Production vs Collection - How They Are Booked On Financial Reports
One of our frequently asked questions is about where production and collections show up on the income statement.
This guide provides a simple overview on how we book production (revenue) from month-to-month as it appears on your Profit and Loss reports.
For the sake of this article, we will provide a brief overview over the difference between production and collection.
Production: The amount booked on your practice management software when treatment is provided, regardless if payment is collected or not. In a Profit and Loss statement, we use your production amount to show the revenue for the month or the period of the report.
Collection: The amount recorded in your practice management software when money is received. In the accounting records, collections show up on the balance sheet, as an increase in bank account balance.
To further simplify the above, let’s use an example.
A dental office produces $100,000 a month. Let’s assume they collect the entire amount at once at the end of the month.
In the practice management software the month-end reports will show the following:
Production $100,000 A\R $100,000
After collecting the entire amount, and assuming AR is all collected
Production $100,000 A\R $0 Collection $100,000
In the Accounting system entry showing will be:
In the P&L
In the Balance Sheet
Bank Account $100,000
The below is a sample report for reference.
In a perfect world, production would be equivalent to collections month-to-month, however, due to write-offs and processing time for insurance claims inhibits collections from being caught up to the amount reflected in monthly production.
Production adds to your accounts receivables, so once collections are received, it then offsets your accounts receivables, bringing it down.
To summarize, the ‘miss-match’ between Production and Collection amounts is consistently accounted for in your books and adjusted accordingly so that you are receiving accurate insights month-to-month.
To learn more about how we organize your books, we talk all about the importance of standardizing financial reports in this article here:
Shift Accounting works with over 80 successful clinics across Canada. We go beyond basic book-keeping, providing a range of financial and administrative services, as well as consulting and CFO contracting. We are invested in your success. Contact us today for more information on how you can take the next step to grow your practice and build a more profitable business.