Accrual Accounting

The Problem With Cash Basis Accounting

It's likely that your DSO is still on cash basis accounting, which works fine while you only have a few locations. Cash basis means that you're looking at transactions only as money flows into or out of the bank account.

This quickly becomes a problem for dental offices, because you rarely get paid on the day you perform the service. This means that you could have an excellent January for production, but your financial books look terrible that month because you haven't collected any of it yet.

In short, if you're on cash basis the numbers you're looking at are wrong!

Accrual Is The Solution

In accrual accounting, you recognize revenues and expenses on the date they were incurred, regardless of when cash is received or paid.

It's a little more complicated on the bookkeeping side, but it ensures that you have the most accurate picture of your company's financial health.

Why Should You Care?

The benefits of switching to accrual are game changing:

• Accurate financial reporting and projections

• Correct historical data which could help better decision making and could support long-term business growth

• Compliance with accounting standards

• Follows the “Matching Principle”: better matching of revenue and expenses

• Enhances financial planning and forecasting

• Supports growth and scalability

• Strengthens vendor and supplier relationships

• Increases business valuation