Accounting 101 For Private Practices: Cash Or Accrual, GAAP, And The Three BigStatements

If you are launching or growing a longevity, hormone, or lifestyle clinic, clean books are not a nice to have, they are a growth tool. The right accounting method, a clinic-specific chart of accounts, and a simple monthly closewill help you read your numbers with confidence, make faster decisions, and avoid cash surprises. This guide answers the most common questions owners ask, in plain English, and gives you a practical setup you canuse from day one.

Cash vs accrual accounting, which should you choose?

Both methods are acceptable for small healthcare practices. What matters is how you get paid, how fast claims settle, and what decisions you need to make each month.

Cash accounting records income when money hits your bank and expenses when cash leaves. Pros: simple, easy to reconcile, helpful for tax planning and cash control. Cons: it hides what you have earned butnot yet collected and can make profitable months look weak if payors delay checks.

Accrual accounting records income when you earn it and expenses when you incur them. Pros: clearer profitability by month, better matching of revenue to the visits that produced it, and a realistic view of marginand seasonality. Cons: more setup, you must maintain accounts receivable and accounts payable, and you need a consistent monthly close.

For hybrid-pay clinics that combine membership plans, cash packages, and insurance, accrual usually gives better management insight. You can still file taxes on cash in some cases while maintaining accrual books foroperations. Choose cash if you are a very small, pay-at-visit clinic with minimal invoicing and you want simplicity. Choose accrual if you submit claims, offer prepaid packages or memberships, use financing partners, orplan to grow. If you are unsure, start accrual on day one and keep your processes lean. You will make better decisions with cleaner trend lines.

What type of accounting is used in healthcare and what is GAAP?

Most healthcare organizations use accrual accounting because it aligns revenue with visits and procedures. GAAP, or Generally Accepted Accounting Principles, is the standard framework that defines how to recognizerevenue, measure expenses, structure financial statements, and apply consistent policies. In a small private practice, GAAP matters for three reasons:

Revenue recognition: record professional fees when services are rendered, and track contractual adjustments, write-offs, and refunds separately.

Matching: align direct costs, such as lab kits and provider compensation, with the revenue they support.

Consistency and comparability: a lender, buyer, or partner will expect your books to follow GAAP conventions, even if you are not audited.

You do not need public company rigor. You do need clear policies, documented close steps, and consistent mapping from your EHR or RCM reports to your accounting system.

Build a clinic-specific chart of accounts

A strong chart of accounts makes your statements useful. Keep it short, consistent, and tailored to your model.

Revenue: professional services, membership revenue, cash packages, telemedicine visits, supplements and retail, lab pass-throughs. Track gross charges, contractual adjustments, and refunds or credits to seetrue net revenue.

Cost of goods sold: lab costs, test kits, retail product cost, provider compensation tied to production if you want contribution margin by line.

Operating expenses: rent and utilities, clinical supplies, EHR and technology, marketing, merchant fees and patient financing discounts, staff payroll and benefits, continuing education, malpractice insurance, legaland compliance, bank and processing fees.

Balance sheet essentials: patient accounts receivable, membership deferred revenue, inventory, prepaid expenses, fixed assets and depreciation, credit cards and lines of credit, accrued payroll and sales taxpayable.

Name accounts so a clinician can read them in seconds. If an account only holds a handful of transactions each year, merge it into a parent category. Your aim is clarity, not detail for detail’s sake.

The three core financial statements and how they connect

Income statement (profit and loss): shows revenue, cost of goods, operating expenses, and net income for a period. It answers, did we make money this month, and on which services.

Balance sheet: lists what you own and owe on a given date, including cash, receivables, inventory, prepaid items, equipment, payables, credit cards, loans, and owner equity. It answers, can we meet obligationsand how healthy is our working capital.

Cash flow statement: reconciles beginning to ending cash by operating, investing, and financing activities. It answers, where did cash actually move, regardless of accrual profits.

They connect through net income, changes in balance sheet accounts, and owner distributions. For example, you might show profit while cash drops because receivables grew and you paid down a credit card. That isnot a surprise when the statements are read together.

How to do bookkeeping for a medical practice

Use a weekly rhythm and a monthly close.

Weekly basics:

• Reconcile bank and credit card feeds.

• Match deposits to EHR or RCM payment reports by payor and date.

• Record bills and reimbursements, including lab purchases and inventory.

Monthly close checklist:

• Reconcile bank, credit card, and loan accounts to statements.

• Tie EHR or RCM reports to the general ledger. Post patient accounts receivable, contractual adjustments, refunds, and chargebacks.

• Update deferred revenue for memberships and prepaid packages.

• Count inventory or use a reliable perpetual method. Post cost of goods sold.

• Accrue payroll, benefits, and sales or use tax where applicable.

• Review the income statement for odd swings. Reclassify as needed.

• Produce the balance sheet and cash flow statement.

• Review AR aging and follow up on 30, 60, 90 plus day claims and patient balances.

• Document the close date and lock the period.

If you coordinate with your RCM team, set a monthly cut-off date for charge entry and adjustments so your statements match the operational reality. Consistency is the key.

QuickBooks vs specialized healthcare systems

You can use QuickBooks for a medical practice. It is efficient for the general ledger, bank feeds, bill pay, and financial reporting. Pair it with your EHR and clearinghouse to handle charge capture, eligibility, coding, claims, andcollections. Specialized healthcare systems excel at RCM and clinical workflows. QuickBooks excels at bookkeeping and financial statements. Connect them with clean exports or an integration and reconcile monthly. Ifyou sell memberships or packages, set up products, classes, or locations to track revenue streams within QuickBooks and maintain a deferred revenue liability that releases as you deliver visits.

If you outgrow spreadsheets between systems, consider a lightweight data hub or a BI tool to combine EHR, payments, and accounting reports in one dashboard.

Common pitfalls to avoid

• Mixing personal and business expenses: keep a separate bank account and cards for the practice. Owner distributions and reimbursements should be recorded cleanly.

• Unposted adjustments: contractual adjustments, refunds, and chargebacks that never hit the ledger will inflate revenue and distort margin.

• AR aging neglect: balances older than 60 days require decisive follow up or write-off. Stale AR hides revenue leakage and slows cash.

• Inventory drift: supplements and kits need a simple process for receiving, counts, and usage. Without it, margin looks wrong.

• Missing deferred revenue: memberships and prepaid packages recognized in full at sale will overstate a single month and understate future months. Recognize revenue as you deliver care.

• No month-end lock: back-dated entries after you close a period can break trend lines and erode trust in the numbers.

A simple path to get started

Decide on cash or accrual based on your payor mix and growth plans. Accrual is usually best for clinics with claims, memberships, or packages.

Build your chart of accounts with clear revenue categories, cost of goods, and core operating expenses.

Set a weekly and monthly cadence with a concise close checklist. Tie EHR and RCM reports to the ledger and lock the month.

Track KPIs that matter: collections ratio, days in AR, gross margin by line, and operating cash runway.

When you want a partner, LHM Partners can help you implement clean medical practice accounting, coordinate with medical billing services, and build reliable healthcare financial reporting that supports confidentdecisions. You focus on patient outcomes. We help your numbers tell a clear story.

Summary

You do not need complex systems to run a tight financial operation. Choose an accounting method that fits your model, apply GAAP basics, build a clinic-ready chart of accounts, and run a consistent monthly close tiedto your EHR and RCM. Read all three statements together so you see profitability, financial position, and cash clearly. Avoid the common pitfalls that trip up growing clinics, and set up a workflow that scales with you. Withdisciplined bookkeeping and the right partners, your longevity or hormone practice can grow with less stress and more control.