Chapter 21: Bookkeeping and Accounting
You probably won’t be the one to take care of keeping records and managing your accounts. You will need to hire an accountant to help you with auditing your books and preparing taxes at the very least. Otherwise, your office staff will do most of the bookkeeping for you. There may be certain times when you need to make a notation in the books, such as for a no-charge or reduced-charge service. But, as with any other facet of your business, it pays to be familiar with your bookkeeping and accounting system so you can provide oversight of the job.
Doesn’t Your Computer System Take Care of Accounting for You?
You may have high expectations of the computer software you have purchased to run your business accounts. After all, the software probably was not cheap, and you probably spent a good deal of time choosing it. Accounting software does not take the place of someone who knows your business and understands how bookkeeping and accounting work. If the staff member who you have designated to use the software is not familiar with it, the first thing you need to do is get them some training on it. Software manufacturers usually offer some type of training, and resellers may offer classes on the software as well. The software is a great help, but if it is not used properly, the results can be a nightmare to sort out.
The Three Functions of Your Office Accounting System
The first way your accounting software will help you is to keep track of patient accounts, including services rendered, cost of services and amounts paid. The second function is keeping track of payments coming into the practice. Small businesses that provide services to their customers typically use the cash basis style of accounting. This means that fees are not entered until they are received and expenses are not entered until the cash is paid or check written. The third function is to record the amounts you paid others, such as lease, utilities, supply purchases and lab fees. If these are all entered into they system correctly, the software can be used to generate daily balance sheets and other reports.
How Databases Work Together in Your Accounting System
Dental clinic software uses databases, or large collections of data, to keep track of each component of your business accounting system. The software accepts information about the current service. It then cross references that information with the other databases and automatically fills in identical information and requests more information needed depending on the database. Some examples of databases used include:
- patient account information
- third-party information (i.e. insurance data)
- procedure information (i.e. procedural codes and usual fee for that procedure)
- practice information (i.e. daily transactions for the practice)
Crediting and Debiting Patient Accounts
The terms “credit” and “debit” are difficult for many people unfamiliar with accounting to understand. This is an important concept to understand, even in the age of computers. It is where inexperienced bookkeepers make the most mistakes. The easiest way to remember how to enter patient payments is that debits from their account increase the balance due. Credits decrease the account balance.
Separate the Two Types of Adjustments for Patient Accounts
Your bookkeeping staff will be making adjustments to patient accounts regularly. One type of adjustment is production changes (charges added). The other is collections changes (payments received). You must keep these separate for accurate records of charges and payments. It is also helpful to have them separate if you want to track payment rates of insurance.
You Tell the Bookkeeper What Procedures You Did
An important component of accurate bookkeeping is for you to let the bookkeeper know what you actually did for the patient that can be charged. You may have a way to enter it yourself if you have the accounting software on computers in each treatment room. Or, you might need to tell the bookkeeper yourself when the patient leaves. This is especially important when you do more or less than what you estimated doing.
Daily Proofing Is Essential
At the end of every day, you need to run a proofing report to ensure that everything has been entered correctly and that there has been no embezzlement. The proofing function compares cash, checks and charges to the amounts typed into the program. Your staff member makes the entries, but it is you who need to check the proofing sheet.
Accounting for Credit Card Purchases
You can get an office credit card to use for purchases related to the business. Although your staff will only write one check per month to pay off the credit card, you need to keep track of the amounts you spend and what you spent them on. This ensures that you have the records you need if you can deduct any of these expenses at tax time.
How to Identify an Embezzler
If you are the victim of an embezzler, you will probably be quite surprised when you find out who it is. Embezzlers typically appear to be hard-working, loyal employees. The truth is that they spend extra time at work to cover their tracks and take over all of the accounting to distract you from what they are doing. Yet, you would not want to accuse every hard-working, loyal employee of embezzling. The only solution is to catch them early by being involved in the daily accounting. You do not have to make the entries, but you do need to check them. Always keep in mind that you are at risk of being taken advantage of by an embezzler so you will pay attention to the money that comes into and goes out of your office.
The best thing you can to do ensure your taxes are done correctly and you do not receive penalties for faulty filing is to work with a tax accountant from the beginning of your startup business. Get recommendations from other dentists. Conduct interviews with several accountants before choosing the one that seems best. Then, have a consultation with the accountant to find out what they will need from you when it is time to file your taxes. The tax accountant can also guide you in reinvesting profits into the business and tell you other ways to cut your tax burden. Keep the records they require, in the way you agree to keep them, and tax time will be much easier for you.