Charges are not the same as revenue
A practice may charge a fee for a visit, but insurers pay according to contracted rates. The difference is a contractual adjustment, not a loss or a bad debt. Record revenue at the amount you expect to collect, either by recording net collections or by recording charges with adjustments in a contra-revenue account. Whichever method you use, be consistent, and tie your totals to the billing system's reports each month.
Insurance remittances and patient balances
Insurers send explanation of benefits or remittance advice, with deposits that cover many patients. Post deposits from the remittance summary, not from individual patients in the accounting file. Patient balances belong in the billing system. Your books may carry a summary receivable total only, matched to the aging report. Do not put patient names or diagnoses into your accounting software, since that information is protected and does not need to be there.
Supplies, equipment and malpractice
Separate medical supplies, drugs, lab fees, billing service fees, equipment leases, malpractice insurance, licenses, continuing education and professional dues. Larger equipment purchases are often capitalized and depreciated, and your CPA can tell you which election is useful. Keep service contracts and warranties with the asset records.
Payroll and providers
Practices commonly have physicians as owners, employed clinicians, front desk staff and sometimes contractors such as locum tenens providers. Classify each carefully, run payroll through a proper service, and keep credentials and license renewal dates in a calendar. Owner compensation depends on the entity type, so ask a CPA rather than guessing at draws versus wages.
Metrics worth watching
Review days in accounts receivable, collection rate, the amount of aged claims over ninety days, and revenue per visit. If your deposits are shrinking while visits remain steady, the problem may be in claim denials or slow follow-up. A monthly report comparing billing system collections to bank deposits can catch missing payments, such as a check that was posted to a patient but never deposited.
Reconciling the billing system to the bank
Each month, create a three-way check among the billing system's payment report, the bank deposits and the accounting entries. Insurance payments, patient copays, card deposits and any electronic transfers should each tie out. When a deposit has no matching remittance, or a remittance has no matching deposit, investigate quickly because missed or misapplied payments get harder to trace later.
Keep a short list of recurring items that behave differently: capitation payments, quality bonuses, refunds to payers after an overpayment, and recoupments. A recoupment shows up as a reduction of a deposit and should be recorded as a reduction of revenue or a payable, not ignored.
New providers often work for weeks before a payer finishes enrolling them. Track those claims separately so revenue is not lost or written off in error, and note the date each payer approval comes through.
Worked example with numbers
In one month the practice bills $100,000 in charges. Contracted insurance rates reduce that to $68,000 of allowed amounts, a $32,000 contractual adjustment. By month end, $61,000 has been collected from insurers and patients. The books should show $68,000 of revenue, with $7,000 sitting in receivables ($68,000 - $61,000) that should be traced to open claims and patient balances.
If the $100,000 were recorded as revenue, income would be overstated by $32,000 and receivables would never match the billing system. Compare the $7,000 to the billing system's aging report; if the aging says $9,200, the $2,200 difference points to unposted remittances or adjustments to find before the books are closed.
Mistakes that cost money
Booking gross charges as income is the biggest one. Mixing patient deposits or prepayments with operating cash overstates what the practice can spend. Posting each patient copay into the accounting file instead of a daily summary buries you in detail. Treating contractual adjustments as bad debt hides how payers are really paying. Because patient information is involved, limit who can open the file and ask your compliance advisor which privacy rules apply to you.
Check your work
Each month, the billing system's payments report, the bank deposits and the accounting entries should tie to the dollar. Keep a one-page tie-out with the three totals and any reconciling items.
Common questions
Do I need separate accounts for each insurer?
Not usually. One revenue structure with reporting by payer in the billing system is cleaner than many accounts in the books.
Who should have access to the accounting file?
Only people who need it, with patient identifiers kept out. Follow your privacy and security obligations and ask your compliance advisor.
This guide is general information, not tax, legal or accounting advice. Rules, fees and due dates change; check with the IRS, the NJ Division of Taxation or a licensed professional for your situation.