Accounting Basics for Physicians¶

The goal of this guide is not to make you an accountant. It's to give you the vocabulary you need to read your own numbers and have useful conversations with the people who keep your books.

Why Physicians Struggle with This¶

You spent a decade learning to read a CBC and interpret an EKG. Nobody taught you to read a P&L. That's normal — and fixable. Accounting is a language, not a talent. Give it a weekend and it stops feeling foreign.

The Core Vocabulary¶

Revenue (a.k.a. income, "top line")¶

Money coming in from patients, employer contracts, dispensing, ancillary services.

Revenue is not profit. A practice with $30,000/month in revenue and $28,000/month in expenses takes home $2,000. A practice with $15,000/month in revenue and $6,000/month in expenses takes home $9,000. The smaller practice is more profitable.

Expenses¶

Money going out. Rent, malpractice, EMR subscription, supplies, your own salary if you pay yourself through payroll, etc.

Profit (a.k.a. net income, "bottom line")¶

Revenue minus expenses. This is what's actually left over.

• Gross profit = revenue minus the direct cost of delivering care (supplies, dispensed meds, lab costs passed through)
• Net profit = what's left after all expenses, including overhead, taxes, and owner compensation structure

Assets¶

Things the business owns that have value. Cash in the bank, equipment, accounts receivable (money patients or employers owe you), prepaid rent.

Liabilities¶

Things the business owes. Credit card balances, loans, unpaid vendor bills, deferred membership revenue (money collected for months of care you haven't delivered yet).

Equity¶

What's left if you subtract liabilities from assets. This is essentially the owner's stake in the business.

The Accounting Equation¶

This one equation underlies every balance sheet ever written:

Assets = Liabilities + Equity

In plain English: everything the business owns was paid for either with borrowed money (liabilities) or the owner's money (equity). It always balances. If your books don't balance, something is wrong — not with the math, but with what was recorded.

Cash vs. Accrual Accounting¶

This distinction matters. It's the #1 source of confusion for new practice owners.

Cash basis¶

• Revenue is recorded when money hits the bank
• Expenses are recorded when money leaves the bank
• Simple, intuitive, matches your checking account
• Allowed for most small businesses under IRS rules
• Downside: can make a DPC practice look more profitable than it is, because patients often pay ahead

Accrual basis¶

• Revenue is recorded when earned (i.e., when you deliver the care)
• Expenses are recorded when incurred (i.e., when you receive the bill, not when you pay it)
• More accurate picture of economic reality
• Required for some entity types and larger businesses
• Downside: more complex, requires more bookkeeping discipline

Why this matters for DPC¶

DPC practices often collect monthly membership dues in advance. Under cash accounting, that $200 membership is "revenue" the day it hits your account. Under accrual accounting, it's a liability (deferred revenue) that gets recognized as revenue over the month of care.

A DPC practice with 100 members paying annually up front could look wildly profitable on cash basis in January and catastrophic in December. Accrual smooths this out.

Practical guidance: Most small DPC practices start on cash basis for tax simplicity but ask their bookkeeper to produce an accrual-adjusted P&L for management decisions. Talk to your CPA.

The Chart of Accounts¶

A "chart of accounts" is just a list of every category your bookkeeping software uses to classify money. Think of it as the filing cabinet labels.

A minimal DPC chart of accounts might include:

Income:

• Membership revenue
• Employer contract revenue
• Dispensing revenue
• Ancillary service revenue (labs, procedures, etc.)

Cost of services:

• Medical supplies
• Dispensed medication cost
• Lab pass-through cost

Operating expenses:

• Rent
• Utilities
• Malpractice insurance
• Business insurance
• EMR / software subscriptions
• Phone / internet
• Office supplies
• Marketing / advertising
• Professional fees (legal, accounting)
• Continuing medical education
• Licenses and dues
• Payroll (if applicable)
• Payroll taxes (if applicable)
• Owner compensation (varies by entity type)

Assets:

• Business checking
• Business savings
• Equipment
• Accounts receivable

Liabilities:

• Business credit card
• Loans payable
• Deferred membership revenue (if accrual)

Equity:

• Owner's contributions
• Owner's draws (if applicable)
• Retained earnings

Don't overthink this. A bookkeeper will set one up for you, or QuickBooks / Wave / Xero will offer a template.

Debits and Credits (Optional Reading)¶

You do not need to understand debits and credits to read financial statements. You only need them if you're doing the bookkeeping by hand, which you shouldn't be. Software handles this. Skip this section unless curious.

What You Actually Need to Do¶

1. Pick cash or accrual with your CPA.
2. Set up a chart of accounts in your bookkeeping software.
3. Review your P&L monthly. Fifteen minutes. Every month. No exceptions.
4. Ask questions when a number surprises you. That's how you learn your own business.

Key Takeaways¶

• Revenue is not profit. Profit is not cash in the bank.
• Cash basis is simpler; accrual is more accurate — especially for pre-paid memberships.
• The accounting equation always balances: Assets = Liabilities + Equity.
• The chart of accounts is just labeled buckets. Don't overcomplicate it.
• You don't need to do the bookkeeping; you do need to understand the output.

Next¶

• Business Banking — setting up the accounts your books will track
• Bookkeeping Setup — the tools that do the work
• Reading Financial Statements — P&L, balance sheet, cash flow