Career and Life Planning Guidebook for Medical Residents

Understanding The Other Side of Medicine The Income Statement The income statement is the most basic of financial statements and one of the most important. It details the money flowing in and out of the organization during a certain period of time. Most organizations produce income statements on a monthly, quarterly, and annual basis. Here are some of the basic categories recorded on the statement. Revenue: The money coming into the organization in exchange for goods or services rendered. Most clinical organizations wait until they are paid for services before the revenue shows up on the income statement. A good income statement will show revenue separately by each provider/category. Total revenue is sometimes known as the ‘Top Line’ of the income statement. Expenses: The money flowing out from the organization in its business operations. The largest expense for a clinic is usually the salaries paid to its employees. Rent, employee benefits, medical supplies, computer hardware and software, and furniture and equipment are other common categories of expenses on the income statement. Net Income: The difference between revenues and expenses. Net income is the ‘Bottom Line’ and indicates how much the organization earned during the designated time period. This income can be reinvested in the organization, or in the case of a private practice or for-profit clinic, is the amount that can be distributed to the owners. The income statement is usually straightforward, and after a short amount of practice, you can see what the categories represent, and how the organization is doing over time. Revenue is known as the "Top Line" and indicates how much an organization is bringing in. Net income is the 'Bottom Line' and indicates how much profit is left after the expenses are accounted for. The Balance Sheet The balance sheet is a little less intuitive than the income statement. It is a listing of the assets, liabilities, and equity of an organization. A key accounting equation is that Assets = Liabilities + Equity. Rearranging this equation, we see that Equity = Assets – Liabilities. In other words, the value of an organization (i.e. the equity) is the difference between its assets and what it owes. However, this is only known as the book value and it may not be closely related to what the company is worth to its shareholders. Let’s look at some of the categories of the balance sheet. 125 WWW.PHYSICIANCAREERPLANNING.COM