Sunday, August 28, 2011

Cash or Accrual Accounting

Accounting for healthcare practices are not uniform. Many small physician practices use cash basis accounting. Solo practitioners or small groups may simply keep a check register and book cash when received or paid out, the same way individuals do.
Larger physician practices may choose accrual based accounting, where revenues are recognized when they are generated (even if the cash comes in later) and expenses are booked when incurred, even if the checks are written later.
Hospitals (and other large entities with investors, like a surgery center) are most likely to use accrual accounting. If the entities have outside shareholders, or issue bonds, they are required to use accrual accounting.
Generally, the larger the organization, the more like accrual accounting will be used. Even individual practitioners should be aware of non-cash issues like accounts receivable. Even if they don't recognize the revenue until it is paid, they need to know how much money they can expect to come in.

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