A Medical practice can be looking like it’s doing great, profitable but still run out of cash. It’s quite a common occurrence. Claims going out. Some paid. Some denied. Providers and employees expect timely payments.
Good medical practice bookkeeping normally comes down to three things. Where does the money come from? Where did it go? How much is left?
The following blog covers the most troublesome areas. Owner draws, provider compensation, and medical payroll reconciliation.
Why Medical Practice Bookkeeping Is Different
Most small businesses are just paid once in a while by a single customer. Bookkeeping for medical practice requires covering payments from several sources. These would include Medicare, Medicaid, insurers and patients.
Each of them pay on their own schedules. Look at a practice that submits claims of say, $10,000 a month. Maybe they’d get $7,000 back. The gap is easy to figure out. It could be denials, pending claims, or contractual write-downs.
You should not record the full $10,000 as cash. Otherwise, you will find yourself blindsided with an empty bank account.
A good medical office bookkeeping system would:
- Separate owner draws and business expenses
- Track insurance payments and patient collections separately
- Pay attention to accounts receivables aging
- Record payroll liabilities
Provider Compensation: Put the Deal in Writing
Providers can be paid in several ways. Some receive a fixed salary. Some may earn a percentage of collections. On the other hand, some may have a mix of a base plus a bonus.
Your books have to match whatever each person's agreement actually says, not what everyone remembers it saying.
Keep a proper provider compensation record. This would be a record of the base pay. Also, record targets, percentages and bonus. Don’t forget adjustments and what has already been paid.
The calculation is easy. If a physician earns 15% of collections and the eligible collections for the month are $100,000, the compensation is $15,000.
Physician compensation accounting is important. This is because what you earn and when you're paid can be in a different month. You could earn a bonus in December, but you're paid in January.
Recording in the correct period is essential. An error could result in someone being overpaid or underpaid. That could affect employee morale. Maybe bring up a lawsuit too.
Owner Draws Are Not Expenses
This is a common mistake we have seen in most physician-owned practices. An owner takes money out but it gets incorrectly recorded as an operating expense.
A draw is an equity transaction. Not an expense. When an owner takes out $5,000, you debit an owner's draw and credit the business checking account.
Quite simply, cash falls, expenses are unchanged and so is your profit. The accounting equation is also balanced.
How it's handled depends on the entity. Each entity type has their own rules. So, confirm yours with your medical practice accounting services provider.
Keep draws separate from salary, expense reimbursements, and personal spending. If the business card pays for a family vacation and it gets booked as office expenses, your operating costs look inflated. Your profit looks smaller than it is. And yes, tax time gets messy.
A dedicated business account and a paper trail for every withdrawal prevent most of this.
Set a distribution policy too. Don't pull money out just because the balance looks good this week. Look at upcoming payroll. Pay attention to the rent, taxes, and vendor bills first. Working capital is what keeps a practice steady.
Medical Payroll Reconciliation: Check the Numbers Every Cycle
Practices run payroll for several people such as physicians, nurses, medical assistants and front desk staff. All of them have different pay with different benefits and deductions. Small errors multiply quickly.
Medical payroll reconciliation means comparing the payroll register to your accounting records and bank activity to make sure everything landed where it should. Check these:
- Gross wages against approved timesheets and rates
- Employee deductions such as health premiums
- Employer payroll taxes and whether they're recorded
- Payroll liabilities for withheld taxes and benefits you still owe
- Net pay vs actual direct deposits
- Processing fees
Here's what it should look like:
| Payroll component. | Amount |
| Gross employee wages | $45,000 |
| Employee deductions | $5,500 |
| Employee net pay | $39,500 |
| Employer payroll taxes | $3,800 |
| Total payroll-related cash needed | $48,800 |
The $39,500 should match what got remitted to employee accounts. The $3,800 should be backed by your payroll reports and tax payments. The employee deductions is money withheld from employees. You owe it to someone else. The liability account should reduce when you remit it. Get that wrong and payroll expense looks overstated.
Review payroll every pay period and do a deeper reconciliation at monthly close. Finding a discrepancy in March is easy. Finding it in December is not.
Practice Revenue Tracking by Payer
Most money arrives from third parties. Practice revenue trackingneeds more detail than deposits. Your records should separate billed charges, contractual adjustments, payments, refunds, and what's still pending.
Say you bill $150,000 in a month. Contractual adjustments take off $35,000, so you expect to collect $115,000. Instead, you collect $90,000. That leaves $25,000 pending.
Is this pending balance claims in process, denials, patient balances, underpayments, or billing errors? Don't let it sit simply in medical accounts receivable. Each type needs a different fix.
Reports by payer, provider, and location show where revenue is strong and where collections lag. They also matter if any provider is paid on collections, since the same numbers drive their checks.
A Chart of Accounts That Actually Helps
A good Chart of Accounts would avoid broad categories like general expenses and miscellaneous income.
A useful chart separates patient service revenue, insurance reimbursements, self-pay collections, and so on. On the expense side it covers clinical wages, administrative payroll, provider compensation, supplies, rent, etc.
Liabilities should include payroll taxes payable, accrued compensation, and patient refunds payable.
Equity should show owner contributions, draws, and retained earnings.
A Monthly Close Checklist
Don't wait for tax season. At the end of every month:
- Reconcile every bank account
- Match card charges to receipts
- Review insurance deposits and patient collections
- Look into odd receivable balances
- Verify provider compensation calculations
- Reconcile payroll registers and liabilities
- Review owner draws
- Record equipment purchases and depreciation
- Review unpaid vendor bills
- Review the income statement and balance sheet
When Outside Help Makes Sense: AccountiPro
When you have more providers, more locations, and more payers, bookkeeping burden increases. At some point, medical practice accounting servicesstart to make sense.
A good medical practice accounting services firm sets up consistent procedures, reconciles payroll, organizes provider pay records, and reviews your statements.
Healthcare bookkeeping services are worth it if you need people who already understand insurance adjustments, collections, and billing workflows.
Consider help when you have physicians on different agreements. Also, if you have frequent payroll discrepancies, hard to track draws, growing receivables. Or maybe you’re late with monthly reports.
Outsourcing doesn't remove your responsibility. You still approve compensation, review reports, and understand major cash swings. The aim is useful numbers, not just entered transactions.
With AccountiPro, you get all that. You get your statements on time, organized, accessible at all times through advanced accounting tools. You get a dedicated team that knows how medical practice bookkeeping works. A team that already knows the complexities and how to make your business succeed. Contact us now so that we can take you through our onboarding process and how working with us can help your business in the long run.
