Top Dental Bookkeeping Mistakes
Dental practices can cost themselves hundreds or even thousands of dollars by making relatively simple accounting mistakes. Here, the CPA and accounting professionals at Only for Dentists detail the top dental bookkeeping mistakes.
Recording Transactions in a Previous Period
Dental practices should “close their books” at the end of every month, which includes reconciling all of the various accounts and preparing financial statements. Closing the books on a monthly basis helps practices catch major mistakes—such as transactions being recorded in the wrong month—which can lead to discrepancies between balance adjustments and financial reports. These discrepancies can cause a myriad of problems, and could even incur penalties from the IRS. Closing the books each month is an easy fix to a potentially destructive problem.
Forgoing an Industry Standard Chart of Account
The chart of account is an accounting tool that lists each type of item for which money or credit is spent or received. For dental firms, this will include a list of clients, insurance companies, office expenses, payroll and more, all with their corresponding expenditures or payments received. While standard charts of accounts exist, one developed specifically for the dental industry can help dental firms better manage their accounts, streamline expenses and determine how to better increase profits.
Confusing Cash Flow with Profit
A dental firm’s profit and cash flow are two separate and unique entities, and understanding what each entail is critical to dental accounting success. Profit is determined by subtracting total expenses from total revenue. An indication of profit is not an indication that there is necessarily cash available for large purchases: the cash flow statement will determine this. Cash flow is the amount of money coming into and out of a dental practice’s bank account every month, and is measured by the cash flow equation, which factors in accounts receivable, inventory and depreciation expenses.
Failing to Properly Classify Personal Expenses and Distributions
Dental practitioners who work for their own firm will either take a salary or regular distributions, depending on the structure of their practice. If a practitioner takes cash distributions, they should not be listed under expenses for the firm, as they are neither salary nor payroll. Failing to properly classify distributions can lead to a firm underpaying their taxes. Furthermore, it is important to understand that personal expenses, such as individual estimated taxes, personal food and drink, entertainment or similar expenses are not tax-deductible, and should also be recorded as distributions.
Choosing a General Practice Accountant
Dentists are specialized practitioners with specific needs, so why shouldn’t their CPAs specialize in the unique needs of dental professionals? As our name implies, Only for Dentists is dedicated solely to helping dental practitioners and their firms with their accounting needs. This helps prevent costly mistakes, allows dental firms to maximize profits and ensures practitioners receive the specialized assistance they need, whether during tax time or year-round. For more information, contact Only for Dentists today!
