Mastering Medical Practice Accounting: Essential Tips for Success

Who This Is For

• Physicians who own or help manage a medical practice

• Practice managers responsible for finances or operations

Key Takeaways

• Medical practice accounting is different from billing and needs its own clean system

• Every practice should review three monthly reports: income statement, balance sheet, and cash flow

• Cash-basis vs accrual accounting affects how clearly you see profitability and accounts receivable

• Accounts receivable management is one of the fastest ways to improve cash flow

• A consistent monthly close prevents small issues from turning into financial stress

• Basic HIPAA and data security practices should extend to financial workflows

Running a medical practice is already a full-contact job. Then the numbers pile on. One week, collections look fine. Next week, the bank account is tight, and vendors are calling. You’re left wondering how a busy schedule can still lead to stressful cash flow.

That disconnect is common in medical practice accounting because a practice isn’t a “normal” business. You’re juggling patient payments, insurance claims, frequent payment delays, and higher compliance expectations. The goal is to have a system that creates cleaner cash flow and gives you more time and energy for patient care.

In this guide, you’ll learn the core accounting method choices, the monthly financial statements every medical practice should review, and a practical workflow you can apply this week.

What is “Medical Practice Accounting”?

At its core, medical practice accounting covers the full money story of your practice. It starts with tracking expenses, categorizing financial transactions, reconciling each bank account, and paying bills on time. Then, turning day-to-day activity into reliable financial information you can use to run the business. Finally, the goal is to produce consistent financial statements and financial reports so you can measure your practice's financial health and make smart decisions.

What it doesn’t include: confusing medical billing with accounting. Medical billing (often using medical billing software) creates and moves claim data. Accounting converts that activity into clean, consistent financial data and an accurate picture of what’s happening.

3 Core Financial Statements to Review Monthly

The monthly review is where practice accounting turns into real control of your practice’s financial health. These three financial statements are the minimum.

1. Income statement (Profit & Loss)

Your income statement summarizes income, revenue, and expenses over a period. In a medical practice, it’s how you see whether the practice is actually profitable after payroll and other expenses.

Your income statement helps you understand how overhead costs and staffing affect profitability. With this, you can support decisions about managing staff or adding new patient services. You can also see whether cost increases (like medical supplies or software) are eating into your margins.

Read it “like a doctor” with this quick checklist:

• Are revenue and income trending up, down, or flat for 3 months?

• Did any expense category jump without a clear reason?

• Are margins shrinking even though the schedule is full?

• Are “misc” buckets growing (often a sign you need better categorization)?

2. Balance Sheet

The balance sheet shows assets and liabilities at a point in time. For medical practices, this matters because much of your revenue is delayed. You may be busy and profitable on paper, but the balance sheet explains why cash can still feel tight.

Two of the most important numbers are accounts receivable and accounts payable. Accounts receivable is money you’ve already earned but haven’t collected yet, mainly unpaid insurance claims and patient balances. A growing or aging A/R balance can signal billing or collection problems and put pressure on cash flow. Accounts payable represent bills you owe, such as vendor invoices and payroll taxes,. This tells you how much cash you will need to leave the practice soon.

Your practice’s net worth (also called equity) is assets minus liabilities. It shows the practice's underlying financial strength and whether it has a cushion to handle slow payments and unexpected costs. While the income statement shows performance over time, the balance sheet shows whether the practice is financially stable at the moment.

3. Cash Flow

A medical practice can show profit and still feel broke because patient payments and insurance claims don’t hit immediately. Timing gaps create payment delays and raise the risk of missed payments (both incoming and outgoing). That’s why cash flow tracking matters even when the income statement looks good.

Many medical practices struggle to keep financial statements timely and accurate while also running a clinic. Outsourced bookkeeping and CFO support can help you get an accurate picture and gain real-time insight into the practice’s financial reality.

Cash-Basis vs Accrual Accounting

Accounting in a medical practice is done in one of two ways: cash basis or accrual basis. Your accounting method of choice affects taxes, reporting, and how clearly you see accounts receivable.

Cash-Basis Accounting

With the cash basis method, you record income when money actually hits the bank account, and record expenses when you actually pay them. Many smaller medical practice owners like it because it feels intuitive.

Pros:

• Simpler processes and fewer moving parts.

• Often easier for tax timing and planning because you see what was actually paid.

Cons:

• Can hide an accounts receivable problem because unpaid claims may not show up clearly.

• Can make a month look “great” or “terrible” based purely on timing, not true performance.

Use cash basis thoughtfully, especially if your payer mix causes longer reimbursement cycles.

Accrual Accounting

With the accrual method, you record revenue when it’s earned (even if insurance hasn’t paid yet), and record expenses when they’re incurred. For many growing medical practices, accrual accounting gives a clearer view of operations.

Pros:

• Better matching of income and expenses to the period they relate to.

• A cleaner view of accounts receivable, which matters when claims timing is a big driver of cash flow.

Cons:

• More complex. You need consistent posting, reconciliations, and clean month-end processes.

Which accounting method is used most often by physicians?

In many physician-owned, smaller medical practice settings, doctors often default to cash basis for simplicity. “Most common” can vary by practice size, payer mix, and reporting needs. Choosing the right accounting method is worth a conversation with a CPA or CFO who understands medical practice accounting.

Billing, Accounts Receivable, and How to Reduce Payment Delays

If you want quick improvements in your practice’s financial health, collections are usually the fastest place to start. Your medical billing workflow feeds directly into your accounting system, so billing errors almost always surface later as cash flow issues. Charges must be entered correctly, insurance claims submitted and followed up on, patient statements sent, and patient payments collected. Once payments arrive, deposits need to be reconciled accurately so the books reflect what actually happened, not what was expected.

Accounts receivable (A/R) is where billing and accounting meet. Reviewing A/R regularly helps you spot problems before they turn into lost revenue. Aging buckets (0–30, 31–60, 61–90, and 90+ days) show how long money has been outstanding and where follow-up is breaking down. It’s also important to separate legitimate write-offs from true missed payments so revenue does not quietly disappear. Tracking denial trends and how long claims sit without action can significantly reduce payment delays and improve consistency in cash flow.

Practices that see steady improvement tend to follow a few simple habits. A short weekly A/R huddle to review the most overdue claims keeps issues from lingering. Clean charge capture and documentation prevent claims from stalling in the first place, while clear patient payment policies at check-in and checkout improve collections upfront. Consistent use of medical billing software to track claim status and statement cycles ties everything together.

A partner like Steady can help set up A/R reporting, reconcile deposits, and standardize financial transactions so doctors can stay focused on patients and patient services while improving the practice’s financial health.

Monthly Close “To Do List” for Medical Practice Bookkeeping

A consistent close is the backbone of medical practice and strong financial management. Here’s a simple monthly to-do list you can reuse.

Monthly close checklist

• Reconcile each bank account (and any credit accounts).

• Post and verify patient payments and insurance deposits.

• Review accounts receivable aging and the top overdue claims.

• Enter and approve bills; manage accounts payable.

• Categorize expenses correctly (payroll, rent, software, medical supplies, merchant fees).

• Generate financial reports: income statement, balance sheet, and cash flow notes.

• Spot and correct issues: duplicates, miscoded expenses, uncategorized transactions.

Signals something’s off

• A/R is growing while revenue is flat.

• Big swings in supplies, payroll, or “misc” without a clear cause.

• Profit is up, but cash flow is down for two months in a row.

Compliance and security basics: HIPAA + financial data

HIPAA compliance can intersect with accounting more than people expect, especially when patient info shows up on invoices, statements, or exported reports.

Practical guardrails for a medical practice:

• Limit access using least-privilege permissions (only the staff who need it).

• Use encrypted storage and secure sharing methods for any files that include patient details.

• Confirm vendors have appropriate agreements and safeguards in place.

• Train staff on what can be shared, where, and how long it should be retained.

Keep this calm and systematic. Security is part of good practice management, and it protects both patients and the business.

Keep Patient Care the Focus, Keep the Books Steady

A successful medical practice is built on great care and a clear view of the numbers. Keep it simple:

• Review the three monthly financial statements (income statement, balance sheet, and cash flow).

• Choose the right accounting approach (cash basis or accrual) for your practice.

• Tighten A/R discipline to reduce delays and protect cash.

Pick one upgrade this week: run the monthly close checklist and schedule a weekly A/R review. If you want help building a repeatable system for medical practice accounting, Steady offers bookkeeping, CFO guidance, payroll, and tax strategy support. Book a call today for a free consultation.

Medical Practice Accounting FAQ

What are the two ways medical practice accounting is done?The two main options are cash basis accounting (record income when cash is received and expenses when paid) and accrual accounting (record revenue when earned and expenses when incurred). The right choice depends on reporting needs and operations.

What type is used most often by physicians?Many physicians in smaller, physician-owned medical practice settings use a cash basis for simplicity. It varies by practice size, payer mix, and whether you need more detailed reporting for lenders, partners, or long-term planning.

What is the “medical practice tax loophole”?Usually, it’s shorthand for legal planning strategies like entity structure choices, retirement planning, and timing of deductible expenses. There’s no universal loophole, so work with qualified pros to stay compliant and make decisions based on your specific facts.