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 that generate under 5 million dollars in revenue each year, are eligible to elect either cash or accrual accounting methods.
An online search on cash vs. accrual accounting will return many well-written articles by qualified CPAs, comparing the pros and cons of both methods. It can get confusing, as some accountants will advocate accrual accounting whereas others will make a strong case for cash accounting. Depending on what type of business you own, choosing the wrong method won’t serve your company’s best interest.
Dental, medical, and other similar service type businesses should use cash accounting from dental bookkeeping. The reason why is due to the fact that it’s simple, and doesn’t require a full-time bookkeeper. That being said, it’s important to record all income and expense transactions. Without using a record keeping software program, you are guaranteed a massive headache when it comes to monthly budgeting and year-end tax preparation.
If you can avoid it, accrual accounting shouldn’t be used because it results in a higher business expense and the need for a dental accounting service. Accounts receivable and accounts payable entries require regular monitoring in order to accurately reflect a business’s finances. 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. Let’s face it, patients don’t regularly pay their bills nor do all insurance companies pay medical or dental claims as expected.
The low reimbursement rates by insurance companies and relatively low patients collection can pose a real problem for dental and medical practices using the accrual accounting method. Having to deal with a sizeable massive accounts receivable write off down the road isn’t something business owners should have to deal with.
Using the cash accrual method doesn’t mean you won’t ever need a dental CPA or dental bookkeeping services. Keeping things simple will save you a lot of hassle when dealing with business finances. Thus, this is the reason why many small business owners prefer to use cash accounting. 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.
Outsourcing your bookkeeping for even a few hours a month can make a huge difference. It is important to remember that your business will get back what you invest in it, so it’s important to find high-quality dental and medical accountants. If you want to grow your practice and invest in your business, it is important for you to work with only the best.