But if you break it down into simpler terms it a little easier to understand. When you perform a bank reconciliation, you confirm that your bank accounts and your general ledger match up, so you can be confident your records of revenues and expenses are true to reality. Your bookkeeping system consists of the tools—typically accounting software—your bookkeeper uses to create entries in the general ledger and generate financial reports. Your treasurer may take on the role of bookkeeper for your practice.

Becoming an S-Corp requires some paperwork but may be worth it depending on your business’ earnings. The IRS expects you to choose an accounting method and stick to it. You do that by choosing an accounting method on your first annual tax return. Afterwards, that’s the accounting method you use to do all your bookkeeping.

Do I have the time?

These numbers will vary from day-to-day depending on how much money you take in and pay out. What that does is let you see is if you are doing well or not over time. In this blog post I’ll walk you through some basics of accounting and bookkeeping that you need to know in order to run the business side of private practice.

• One of the most important things to remember about being in private practice as a counselor or therapist, is the fact that you are running a business.
• With an accurate record of all transactions, you can easily discover any discrepancies between financial statements and what’s been recorded.
• It’s not enough to have the owner or founder of the organization take responsibility—your nonprofit needs a treasurer or financial officer.
• If you have no time for anything else between seeing clients and managing the books, then it’s probably time for professional help.
• Regardless of how you choose to track your finances, this process will bring attention to your entire workflow and systems.
• You’ll overstate your earnings if you treat a loan as income on your books.
• Most businesses use an electronic method for their bookkeeping, whether it’s a simple spreadsheet or more advanced, specialized software.

Fund accounting effectively creates a fund, for which you track assets, liabilities, revenue, expenses, and total balance. That may sound like a lot of extra work, but it has an important purpose. Ensuring that your quarterly taxes are paid on time is crucial not only to avoid penalties but also to maintain a clear perspective on your annual revenue projections. To ensure HIPAA compliance, consider integrating accounting software with Electronic Health Record (EHR) systems such as TherapyNotes or SimplePractice. This approach allows for the secure handling of sensitive patient information and seamless financial management by updating your books directly from the income data in your EHR system. Under the Health Insurance Portability and Accountability Act (HIPAA), mental health professionals face strict data security regulations.

Factors to consider while adding transactions to the template

As a small business owner, she is passionate about supporting other entrepreneurs and sharing information that will help them thrive. If you enjoy organization and numbers and have experience with bookkeeping, starting your own business offering this service might be a smart career choice. There are dozens and dozens of bookkeeping options available and the choices may seem overwhelming.

If you disclose a patient’s Protected Health Information (PHI) for reimbursement or payment, you could face stiff fines and even jail time for extreme violations. In 2021, The Department of Health and Human Services Office for Civil Rights handed out penalties totaling $15 million. Maybe you can keep the books for your practice, but you just don’t want to. Part of being a business owner is bookkeeping for therapists knowing your strengths and when your time or expertise is better spent elsewhere. If you lack the expertise you need to track all the financial documents or you just don’t want to do it, hire it out if you can afford to. If you’re having trouble staying on top of the books and your financial records no longer reflect the real-time state of your finances, it’s probably time to outsource.

Setting up the Accounts for a Therapists

It may seem like more trouble than it’s worth to track small cash expenses, but these seemingly unimportant expenses can add up over time. Beyond these, expense management empowers you to make educated decisions by being aware of where your practice’s money is going and assessing whether these are the best expenditures in the future. The chart of accounts is a categorized list of how your practice earns and spends money. Rather than scrambling in April, it’s in your best interests to sort your books along the way. Aside from tax preparedness, here are some other reasons that proper accounting is critical to your practice’s success.

You can use these to make business decisions, but they should not be presented as audited, certified or official financial statements. When it’s finally time to audit all of your transactions, bookkeepers can produce accurate reports that give an inside look into how your company delegated its capital. The two key reports that bookkeepers provide are the balance sheet and the income statement.