Your practice is busy. The schedule is full, patients keep coming, and deposits hit the bank every day. Yet when you ask how much the practice actually earned last month, nobody can say with confidence. Insurance payments arrive weeks after the visit, patient balances sit uncollected, and the books lag far behind reality. If that sounds familiar, you are not alone: medical and dental practices have some of the most unusual revenue patterns of any small business.
This guide explains what a healthcare practice needs to track every month, how to handle insurance and patient payments correctly, and where owners most often go wrong. It is written for practice owners, not accountants, so every term is explained in plain English.
Why Medical and Dental Bookkeeping Is Different
Most small businesses sell something and get paid by the customer. A practice usually gets paid by two parties for the same visit: the insurance company and the patient. The amount you bill (your charge) is rarely the amount you collect, because contracted insurance rates reduce it. That gap creates several bookkeeping challenges:
- Delayed revenue: A claim submitted today may not be paid for 30 to 60 days or more.
- Contractual adjustments: The difference between your fee schedule and what an insurer agrees to pay is not revenue and not an expense. It must be recorded correctly or your income will be overstated.
- Split payments: One visit can produce an insurance payment, a copay, and a later patient balance.
- Refunds and denials: Insurers sometimes recoup payments, and patients are sometimes owed credits.
- Strict recordkeeping: Patient financial data is also protected health information, so access to your books and billing system should be limited.
Monthly Bookkeeping Tasks Every Practice Should Complete
1. Reconcile every bank and merchant account
Match your bank statements to your accounting software each month. Practices often have several deposit streams: insurance EFTs, card processor deposits, patient financing payouts, and checks. Card processors usually deposit net of fees, so record the gross sale and the processing fee separately rather than booking only the net deposit. Our guide to bookkeeping services covers how a monthly reconciliation fits into a full close.
2. Record revenue from your practice management system
Your practice management or billing software is the source of truth for charges, adjustments, insurance payments, and patient payments. Each month, summarize those figures and compare them to the deposits in your bank. Differences point to unposted payments, deposits sitting in the wrong account, or errors in the billing system.
3. Track accounts receivable by payer
Accounts receivable (AR) is money owed to you. Split it into insurance AR and patient AR, and review an aging report that groups balances into 0-30, 31-60, 61-90, and 90+ days. Claims that age past 90 days are far harder to collect. If your AR keeps growing while your revenue stays flat, your billing process needs attention.
4. Separate overhead into clear categories
A practice has a predictable cost structure, and your chart of accounts should mirror it. Typical categories include:
- Clinical and dental supplies
- Lab fees (for dental practices, often a major line item)
- Staff wages, payroll taxes, and benefits
- Rent and equipment leases
- Malpractice and liability insurance
- Software, billing services, and clearinghouse fees
- Continuing education and licensing
- Equipment depreciation
Tracking these as percentages of collections makes it easy to spot problems. Many practices review staff costs, supplies, and rent as a share of collections every month to see when one line is drifting.
5. Handle payroll accurately
Staff costs are usually the largest expense in a practice. Make sure hygienists, assistants, and front-desk staff are classified correctly, and that associate doctors are properly treated as employees or independent contractors. Misclassification is a common audit trigger. If you want this handled for you, see our online payroll services.
Insurance Payments, Adjustments, and Patient Balances
The most common mistake we see is recording revenue only when the deposit lands. That is cash-basis thinking, and it can work, but it hides what is owed to you. Whichever method you use, the key is to be consistent and to understand what the numbers mean.
- Record the gross charge at your standard fee.
- Record the contractual adjustment as a reduction of revenue, not as an expense.
- Record insurance payments against the insurance receivable.
- Record patient payments against the patient receivable.
- Write off bad debt only after reasonable collection efforts, and track it separately.
Also watch for patient credit balances. When insurance pays more than expected, the patient may be owed a refund. Those credits are liabilities, not income, and many states have unclaimed property rules that apply if they sit too long. Ask your CPA about the rules in your state.
Tax and Compliance Points for Practice Owners
Healthcare practices are often organized as LLCs, S corporations, or professional corporations (PCs or PLLCs). The structure affects how you pay yourself and how you are taxed. For example, an S corporation owner who works in the practice generally must pay themselves reasonable compensation through payroll. The IRS publishes guidance on this at IRS.gov under S corporation compensation.
- Equipment purchases: Chairs, imaging equipment, and lasers may qualify for Section 179 expensing or bonus depreciation, subject to current limits. Confirm current rules with your tax professional.
- Owner draws vs. salary: Keep these separate in your books, and do not pay personal expenses from the practice account.
- Quarterly estimated taxes: Practices with strong profits should set aside funds throughout the year to avoid penalties.
- Sales tax: Most patient services are not taxable, but retail product sales (such as whitening kits or skincare) may be in some states.
Note: this article is general information, not tax or legal advice. Healthcare tax and privacy rules vary by state and practice type, so confirm your specific situation with a CPA or attorney.
Common Bookkeeping Mistakes in Healthcare Practices
- Booking insurance write-offs as expenses instead of revenue adjustments
- Mixing personal and practice spending in one account
- Ignoring aging insurance claims until year-end
- Not reconciling the merchant account, which causes missing fees and chargebacks
- Having no regular profit and loss review, so surprises show up at tax time
Which Software Works Best?
Most practices pair a practice management system with an accounting platform. Both QuickBooks and Xero work well, as long as someone summarizes billing data into clear monthly entries. The bookkeeper’s job is to bridge the two systems and make sure they agree.
Frequently Asked Questions
How often should a medical or dental practice close its books?
Monthly. A monthly close gives you timely numbers on collections, overhead, and AR while there is still time to act on them.
Should a practice use cash or accrual accounting?
Many small practices use the cash method for taxes because it is simpler, but tracking receivables separately still gives a truer picture of performance. Your CPA can advise which method is allowed and best for your entity.
What is a good overhead percentage for a practice?
It varies by specialty, location, and staffing model, so there is no single right answer. The useful exercise is to track your own overhead as a percentage of collections month over month and investigate large swings.
Can I outsource bookkeeping for my practice?
Yes. Many owners hand off reconciliations, reporting, and payroll so they can focus on patients. Choose a provider that signs a confidentiality agreement and limits access to patient data. See our pricing for transparent monthly packages.
Get Your Practice’s Books Under Control
Clean books show you what your practice truly earns, what is owed to you, and where costs are creeping up. If you would like help, explore our full list of services or contact Ask For CPA to talk about monthly bookkeeping for your practice.
