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Education And Debate

Management for Doctors: Financial accounting in the NHS

BMJ 1995; 310 doi: (Published 04 February 1995) Cite this as: BMJ 1995;310:312
  1. Anthony Cook, financial management consultanta
  1. a Copland Associates, Field Lane, Stourbridge DY8 2JQ

    Just as the NHS is changing, so is the world of finance and financial management within it. Indeed, although recent changes seem to be particularly far reaching, the process of change has been with us since at least the NHS reorganisation in 1974.

    To understand recent changes in financial management within the NHS one should first of all understand the distinction between financial accounting and management accounting.

    Financial accounting

    Financial accounting (also sometimes known as stewardship accounting) is the process whereby any organisation needs to have systems in place simply to enable transactions to take place. Wages and salaries have to be paid, supplies (such as drugs) or services (such as electricity) have to be bought, and income has to be collected from customers. All of these transactions have to be conducted properly. In the case of paying salaries, for example, this means not only paying the right salary to the right employee at the right time but also making the right deductions for income tax, national insurance, and pensions contributions; remitting that money to the appropriate authorities; and maintaining the necessary records. In due course these records are summarised to produce (usually) annual accounts. Only in a few comparatively minor respects are the principles of financial accounting any different in the NHS from any other large organisation.

    Historically, modern financial accounting grew out of the industrial revolution of the nineteenth century. Large scale industrial enterprises could be created only with substantial inputs of capital. This in turn required investors to be found and persuaded to part with their money. They in their turn expected a return on their investment and also an account of how the organisation had fared over the previous year. The format of modern financial accounts has therefore grown from the separation of the ownership of an organisation …

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