Accounting Howto Question

[Jack McKinney]

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Big Brother tells me that Scott Robinson wrote:
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> I have been trying to figure how to best track my medical bills, in=20
> such a way as to reconcile my accounts with the various statements I=20
> get. Here is a typical example. I go to the medical clinic for a doctor=
=20
> visit. The clinic charges me for the visit, and submits a claim to my=20
> health insurance company. There is usually a negotiated discount=20
> applied against the charge. Then the health insurance company pays the=20
> clinic the remaining amount, less my co-payment. To add some amounts to=
=20
> this description:
>=20
> 1. Clinic charges $100.00, and submits claim to health insurance=20
> company.
> 2. A $10.00 negotiated discount is applied towards the charge.
> 3. Health insurance company pays $75.00 to the clinic.
> 4. I pay $15.00 to clinic.

    Create a "Accounts Payable: Dr. John Doe" account.  This is a liability
account.  Also create an "Expense: Medical" account, which is, of course,
an expense account.

1. When the clinic charges you $100, create a credit of $100 to the AP
account, and a corresponding debit of $100 to the expense account. You
are now officially $100 in debt 8-).  Specifically, you have $100 in
accounts payable.

2. To apply the discount, debit $10 to the AP account, and credit the
expense account $10.  Alternately, consider the original journal entry
to be only $90 instead of $100.

3. Medical insurance payments are not considered income for tax purposes,
so you do not want to create an income account for their payments. The
easiest way to apply the insurance payment is to debit your AP account
$75, and credit the expense account, just as in #2.  However, the
description field for #2 should be "Discount", and the description
field for #3 should be "Acme Medical Insurance Company".

4. Your balance on the AP account should now be ($15).  Pay it, and enter
the check as a credit of $15 to your Assets:Cash in Checking account, and
debit your AP account $15.  It now has a zero balance, and you are out of
debt!

     I do not use gnucash, as I had already written my own web-based
accounting system, though I plan to keep my books in parallel, just
to give gnucash a fair review.  However, my system is a standard
double entry system, just like gnucash, and it works much the same.
The standard way to do accounting for payments that are offset from
bills is the AP/AR system.
     For every bill I get, I have a separate AP account.  I have one for
the telphone company, one for the gas company, and one for the electric.
I have an expense account called Houses, with a subaccount called
"123 Maple St." (well, my real address here).  I also have subaccounts
for my previous houses.  Each House subaccount has a "Utilities" subaccount,
as well as a "Rent" subaccount (except for my current house, which I own.
It has an "interest" subaccount to track interest paid on the mortgage).
     When my electric bill comes in, I enter the amount in two accounts:

Liabilities.Accounts Payable.Pedernales Electric Company    -and-
Expenses.Houses.123 Maple St.Utilities

     When I pay the bill, I enter it in my checking account at the
AP account.  By looking at the balance of Liabilities.Accounts Payable,
I can find out how much I currently owe.   Further, I enter the date
of the transaction for the bill as the bill's due date.  Also, by
rolling all of my expenses into one Expense account, I know how much
to budget each paycheck by dividing the last 12 months total in the
Utilities subaccount by 24...

     I even track amazon.com purchases this way.  I have an AP account
called amazon.com.  When I order $100 of stuff, it gets a credit. When
they break up my order and ship $30, they only charge my card $30. At
that point, I enter the $30 into my checking account and the amazon.com
account, etc., etc.

--=20
"There is no parameter that makes it impossible        Jack McKinney
     for you to perform still more excellently."       jackmc@lorentz.com
   -Mario Cuomo, on the lack of a clock in baseball    http://www.lorentz.c=
om
1024D/FBED2DAA 4096g/3F93879F
2002 Chicago Cubs magic number: 106

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