5 Key Accounting Terms and What They Mean for Primary Care Networks

Primary Care Networks are faced with a growing list of responsibilities, from meeting population health targets to managing increasingly complex funding streams. At the heart of all this lies an essential question: how well do PCNs understand their own finances?

With the financial landscape becoming more intricate, understanding key accounting terms isn’t just the job of your accountant—it’s something every PCN should feel confident navigating. But where do you start, and which terms are most relevant to your network’s operations?

I asked Natasha Payce, healthcare accountant and expert in PCN finance, to share the five most important accounting terms every PCN should know.

Here’s what she had to say…

Corporate buzzwords and financial jargon are everywhere. While everything has its place, this terminology often achieves little more than causing ambiguity and confusion. 

However, as a healthcare accountant, I consider some fundamental accounting terms beneficial for our PCN clients to understand. Let’s unpack this and take a deep dive into these accounting terms, giving you some specifics to take away.  

1. Income and expenditure

An income and expenditure report is the most widely understood method of assessing performance over a given period. It is essentially a statement showing all income due for a defined period less costs incurred, giving a bottom-line position.

In a PCN, much funding is received for specific clinical provisions, with the expectation that these do not generate profit. The core funding, however, is for covering the network's operating costs. Any over or underspend in this area will lead to a surplus or deficit due to/from members.

2. Balance sheet

Whilst income and expenditure are measures of performance over a given period, the balance sheet shows a PCN's financial position at a specific point in time.

As illustrated below, this is driven by the simple formula.

 Assets – Liabilities = Equity 

The equity held fundamentally represents the amount of PCN funding the member practices have left behind to enable the PCN to operate. It is akin to a partner’s “Current Account” within their own practice.

3. Accruals basis

The accruals basis is where income and expenditure are presented in the period to which they relate. This enhances the usefulness of PCN accounts as it enables year-on-year comparison.

This is particularly pertinent for a PCN as most funding relates to a specific period. The timing of income receipts can be incredibly variable, and when not allocated to the relevant period, the PCN accounts would have limited meaning. 

Consider ARRS claims for March 2025, for example, the clinical services have been provided and therefore income earned within the 2024/25 financial year. 

We would expect to see the cash received for the claim in May 2025, which falls in the 2025/26 financial year.  It is therefore important to ‘accrue’ this income in accounts prepared for 2024/25, ensuring it is matched with the associated costs.

4. Debtors / Creditors

A debtor is an amount receivable; that is a person or entity that owes the PCN money at the balance sheet date. A creditor is an amount payable; that is an amount the PCN owes to another person or entity, at the balance sheet date.

Considering PCNs specifically, debtors will generally include income such as capacity and access improvement payments, IIF achievement and ARRS reimbursements received after the balance sheet date.

Creditors would typically include funding distributions, such as care home or capacity and access improvement payments paid to member practices, and third-party additional roles reimbursement scheme invoices, where payments have been made after the balance sheet date.

5. Deferred income  

The concept of deferred income is commonly misunderstood due to its tricky rules and complex criteria. Simply put, in certain circumstances when funds have been received in advance, PCNs can carry forward the income for recognition in a future period instead of the date of receipt.

Income must not be deferred simply because it is unspent; generally, the appropriateness of deferring will be dependent on potential clawback of those funds. For example, if the PCN had not provided the full service agreed upon, would the ICB be entitled to demand the money back?

We would always recommend speaking to your accountant regarding any plans to defer income to reduce the risk of an unexpected tax implication.

6. Test Your Knowledge

Hopefully, I’ve given you some key takeaways, but if you’d like to take this offline for advice on any PCN accounting matter, feel free to reach out and ping me at natasha.payce@mha.co.uk   

In summary…

Understanding key accounting terms isn’t just about ticking boxes—it’s about empowering PCNs to make informed decisions and maintain financial clarity. These five terms are a great starting point for navigating the often-complex world of PCN finance.

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