In: Accounting
Assume that you are an accountant working for Dr.
Francis Ngyuen, owner of a
sole proprietorship medical practice. Dr. Ngyuen is very busy and
does not have time
to keep his personal financial records. He comes to you and states
that since his
personal income and the income for his medical practice are the
same, he would like
you to include his personal financial records with the accounting
records of his
medical practice. Write a brief explanation of how you would
respond to this
request.
I would respond to this request by advising Dr. Francis Ngyuen against including personal financial records with accounting records of his medical practice.
The reason is that Dr. Ngyuen’s income and expense from his medical practice are attributed to his profession of being a medical practitioner. As such a proper accounting record will have to be kept for his income and expenses from his profession. While his source of income is the same the expenses related to his profession will be different from the expenses incurred by him in his personal capacity. For instance expenses like salary paid to receptionist, office or clinic administrative expenses, cost of advertising his medical practice etc. are all solely attributed to his profession. On the other hand he will have expenses in his personal capacity like cost of buying groceries, clothing, paying tuition fees for his children etc.
Having separate financial and accounting records for his medical practice will allow and make possible for the computation of income, expenses and profits from his medical practice. This is necessary to determine the financial position of his profession and to help him to pay taxes on the profit that he earns from his medical practice. Including his personal financial records with the accounting records of his medical practice will distort the picture and create confusions.