for this transaction.
2. Purchase of Medical Supplies: On March 5, 2023, the clinic purchased medical supplies worth NPR 5,000 for use in its health programs. Make the journal entry for this purchase.
3. Salaries Payment: On April 1, 2023, the clinic paid salaries of NPR 15,000 to its healthcare professionals and administrative staff. Create the journal entry to account for this payment.
4. Health Awareness Campaign Expenses: On June 10, 2023, the clinic organized a health awareness campaign, incurring expenses of NPR 8,000 for promotional materials and event logistics. Record the journal entry for these campaign expenses.
5. Donation for Research Project: On August 20, 2023, the clinic received a donation of NPR 10,000 for funding a research project focused on public health issues. Make the journal entry to reflect this donation.
6. Depreciation of Medical Equipment: At the end of the fiscal year, the clinic estimates that the depreciation on its medical equipment amounts to NPR 2,000. Record the journal entry to account for this depreciation.
7. Grants for Vaccination Program: On September 5, 2023, the clinic was awarded a grant of NPR 30,000 to support a vaccination program for underprivileged children. Create the journal entry to record the grant.
8. Rent Payment for Health Facility: On October 15, 2023, the clinic paid NPR 6,000 as rent for the health facility it uses to provide services. Record the journal entry for this rent payment.
9. Consultancy Fees: The clinic hired a health economics consultant to analyze the cost-effectiveness of its health programs, incurring consultancy fees of NPR 3,000. Make the journal entry for this expenditure.

Solution Journal Entries

Journal Entries of ________

As on 2023

Date	Particulars	L.F	Dr. Amount	Cr. Amount
2023-01-15	Cash a/c Dr		20,000
	To, Patient Services a/c			20,000
	(Being NPR 20,000 received from patients)
2023-03-05	Medical Supplies a/c Dr		5,000
	To, Cash a/c			5,000
	(Purchased medical supplies for NPR 5,000)
2023-04-01	Salaries Expense a/c Dr		15,000
	To, Cash a/c			15,000
	(Paid salaries to healthcare professionals)
2023-06-10	Health Campaign Expense a/c Dr		8,000
	To, Cash a/c			8,000
	(Incurred expenses for health awareness campaign)
2023-08-20	Cash a/c Dr		10,000
	To, Donation Income a/c			10,000
	(Received donation for research project)
2023-12-31	Depreciation Expense a/c Dr		2,000
	To, Accumulated Depreciation a/c			2,000
	(Recorded depreciation of medical equipment)
2023-09-05	Cash a/c Dr		30,000
	To, Grants Received a/c			30,000
	(Received grant for vaccination program)
2023-10-15	Rent Expense a/c Dr		6,000
	To, Cash a/c			6,000
	(Paid rent for health facility)
2023-11-01	Consultancy Expense a/c Dr		3,000
	To, Cash a/c			3,000
	(Paid consultancy fees for health economics analysis)
2023-11-25	Cash a/c Dr		12,000
	To, Health Insurance Receivable a/c			12,000
	(Received reimbursement from health insurance)

Sample Balance Sheet:

As of December 31, 2023, prepare a Balance Sheet for “HealthyCare Clinic.” You have the following information:

• Cash: NPR 25,000
• Accounts Receivable: NPR 8,000
• Medical Equipment: NPR 40,000
• Accounts Payable: NPR 5,000
• Owner’s Equity: NPR 68,000

Solution:

HealthyCare Clinic

Balance Sheet

As of December 31, 2023

Assets	Amount	Liabilities and Equity	Amount
Current Assets		Current Liabilities
Cash	NPR 25,000	Accounts Payable	NPR 5,000
Accounts Receivable	NPR 8,000
Total Current Assets	NPR 33,000	Total Current Liabilities	NPR 5,000
Non-Current Assets		Owner’s Equity
Medical Equipment	NPR 40,000	Owner’s Equity	NPR 68,000
Total Non-Current Assets	NPR 40,000	Total Owner’s Equity	NPR 68,000
Total Assets	NPR 73,000	Total Liabilities and Equity	NPR 73,000

Set 1: Journal and Balance Sheet Practice Questions

Prepare Journal Entries:

1. On January 1, 2023, HealthyLife Clinic received NPR 15,000 from patients as fees for medical consultations.
2. On February 10, 2023, the clinic paid NPR 2,000 for office supplies.
3. On March 20, 2023, HealthyLife Clinic paid its healthcare staff NPR 6,000 as salaries.
4. On April 5, 2023, the clinic organized a health seminar and spent NPR 3,000 on venue rental and refreshments.
5. On May 15, 2023, the clinic received a donation of NPR 8,000 for its community health initiative.

Balance Sheet Preparation: Prepare a Balance Sheet for HealthyLife Clinic as of May 31, 2023, based on the following information:

• Cash: NPR 5,000
• Accounts Receivable: NPR 4,000
• Medical Equipment: NPR 20,000
• Accumulated Depreciation – Medical Equipment: NPR 2,000
• Accounts Payable: NPR 1,000
• Owner’s Equity: NPR 30,000

Set 2: Journal and Balance Sheet Practice Questions

Prepare Journal Entries:

1. On January 1, 2023, CareWell Clinic received NPR 12,000 as grant funding for a vaccination program.
2. On February 10, 2023, the clinic paid NPR 1,500 for transportation costs related to community health outreach.
3. On March 15, 2023, CareWell Clinic provided healthcare services and received NPR 6,000 in fees from patients.
4. On April 20, 2023, the clinic purchased medical supplies worth NPR 2,500 for its medical programs.
5. On May 5, 2023, CareWell Clinic paid its staff NPR 4,000 as salaries.

Balance Sheet Preparation: Prepare a Balance Sheet for CareWell Clinic as of May 31, 2023, based on the following information:

• Cash: NPR 7,000
• Accounts Receivable: NPR 3,000
• Medical Equipment: NPR 25,000
• Accumulated Depreciation – Medical Equipment: NPR 1,000
• Accounts Payable: NPR 500
• Owner’s Equity: NPR 35,000