Dental Bookkeeping Basics: Chart of Accounts and Monthly Close

Good bookkeeping is not glamorous, but every other financial decision in your practice depends on it. If the numbers are late, inconsistent or wrong, your overhead percentages, tax planning and even a future sale price will be built on bad information. This guide lays out a practical chart of accounts for a dental office, the recording rules that trip up generic bookkeepers, and a monthly close process you can follow, whether you do the books in-house or hand them to an outside team.

What dental bookkeeping covers

Bookkeeping is the routine recording and checking of every dollar that moves through the practice: deposits from patients and insurers, vendor bills, payroll, loan payments, credit cards and owner transactions. Accounting builds on it, turning clean books into tax returns, tax plans and advice. Dental books need more care than a typical small business for three reasons: revenue arrives from two sources (patients and insurance carriers) on different schedules, the practice management software (PMS) keeps its own record of production and payments that has to agree with the bank, and benchmark comparisons only work if lab, supplies and team costs are kept in the right places.

Start with a dental-specific chart of accounts

Generic bookkeeping software comes with a chart of accounts designed for any small business. Dental practices need a few categories that generic charts lump together, especially lab fees, dental supplies, hygiene wages and owner-related expenses. Keep it simple: enough detail to make decisions, not so much that every receipt becomes a debate.

Use subaccounts rather than new top-level accounts when you want more detail, for example separate lab subaccounts for crown and bridge, dentures and aligners, so the P&L still rolls up to a short, readable list. With owner items isolated, you can compare your practice to the ranges in what is normal overhead for a dental practice without first untangling the books.

Cash or accrual basis?

Under the cash method, income is recorded when money is received and expenses when they are paid. Under the accrual method, income is recorded when it is earned and expenses when they are incurred, whether or not cash has moved. IRS Publication 538 explains which businesses may use each method for tax purposes; most dental practices are small enough to qualify for the cash method, and most use it. Your CPA should confirm the right method for your entity.

Cash-basis books still leave out information an owner needs. Production, adjustments and receivables live in the PMS, not the general ledger, and unpaid lab or supply bills do not show until they are paid. A practical approach is cash-basis books for taxes, plus a monthly KPI summary that brings in production, adjustments and aging from the PMS. Large unpaid bills at month-end are worth noting on that summary so a light month is not mistaken for a profitable one.

Recording revenue and deposits correctly

Card processors and patient-financing companies usually deposit the net amount after their fees. If the bookkeeper records only the net deposit, both collections and merchant fees are understated, and the PMS never matches the bank. Record the gross amount as income and the fee as an expense.

A few other revenue items need a clear rule:

• Refunds to patients or carriers reduce income in the month they are paid and should match a refund entry in the PMS.
• Patient credit balances (prepayments or overpayments) are money the practice may owe back; review the PMS credit balance report monthly.
• Production and contractual write-offs are not recorded in cash-basis books. They are tracked in the PMS and reviewed on the KPI summary. See PPO write-offs and fee schedules.
• Non-patient income such as rebates, interest or rent from a sublease belongs in separate accounts, not in collections.

Recording loans, equipment and repairs

Two of the most common errors in dental books involve debt and equipment. A loan payment is not a single expense: the interest part goes to interest expense and the principal part reduces the loan balance. Booking the whole payment as an expense understates profit, and the loan balance on the balance sheet stops matching the lender’s statement.

Equipment that lasts more than a year, such as chairs, imaging systems or a scanner, is normally recorded as an asset and then depreciated or expensed under the tax elections your CPA chooses. Smaller items can often be deducted right away. The IRS tangible property regulations include a de minimis safe harbor that lets a business without audited financial statements deduct items costing up to $2,500 per invoice or item, if it makes the annual election on its return and follows a consistent policy. Repairs that keep equipment working are usually expenses; improvements that extend its life or add capability are usually capitalized. Record equipment purchases in an asset account with the invoice attached and let your CPA decide the tax treatment at year-end; tax planning for dental practice owners covers the depreciation choices.

Daily and weekly habits

• Run the day-end report in your practice software and match it to the deposit slip and card batch.
• Deposit checks daily, with a second person verifying the deposit when the team is large enough.
• Save vendor invoices and receipts digitally as they arrive.
• Review insurance payments posted versus explanation of benefits (EOB) amounts weekly.
• Keep personal spending off practice cards and accounts; if it happens, record it as an owner distribution, not an expense.

The monthly close, step by step

Aim to close each month within about two weeks. A P&L that arrives two months late is history, not management.

1. Import or enter all bank and credit card transactions for the month.
2. Categorize every transaction to the chart of accounts; flag anything unclear rather than guessing.
3. Reconcile the practice software to the bank. Total collections in the PMS should match deposits, after adjusting for card fees, deposits in transit and refunds.
4. Reconcile every bank, credit card and loan account to its statement.
5. Record payroll from the payroll provider’s reports, splitting wages, employer taxes and benefits.
6. Record loan payments correctly: interest to expense, principal to the loan balance.
7. Record depreciation and amortization (monthly or at least quarterly) using the schedule your CPA maintains.
8. Review the adjustment report from the PMS: contractual, courtesy and bad-debt write-offs.
9. Produce the P&L, balance sheet and a one-page KPI summary.
10. Review the results with the owner and note one-time items.

Spread over the first half of the following month, the work might look like this:

A PMS-to-bank reconciliation, worked through

An $800 gap might be a check posted but never deposited, a payment posted to the wrong month, or something worse. Small differences that are never investigated tend to grow. This is the step generic bookkeepers most often skip, and it is the one that catches missing deposits, posting errors and embezzlement. See dental collection rate for why adjustment codes matter.

What goes in the one-page KPI summary

• Gross production, adjustments, net production and collections, with the collection rate.
• Accounts receivable by age, especially insurance claims over 30 days and patient balances over 90 days.
• Overhead by category as a percentage of collections, next to typical ranges.
• New patients, hygiene production and doctor production for the month.
• Bank balances against your reserve target, and any one-time items.

Our post on dental practice KPIs to track explains each measure in more detail.

Payroll records

Payroll is usually handled by a payroll service, but the bookkeeper should still reconcile payroll reports to the bank and the books every month. Quarterly federal payroll returns (Form 941) and Virginia withholding filings should tie back to those totals. The IRS explains employer responsibilities in Publication 15 (Circular E).

Watch for a few payroll items that often get missed: benefit deductions withheld from paychecks that must match the invoices from the health insurer or retirement plan, owner health insurance premiums in an S corporation that must be added to the owner’s W-2, and bonuses or reimbursements that should run through payroll rather than accounts payable. Reconciling these monthly avoids a scramble when W-2s are due.

1099 contractors and vendors

Practices often pay contractors such as IT consultants, independent cleaning services or temporary dental professionals engaged as contractors. For payments made after 2025, the threshold for filing Form 1099-NEC rose from $600 to $2,000 per payee, according to the IRS Instructions for Forms 1099-MISC and 1099-NEC, with inflation adjustments in later years. Collect a Form W-9 before the first payment regardless, so you are not chasing tax IDs in January. Whether someone is a contractor or an employee depends on the working relationship, not the label; our guide on W-2 vs. 1099 dental associates explains the distinction.

How long to keep records

The IRS guidance on record retention says most income tax records should be kept at least three years, with longer periods in some cases: six years if income was underreported by more than 25%, and seven years for a bad debt or worthless securities deduction. Employment tax records should be kept at least four years after the tax is due or paid, whichever is later. Records for equipment and leasehold improvements should be kept until the period of limitations expires for the year you dispose of the asset. Many practices simply keep digital financial records longer than the minimum.

Patient records follow separate rules set by health-care and privacy law, so keep your financial retention schedule and your clinical records policy as two distinct documents.

Common mistakes and signs your books need attention

• The P&L arrives more than a month after month-end, or not at all.
• Large “uncategorized” or “ask my accountant” balances.
• PMS collections and bank deposits have never been reconciled.
• Card deposits recorded net, so merchant fees never appear.
• Whole loan payments booked as expense, or equipment booked as supplies.
• Supplies and lab are in one account, or owner expenses are mixed with team costs.
• Your CPA has to rebuild the books at year-end before preparing the return.

If several of these sound familiar, read in-house vs. outsourced dental bookkeeping to decide who should own the work going forward.

Internal controls that fit a small office

Small offices cannot always split every duty among different people, but a few controls go a long way toward preventing errors and theft:

• The person who posts payments should not also be the only person who makes deposits and reconciles the bank.
• The owner should receive bank and credit card statements directly, or have view-only online access, and look at them monthly.
• Adjustments above a set amount should require office manager or owner approval.
• Refunds should be issued by check or to the original card, never in cash, and reviewed monthly.
• Require each team member to use their own login in the practice software, so changes can be traced.

These steps cost little and protect both the practice and honest team members.

Software, bank feeds and document storage

Most practices pair their practice management software with a general accounting system and a payroll provider. Bank feeds save typing, but they do not replace reconciliation: an automatically imported transaction can still be categorized wrongly or duplicated, and bank rules that auto-categorize vendors need a periodic review. Set up a shared, organized folder structure (by year and month) for statements, invoices, payroll reports and loan statements so anyone closing the books, and your CPA at year-end, can find what they need without a chain of emails. Before year-end, use the year-end dental practice checklist to confirm nothing is missing.

Getting your books on track

Cisor’s dental bookkeeping service uses a dental-specific chart of accounts and a monthly close that reconciles practice software to the bank. If your books need a clean-up first, the team can scope that too. Call (703) 345-0606.