up Financial Systems
All businesses need to control and manage
their financial affairs. GP practices are no different as
they are classed as small businesses. The role of the practice/finance
manager will include dealing with the finances of the practice.
They will need to maintain the books and records, which
will be used to prepare the financial accounts.
The purpose of accounts is to provide an historic
record of the practice’s financial performance. Provided
that they are prepared promptly after the practice’s
year end, they will be a useful tool in making financial
The accounts are also required so that the
GPs can declare their profits to the Inland Revenue. Other
third parties may also be interested in the accounts such
as Bank Manager and mortgage lenders.
Bookkeeping is the basic recording of the
business transactions. These transactions will usually be
recorded in the cashbook and petty cash book.
The purpose of the cashbook is to record all
the income and expenditure that passes through the bank
account. This should be kept accurately and up to date.
An example of a manual cashbook is shown overleaf.
The cashbook is set out in a columnar format. The right
hand side of the cashbook is used to record the income and
the left hand side records the expenses. In both instances
there will be a total column with several columns to the
right, which are used to analyse the income or expenses
The cashbook should be written up each month
using the remittance advices, paying in books and cheque
stubs. For each income transaction, the details that need
to be recorded are the date received, the details of the
income, the source, the paying-in number (if applicable)
and the amount. Each entry of income should then be analysed
under the appropriate heading. The amount will therefore
be entered twice, once under the total column and once under
the analysis column. For each payment transaction, the details
that need to be recorded are the date paid, the details
of the payee, cheque number and amount. Each payment should
then be analyised under the appropriate expenses heading.
The entries in the cashbook are recorded for each month,
at the end of the month the columns should be totalled.
The total of the analysed columns should agree to the total
of the total column.
For computerised packages, you would still
be required to enter the date received/paid, details of
income/expenses, cheque number/paying in number, the amount
and also what category of income or expenses the transaction
should be analysed to.
Transactions that are recorded in the cashbook
must be supported by documentary evidence (see section on
records that need to be kept). This provides a trail so
that if you need to check entries in the cashbook, these
can easily be traced.
If there are any transactions for which the
documentary evidence is inadequate, you will need to make
enquires to find out exactly what it is. e.g. receive a
remittance advice from the PCT with no details. You should
contact the PCT to find out what the income is for, so that
it can be correctly recorded in the cashbook. If it is not
queried at the time the income is received, it is likely
that your accountant will query it with you, when preparing
the end of year accounts.
At the end of each month the cashbook should
be reconciled to the bank statement to ensure all entries
in the bank have been recorded and are accurate.
The reasons why the cashbook balance (see
below for explanation of this) and the balance per the bank
statement may differ are because of:-
- Timing differences due to outstanding
cheques. There is a delay between the time the cheque
is written and recorded in the cashbook and the time the
cheque clears the bank account.
- Timing differences due to outstanding
lodgements. This relates to items which have been paid
into the bank account but have not yet appeared on the
- The cashbook not being updated with items
which appear directly on the bank statement and which
should also appear in the cashbook e.g. direct debits,
The bank reconciliation should be prepared
to the last day of each month. The stages of preparing the
bank reconciliation are as follows:-
- Rule a line on the bank statement after
the last item in the month.
- Tick off items on the bank statement to
items in the cashbook or on the computer, one by one BUT
do not go past the line you have ruled on the statement.
- Update the cashbook for any items that
appear directly on the bank statement which have not yet
been recorded. e.g. bank charges, direct debits etc.
- Prepare the bank reconciliation as shown
overleaf. The bank reconciliation is the balance per the
bank statement at the end of the month plus any income
which is written in the cashbook, but not yet received
into the bank, less the outstanding cheques. These are
the cheques that have been written and recorded in the
cashbook, but which have not yet cleared the bank account.
(If using a computer package, it is likely this part of
the exercise is done for you as it should list the outstanding
- Prepare the cashbook bank balance as shown
overleaf. The cashbook balance is the cashbook book balance
at the start of the month plus the total income recorded
in the cashbook for the month less the expenses recorded
in the cashbook for the month. The cashbook balance represents
the money that would be left in the bank account, if all
items have cleared the bank. The closing balance should
agree to the bank reconciliation, if not, then you have
made an error. If using a computer program, you should
ensure that the cashbook opening balance on the computer
is correct. If you still have an error, you need to re-tick
the entries on the bank statement to the cashbook / computer.
Be careful to ensure that all entries agree to what appears
on the bank statement transposition errors are easily
made. e.g. You may have entered an amount in the cashbook/computer
as £245, but on the statement its £254. This
is a common error and if you have made such an error your
difference will be exactly divisible by 9, as in this
Most practices will have petty cash which
they use to pay for low value items for example milk, stamps
etc. The transactions that are in cash should be recorded
in a ‘petty cash book’. Each transaction should
be supported by documentary evidence e.g. receipt or a petty
It is advisable that income received in cash
for signing passports, travel vaccinations be kept separately
and banked. Money should then be drawn from the bank account
each month for the petty cash tin. This ensures that all
of the cash income is recorded and accounted for.
Alternatively, if the practice receives a
lot of income in cash, they may prefer to use this cash
to pay for cash expenses, instead of going to the bank to
draw the cash out. However, it is extremely important that
all cash coming in is be recorded and accounted for Inland
Petty cash should be reconciled each month
to the amount of money left in the petty cash tin as follows:-
Money in petty cash tin at start of the month
Add: Cash drawn from the bank and/or cash
income received in private fees into tin (if cash income
has been paid into the bank this
can be ignored)
Deduct: Petty cash expenses per book (x)
Balance of cash, this should agree to the
amount of x
cash in the petty cash tin.
Practices may wish to use the ‘imprest system’
for controlling petty cash. This is where a set amount is
used as a running balance for each month. At the end of
the month a transfer from the bank would be made so that
the money in the petty cash tin was the same at the start
of the month. e.g.
Cash in tin at start of month £ 100
Cash Expenses £ (60)
Balance of cash in tin £ 40
Cash drawn from bank for next month £ 60
Cash in tin at start of next month £100
Therefore whenever you counted the petty cash,
the cash plus expense receipts will always equal £100.
Control of the petty cash tin should be limited
to as few staff as possible and kept under lock and key.
This is an area where money can be misappropriated.
that need to be kept
There should be documentary evidence to support
all transactions for Inland Revenue purposes. It is advisable
that the following records are kept for maintaining the
- A file for income received, which should
include all remittance advices to support each income
transaction recorded in the cashbook, these should be
filed in date order.
- Record of unpaid and paid fees for medical
reports. This can be kept in a book, which records the
date the invoice is sent, to who and for how much. The
book should be updated for the date when the income has
been received. This will allow any unpaid invoices to
be easily identified and payment chased. The invoices
issued can be kept in an unpaid folder, and transferred
to the income file once received.
- Old paying in books.
- A file for unpaid invoices and paid invoices.
Once an invoice has been paid it should be transferred
to the paid invoices file and filed in order of the date
- It is advisable that all invoices record
the date paid and the cheque number.
- Old cheque stubs.
- All bank statements should be kept for
each bank account that the practice has.
- All bank statements relating to mortgages
- All receipts to support petty cash expenses
or petty cash vouchers.
Records should be kept for each accounting
period. All these records will need to be kept for seven
Budget setting and the cashflow forecast
It is a useful management tool to prepare
a budget and cashflow forecast for the forthcoming year.
A budget is a predication of the profitability of the practice.
This will take into account all income that is receivable
in the year and all expenses that are payable e.g. a practice
with a 31st March 2006 year end should include the income
for the quality and outcomes achievement in their budget,
even though it will not be received until after the year
end. This is included as it is income which has been earned
in the practice year.
The cashflow is quite different from the budget
as it looks as the actual income and outgoings and when
physically received or paid into/from the bank account.
In the example of a practice with a March year end, their
budget for the year would include the QOF achievement payment,
but the cashflow would only include the monthly aspiration
payment. This is because the income would be paid into the
bank account after the year end. Another difference is that
the budget looks at profitability, whereas the cashflow
looks at the liquidity of the practice.
How to prepare a budget
The two essential things you need to know
when setting a budget is the income and expenses for the
Firstly, you need to include all the income
the practice expects to receive in the budget. This should
be fairly easy to do as a practice would know their list
size and how much this would give for the global sum. If
receiving the MPIG correction factor, again this will be
known. PMS practices will know what their PMS budget is
for the next year. The practice should also be able to estimate
the expected quality points and the income this will generate.
The practice budget should include all other income that
is expected to be received. If this is difficult to predict,
the best estimate is the figure per the last set of accounts.
Next, the practice should estimate the expected
expenditure of the practice. As a starting point for setting
the budget of expenses, the practice could use the last
set of accounts which would show the actual expenses incurred.
These could be adjusted for changes which you expect to
occur in the forthcoming year, such as employing an additional
nurse or redecorating the surgery, the budget for salaries
/ repairs should include take account of this.
The budgeted cashflow can be compared to the
actual income and expenses recorded in the cashbook. This
will allow the practice to see if they are under or over
the budget. The budget is not set in stone and can be reviewed
an amended throughout the year.
The annual budget can then be used to prepare
a cashflow forecast.
It is important that the cashflow of a business
is managed. It is quite separate from establishing whether
a practice is profitable. Businesses that go into liquidation
do so, not because they are unprofitable, but because they
are unable to pay their debts on time. This is normally
due to not having enough cash in the bank account to meet
The cashflow forecast allows practices to
identify months where they may need additional funding to
ensure that they do not overdraw in the bank account. If
this is known in advance they could plan for it. For example,
if the cashflow shows that the bank could overdraw in certain
months, then they could plan for this by arranging short
term borrowings or the partners could take less drawings.
How to prepare
a cashflow forecast
The cashflow is based on the budget for the
income and expenditure received and paid.
You need to enter all the income in the months that it is
expected to be physically received into the bank account.
e.g The income for the quality and outcomes is going to
be paid as an aspiration payment and then an achievement
payment at the end of the year once the actual points achieved
are known. The amount of detail needed in your cashflow
will vary. All the incomings for each month should be added
together so you have a total income for the month.
Next, you need to record all the outgoings
from the practice bank account. This will include the practice
expenses per the budget, the partner’s drawings, tax,
repayment on loans and also cost of purchasing any equipment.
You should record the outgoings when they will happen e.g.
partner’s tax is only paid in January and July. Also
include the total amount for the outgoing e.g. paying a
loan, the budget should only include the interest cost of
a loan, but the cashflow will show the monthly payment.
All the outgoings for each month should be
added together to give a total for the month.
To calculate the effect on the cashflow for
each month, you need to add the incomings to the surplus/deficit
brought forward at the start on the month. From this you
need to deduct the total outgoings for the month, this will
give you the expected surplus/deficit of cash at the end
of the month. This amount is then carried forward as the
surplus/deficit at the start of the next month.
On the next page is an example of a budget and a simple
cashflow forecast for a practice.