Production versus collections
Production is the value of the work performed at your fee schedule. Collections are the money actually received from insurers and patients. Your books should be built on collections, adjusted for known write-offs. Compare your practice software's collections report with bank deposits and the card processor statements each month, and chase down any gap.
Lab fees and supplies are the big costs
Dental labs for crowns, aligners and dentures can be a major cost line. Give the lab its own account and, if possible, tag it by provider. Disposables, instruments, imaging supplies, sterilization and small equipment each deserve separate accounts or at least a clear naming convention. When a supplier invoices several items together, code each line, not the total.
Insurance, write-offs and patient financing
Network discounts are contractual write-offs, not bad debts. Uncollectible patient balances are different, so keep them in a separate account. Third-party financing companies often pay you net of a fee, so record the gross charge and the fee separately. Prepayments or treatment plans paid in advance are customer deposits until the work is done.
Equipment, build-outs and loans
Chairs, digital imaging, and lasers are often financed. Record the asset, the loan, interest as an expense and principal as a reduction of the loan. Leasehold improvements for the office build-out are often handled differently from equipment, so ask a CPA about depreciation methods and any elections that apply to your purchases. Keep the purchase agreements and amortization schedules in the file.
Payroll, associates and owner pay
Hygienists, assistants and office staff are usually employees. Associate dentists can be employees or contractors depending on the arrangement, and the classification matters. Owner pay depends on the entity, and wages, distributions and retirement contributions each have their own rules. Review overhead as a percentage of collections, including staff, rent, lab and supplies, and compare it to your own history rather than a generic benchmark.
Patient financing, membership plans and overhead
Many practices now offer in-house membership plans for uninsured patients. Payments are collected monthly or yearly, and the services are delivered over time, so treat prepaid amounts as deferred until you provide the care. Keep the plan terms and your fee schedule in a document that your bookkeeper can see.
Once a quarter, work through your overhead lines as percentages of collections: staff, lab, supplies, rent, marketing, and debt service. Look at the direction of travel rather than a single number. When supplies creep up while collections stay flat, it can point to ordering habits or price changes. When lab cost spikes, check whether you are redoing cases.
If the practice has several dentists or hygienists, set up tracking by provider for collections and for lab and supply cost. Associates are often paid a percentage of collections or production, so the calculation must be documented and checked against bank deposits, not only the practice software report. Disagreements over pay usually come from unclear definitions, such as whether lab fees come off before the percentage is applied. Write the formula into the agreement and use the same report each month.
Common questions
Should I book production as revenue?
Generally no. Book what you actually collect or expect to collect, and keep production as a management statistic.
How do I handle a patient refund?
Reduce revenue or the patient credit balance, depending on why the credit existed, and keep documentation with the refund.
This guide is general information, not tax, legal or accounting advice. Rules, fees and due dates change; check with the IRS, the NJ Division of Taxation or a licensed professional for your situation.