The top five accounting terms every PCN needs to understand
· Posted on: July 30th 2025 · read
Although the abundance of financial terminology can at times seem complex, the solid grasp of a few core accounting principles is crucial for Primary Care Networks (PCNs) looking to manage their finances with confidence and clarity.
As specialists in PCN finance, MHA believe that these are the top five accounting principles which are fundamental for those involved in managing or overseeing PCN operations.
1. Income and Expenditure
An Income and Expenditure (I&E) statement presents a summary of the income received and expenses incurred over a set period, ultimately revealing whether the net result of these is a surplus or a deficit.
Within the context of PCNs, much of the income is linked to specific clinical services which are not specifically designed to generate profit. Core funding, however, is intended to cover the network’s operating costs. Any overspend or underspend against this core funding usually results in a surplus or deficit, which is either owed to or recoverable from the member practices.
2. Balance Sheet
While an I&E sheet reflects financial activity over a period, the balance sheet provides a snapshot of the PCN’s financial position at a specific moment in time.
All balance sheets are based on the fundamental accounting equation:
Assets – Liabilities = Equity
For PCNs, equity represents the accumulated funding contributed by member practices that support the network’s operations. This can be compared to a partner’s current account in a traditional GP practice partnership, as it shows the net funds retained within the PCN.
3. Accruals basis
The principle of accruals means that income and expenses are typically recorded in the period that they relate to, regardless of when any cash actually changes hands. This approach tends to give a more accurate and consistent picture of financial performance over time.
For example, funding from the Additional Roles Reimbursement Scheme (ARRS) for services delivered in March 2025 might not be received until May. To accurately reflect the financial position for the 2024/25 year, this income should be recorded in the accounts for that year, matching it with the related costs.
4. Debtors and Creditors
A debtor is an amount owed to a PCN that has not yet been received by the date on the balance sheet. Typical examples of this can include outstanding payments such as IIF achievements, CAS improvements, and ARRS reimbursements.
In contrast, a creditor represents money that the PCN owes to other parties. This might typically include payments due to member practices for services like care home support, or unpaid supplier invoices, such as those for third-party ARRS staffing costs.
5. Deferred Income
Deferred income refers to funds received in advance for services that are yet to be fully delivered. In such cases, we would generally consider it appropriate to postpone recognition of the income until any activities related to it have been completed.
We would like to note that simply having unspent funds does not automatically justify deferring income. The critical factor is whether there is a genuine risk of repayment if the agreed services are not provided – especially since Integrated Care Boards (ICBs) may reclaim any unused funds.
Choosing to defer any income is an action which may result in significant tax implications, and so we would strongly recommend consulting your accountant before making a decision to defer any income.
These five principles are fundamental when it comes to underpinning accurate PCN financial reporting. If you’d like further clarification on any aspect of PCN accounting or bespoke advice tailored directly to you, please feel free to get in touch with our team of dedicated healthcare specialists.
