Cash & Accrual Accounting in Healthcare: Two crucial ways to manage accounts

Posted by Kellie on May 24th, 2018

Cash basis and accrual basis accounting are the main ways that can help healthcare businesses to keep a track of their money coming in and going out the doors. These both processes are used to identify, measure and communicate the business economic information in a financial record for making a decision and for tax return purpose.

Cash accounting is simple and intuitive. In this, revenue is recorded when received and expenses are recorded when they are paid, on the other hand in accrual, revenue is recorded when it’s earned and recorded when incurred.

If a healthcare business is planning to switch from accrual to a cash basis, then business will consider accounts receivable as sales because this will not be considered as revenue. So how can you pay taxes based on accounts receivable revenue those were not received yet? The situation is vice versa if you going from cash to accrual. The business has to get those receivables and record them as income.

Traditionally with smaller businesses, physician practices, urgent care, the cash method is mostly preferred method. This method provides an accurate reflection of business cash flow whereas accrual method provides the accuracy in the number for the long-term.

Although, both the methods have their pros and cons, most physician practices are on the cash basis as accrual accounting is little complex need expert’s assistance who has experience in healthcare accounting and taxes.