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An Intro to Accounting and Bookkeeping for Small Dental Practices The process of accounting involves the identification, measuring, and communication of business and financial information for tax returns and decision making. Two well known and commonly used accounting methods are accrual and cash accounting. Small businesses making under 5 million annually will satisfy the IRS qualification that allows them to decide which method to implement. There is a lot of information online provided by CPAs, comparing the disadvantages and advantages of both methods. Not all CPAs share the same views, which is why reading articles online may be confusing for small business owners. Depending on what type of business you own, choosing the wrong method won’t serve your company’s best interest. If you own a small medical, dental, or service type business then you will want to use cash accounting. The reason why is due to the fact that it’s simple, and doesn’t require a full-time bookkeeper. As long as you are able to stay on top of recording all of your business’s expense and income transactions, you should be fine. Using a software program will streamline your business and make the tax preparation process relatively simple.
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Accrual accounting is far more complex and also results in higher business expenses due to requiring the services of an accounting professional. Since this method has both accounts receivable and accounts payable entries, meticulous monitoring and reconciliation is necessary. If a medical or dental practice takes most forms of insurance, accounts receivable won’t actually display the company’s revenue during a certain pertain. In reality, patients don’t always pay their bills within 30 days, nor do insurance companies regularly pay full claims within that time period.
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This is why medical and dental practices using accrual accounting are mislead by their accounts receivable numbers. Having this false sense of income, does not help small business owners make informed financial decisions and later results in an unexpected and significant accounts receivable write off. Although cash accrual accounting is preferred among small service-based, medical, and dental business owners, it doesn’t mean you can avoid having to pay a CPA entirely. The point is to keep things as simple as possible and save yourself from having to deal with unnecessary complications. Small businesses use cash accounting for this reason. Considering, cash accounting also has its drawbacks, such as income forecasting and expense cash flows, it is crucial to seek the advice of a professional. Instead of hiring someone full-time, dental and medical practices benefit from outsourcing their bookkeeping and accounting services. Accounting for dentists and doctors should be outsourced to top quality CPAs and bookkeepers. If you want to keep your practice alive, you owe it to yourself to invest in your practice and stay on top of your financial records.