Simple accounting mistakes can cost dental practices hundreds or even thousands of dollars. In the following paragraphs, our dental accounting firm will provide a list of the top dental bookkeeping errors.
Keeping track of transactions from a previous period
Each month, dental practices should “close their books,” which includes reconciling all of their accounts and preparing financial statements. In addition to catching major mistakes, closing the books on a monthly basis can also help practices avoid discrepancies between financial reports and balance adjustments. These discrepancies can lead to a variety of problems and even incur penalties from the IRS. The problem can be easily fixed by closing the books every month.
Choosing not to use an industry standard chart of accounts
A chart of accounts shows how money or credit is spent or received for each type of item. For dental firms, this will include a list of clients, insurance companies, office expenses, payroll, and more, all with their corresponding expenditures. A chart of accounts specifically designed for the dental industry can help firms better manage their accounts, streamline expenses, and determine how to increase profits.
Misconceptions about cash flow and profit
A dental firm’s profit and cash flow are separate and unique entities, and understanding each is vital to success. Profit is calculated by subtracting total expenses from total revenue. Profit does not necessarily indicate there is cash available for large purchases; the cash flow statement determines this. A dental practice’s cash flow is determined by its cash flow equation, which factors in receivables, inventory, and depreciation expenses.
Misclassifying personal expenses and distributions
It depends on the structure of their practice whether dental practitioners take a salary or receive regular distributions. As cash distributions are neither salaries nor payroll, they should not be included in the firm’s expenses. It is possible for a company to underpay its taxes if distributions are not properly classified. Personal expenses, such as estimated taxes, food and drink, entertainment, and similar expenses, are not tax deductible and should also be recorded as distributions.
Choosing an accountant for general practice
Since dentists are specialized practitioners with specific needs, shouldn’t their CPAs specialize in dental professionals’ needs as well? Our dental accounting firm focuses solely on serving the accounting needs of dental practitioners and their firms. As a result, dental firms can avoid costly mistakes, maximize profits, and ensure practitioners receive the specialized assistance they need, whether during tax season or year-round. Contact our dental accounting firm today for more information.