Download Your Dental Chart of Accounts Template
In the dental industry, you have a million things to track: patient appointments, dental supplies, equipment, staff, bills, and more.
Now imagine that you need to find out what you spent $2,932.32 on last February at a dental supply store… and why.
Perhaps your practice manager, or worse, the IRS, needs to see all of the receipts from May to November last year.
Are you going to hunt through a pile of receipts in your desk drawer?
We hope not!
This is where your chart of accounts comes in.
In today’s blog, we’re going to go over what the chart of accounts is, why you need one (pssst… see example above), and how to create a dental chart of accounts for your dental practice.
Let’s dive in.
What Is a Chart of Accounts?
First things first, let’s talk about what a Chart of Accounts looks like.
A Chart of Accounts is an organizational tool that lists the financial accounts applicable to your business and groups them together into five main categories, namely:
- Assets: These are things your practice owns that have value. This could be cash in the bank, dental equipment, or even the office building if you own it.
- Liabilities: These are what your practice owes. Think of things like loans, credit card balances, or money you owe to suppliers.
- Equity: This is essentially what’s left over for you after covering all the debts.
- Revenue: This is the income your practice earns, primarily from providing dental services to patients.
- Expenses: These are the costs of running your business, like rent, salaries, supplies, and utilities.
Think of the chart of accounts as something similar to a dental chart. Just as a dental chart contains key information about a patient’s dental health, a chart of accounts provides key codes for categorizing and tracking an organization's financial transactions.
The General Structure of a Dental Chart of Accounts
There is no one-size-fits-all for a chart of accounts and its final structure will largely depend on the specifics of your business. Typically, all chart of accounts contain the components listed below:
- Account Number: Think of this as a unique ID for each financial item in your books, like dental tooth numbers, where each number specifies a particular tooth. Generally, a coding system is applied when assigning account numbers for each financial item, such that those that fall within the same category/type are grouped into coherent sequences. This grouping ensures that accounts with the same nature are easy to locate and manage. For example, you may decide to code all items under assets from 1000 to 1999, liabilities from 2000 to 2999, equity from 3000 to 3999, and so on.
- Account Type: These are the major categories mentioned previously (assets, liabilities, equity, revenues, expenses) under which all the financial items will be filed accordingly. For example, patient collections in cash or checks fall under the “Revenue” account type.
- Account Description: This is the unique name given to each financial item. For example, an item under 'Assets' might have the description “Cash” or "Dental Equipment."
- Financial Statement: This column shows where each account type fits into your overall financial statements. For example, assets, liabilities, and equity are reflected in the balance sheet, while revenues and expenses are reflected in the income statement.
Example of a Dental Practice Chart of Accounts
Here’s how a sample Chart of Accounts might look for your dental practice:
Drilling Down: How Dentists Can Examine a Chart of Accounts
Just like how a dental chart tells you which teeth are healthy or problematic, a well-structured chart of accounts can help you track which areas of your practice are thriving and which might need a little extra care – much like deciding whether a tooth needs a filling or a crown.
When you group expenses and income into appropriate categories, it becomes much easier to see patterns and make informed decisions. Because your chart of accounts is uploaded to your bookkeeping software, you can quickly and easily access detailed financial information.
Seeing surging costs in dental supplies? Perhaps it’s time to hunt for better deals or more affordable suppliers.
Spotting high interest charges in your loans? Exploring a bunch of refinancing options may help lower those costs.
Noticing slow payment collections from your patients? Consider studying the bumps in your billing process to enhance cash flow.
Overall, a well-organized chart of accounts will give you a bird’s eye view of the financial health of your business. Plus, it streamlines financial analysis for your accountants, helping them spend less time untangling messy records and more time offering valuable and reliable insights to help your practice grow.
Need help with your dental chart of accounts?
Here at Core Advisors, we take the burden of accounting, financial planning, and wealth management off the plate of dentists. If you need help getting your dental finances in order, you can book an introductory call with one of our team members to see how we can help.
Simply head over to our Contact Us page to start.
Until next time!
