There are two different methods of accounting.  Which does your practice use?

The CASH BASIS of accounting follows the money…that is, income is recognized when it is received and expenses recognized when they are paid.  Income taxes are typically paid on cash basis and this method is used for smaller practices generally. 

The ACCRUAL BASIS of accounting recognizes income in the period in which it was earned and expenses when they are incurred.  It is a more complex system and is actually the most accurate in depicting current financial status. 

Let’s go over some additional terminology related to finance.

Generally Accepted Accounting Principles (GAAP) are recognized standards used for financial statement reporting.  They provide uniform methods and vocabulary, enforce the full disclosure reporting and measure profits and determine assets and liabilities.

Depreciation is a non-cash expense that reduces the value of a tangible asset over time.  This accounts for the wear and tear of equipment, for example.

A chart of accounts is a listing of the account names and numbers found in the accounting system to record entries.

Questions?