Bookkeeping for a Dental Practice in Texas (Chart of Accounts, A/R, Lab Fees, and What Owners Miss)

Disclaimer: The information on this website (including all examples, explanations, and content) is for general informational purposes only and should not be considered tax, legal, or financial advice. Always consult with a qualified professional about your specific situation.

Dental Bookkeeping Is Mostly About Categorization

"My practice management software shows production. My books show revenue. The two numbers do not match. Which one is right?"

This is one of the most common conversations I have with dental practice owners. The answer is usually: neither one is wrong, they are measuring different things, and the books need to be set up to reconcile to the practice management system in a way that makes sense.

Dental bookkeeping is not complicated, but it is specific enough that a generic small business chart of accounts misses important details. Insurance receivable versus patient receivable, lab fee tracking, equipment depreciation, adjustments and write offs, owner compensation tied to the entity structure. Each one has a right way to handle it. Getting them right means the books actually tell you something useful at month end.

This post walks through the practical bookkeeping setup for a Texas dental practice. The broader employment and tax topics live in our payroll for a dental practice in Texas, tax deductions for healthcare practices, and profit but no cash in a dental practice posts. For the small business bookkeeping foundations this post builds on (cash vs accrual, basic chart of accounts, monthly close discipline), see our small business bookkeeping 101 guide and top 5 bookkeeping mistakes that wreck your tax return.

Chart of Accounts for a Dental Practice

The chart of accounts is the structure that determines how every transaction is categorized. A weak chart of accounts produces a P&L that does not tell you anything useful.

Revenue Accounts

  • Dental Service Revenue (or split by hygiene, restorative, endo, ortho, implants if useful)
  • Insurance Revenue (or net of contractual adjustments)
  • Patient Pay Revenue
  • Membership Plan Revenue
  • Retail Revenue (if the practice sells home care products)

Practices vary in how granular the revenue breakdown should be. A single Dental Service Revenue account is fine for many small practices. Larger practices benefit from breaking revenue by service category so the P&L tells you which lines of service are growing.

Cost of Service Accounts

  • Dental Lab Fees (outside lab work)
  • Dental Supplies (operatory consumables, sterilization supplies)
  • Implant Components (often a separate account if implant volume is meaningful)
  • Orthodontic Supplies (if applicable)
  • Hygiene Supplies (if the practice tracks hygiene separately)

Lab fees in particular deserve their own account. Outside lab costs are one of the largest single variable expenses in a dental practice, and tracking them separately lets you see the lab cost percentage of production over time.

Operating Expense Accounts

  • Wages and Payroll Taxes (split if useful between clinical, admin, owner)
  • Employee Benefits (health insurance, retirement contributions)
  • Rent
  • Utilities
  • Telephone and Internet
  • Practice Management Software (Dentrix, Eaglesoft, Open Dental, Curve)
  • Marketing and Advertising
  • Continuing Education
  • Professional Memberships (ADA, TDA, etc.)
  • Malpractice Insurance
  • General Liability Insurance
  • Office Supplies
  • Repairs and Maintenance
  • Depreciation Expense

Balance Sheet Accounts

  • Operating Cash Account
  • Reserve / Savings Account (if used)
  • Insurance Receivable (separate from Patient Receivable)
  • Patient Receivable
  • Dental Supplies Inventory (if tracked)
  • Fixed Assets (Equipment, Furniture, Build Out)
  • Accumulated Depreciation
  • Accounts Payable
  • Credit Cards Payable
  • Loans Payable (with separate accounts for each loan if there are multiple)
  • Owner Equity / Member Equity / Common Stock and Retained Earnings (depending on entity structure)

Adjustments and Write Offs

  • Insurance Contractual Adjustments (the discount between production and what insurance pays)
  • Patient Adjustments (courtesy discounts, family discounts, employee discounts)
  • Bad Debt Expense or Write Offs

These adjustment accounts are critical. The difference between "production" in your practice management software and "revenue" in your books is usually the contractual adjustments. Tracking them separately lets you see how much production is being given up to insurance contracts each month.

Insurance Receivable vs Patient Receivable

These are two different problems that require separate tracking.

Insurance Receivable

Insurance receivable is the portion of completed treatment that has been billed to insurance and is awaiting payment or EOB processing. The clean way to track it:

  • Total insurance receivable as a single balance sheet account
  • Aged by month in the practice management system (the books just track the total)
  • Reconciled monthly against the practice management aging report

When insurance pays an EOB, the payment posts to insurance receivable (reducing it) and to cash (increasing it). The contractual adjustment posts to the adjustment account (reducing it from receivable to revenue).

Patient Receivable

Patient receivable is the portion of treatment that the patient owes after insurance. This balance behaves differently from insurance receivable:

  • Collection probability declines faster than insurance receivable
  • Patient pay aging benefits from active collection effort
  • Older balances need write off decisions

Tracking patient receivable as a separate balance sheet account lets you see whether the practice's patient collection process is working. If patient receivable is climbing while insurance receivable is steady, the front desk needs to be tightening up patient collection at the time of service.

Our post on how to read an A/R aging report covers what to do with the aging data once you have it.

Lab Fees: The Number Every Dentist Should Track

Outside dental lab fees are typically the largest single variable cost in a dental practice. Tracking them as a separate expense account (rather than buried in "supplies") tells you:

  • Lab fees as a percentage of production each month
  • Whether the lab cost percentage is staying consistent or drifting up
  • Whether specific lab vendors are within expected pricing

Most well run dental practices have lab fees somewhere in the range of 6 to 12% of production (varies significantly by practice mix; specialty practices doing more lab heavy work run higher). A practice where lab fees are climbing as a percentage of production without a corresponding shift in case mix has something to look at.

Equipment Depreciation

Dental equipment is expensive enough to be a meaningful tax planning item. Equipment purchases are typically tracked as:

  1. Fixed Asset on the balance sheet when purchased (debit to equipment, credit to cash or to loan payable)
  2. Depreciation Expense on the P&L over the equipment's useful life

The depreciation method depends on the equipment type and the tax election (Section 179, bonus depreciation, regular MACRS). Our Section 179 vs bonus depreciation post covers the tax side. The bookkeeping side is to set up the asset and the accumulated depreciation account correctly so the books match what the tax return will show.

A common mistake is recording equipment as an expense at the time of purchase. This understates assets and overstates current year expense. The correct treatment is asset on the balance sheet, depreciation on the P&L over time (or all at once if Section 179 or bonus depreciation is used for tax purposes).

The Monthly Close

A good monthly close for a dental practice takes about 4 to 8 hours of bookkeeping work each month and produces:

  • Reconciled bank and credit card statements
  • Insurance and patient receivable reconciled to practice management aging
  • Inventory adjustments if tracked
  • Owner draw or salary recorded correctly
  • Loan principal and interest split correctly
  • Depreciation entries (if not automated)
  • Reviewed P&L and balance sheet

The close should produce reports that pass a "would this make sense to a banker" test. If the P&L or balance sheet has obvious anomalies (negative balances where they should not be, line items that drift unexplained, accounts that have not been reconciled), the close was not complete.

Common Dental Bookkeeping Mistakes

These are the recurring ones:

Treating Practice Management Production as Revenue

Production is the gross treatment value before insurance adjustments. Revenue is what the practice actually expects to collect. Recording production as revenue overstates the P&L and ties the books to a number that does not actually represent income.

Not Separating Insurance Receivable From Patient Receivable

Combining them into one A/R account hides what is actually happening with collections. Separate them.

Recording Equipment Purchases as Expense

Equipment is a fixed asset. Depreciation is the expense. Recording the purchase as expense distorts both the P&L and the balance sheet.

Not Tracking Contractual Adjustments

The gap between production and net collected revenue is the contractual adjustment. If the books do not track it, the practice does not see how much production is being adjusted away each month.

Mixing Personal and Practice Expenses

Owner personal expenses run through the practice card or paid from the practice account create messy books that have to be untangled at year end. Run personal expenses through personal accounts. Owner personal compensation flows through draws or salary, not through randomly categorized expense entries.

Skipping the Monthly Close

Some practices accumulate transactions and try to clean them up at year end. The longer the books go uncleaned, the harder and more expensive the cleanup is. Monthly close is faster, cheaper, and produces usable monthly reports.

Frequently Asked Questions

Should my books match my practice management software?

The books should reconcile to the practice management software, but the two will not be identical. Practice management tracks production. The books track revenue (production minus contractual adjustments minus write offs). Reconciliation means understanding the gap.

Cash basis or accrual basis?

For tax purposes, most small dental practices can use either method. For management decisions, accrual basis tells a more accurate story because it captures earned but uncollected revenue. Many practices keep their books on accrual for management purposes and convert to cash basis for the tax return.

Should I track inventory?

Depends on practice size and complexity. Small practices often just expense supplies as purchased. Larger practices with meaningful supply inventory benefit from tracking it as a balance sheet asset and expensing as used.

How often should I reconcile?

Monthly at minimum. Weekly bank reconciliations for larger practices with high transaction volume.

Do I need separate accounts for hygiene vs restorative?

Useful if the practice wants to understand profitability by service line. Optional otherwise.

Should I outsource bookkeeping?

Most dental practices benefit from outsourcing the monthly bookkeeping to someone who has worked with dental practices specifically. The chart of accounts, the practice management reconciliation, and the lab fee tracking are easier with someone who knows the patterns.

Getting Dental Bookkeeping Right

Good dental bookkeeping is the foundation for everything else: tax planning, cash flow analysis, owner compensation decisions, and the eventual sale of the practice if that ever comes up. A weak chart of accounts and inconsistent monthly close produces reports that are technically accurate but practically useless.

The practices that consistently know where they stand financially are the ones with a clean chart of accounts, separate tracking for insurance and patient A/R, honest contractual adjustment recording, proper equipment capitalization, and a monthly close that actually closes.

If you also want the related operational topics, our payroll for a dental practice in Texas guide covers the staff side, our healthcare provider tax deductions post covers tax deductions, and our profit but no cash in a dental practice post covers cash flow.

We work with dental practice owners across Quinlan, Hunt County, Rockwall, Kaufman, and the greater Dallas area on bookkeeping, payroll, tax preparation, and the broader tax planning that goes with running a practice.

Want dental bookkeeping that actually tells you what is going on? Contact us here to talk about getting your books set up so the monthly reports support the decisions you need to make.