Chart of Accounts for a Medical Practice: How to Structure It (With a Sample COA)

Parth ShahPublished:4 days ago

Practice manager reviewing a medical practice chart of accounts on a laptop at a clinic front desk

A chart of accounts for a medical practice is the list of general ledger accounts your practice uses to classify every dollar it earns, collects, owes, and spends. It differs from a standard small-business chart of accounts in four specific ways: revenue is segmented by payer, contractual adjustments sit in a contra-revenue account, patient credit balances sit on the balance sheet as a liability, and direct clinical costs are separated from overhead. A well-built practice COA usually runs 60 to 90 accounts – not 400.

Most practices never get there. A clinic opens QuickBooks, accepts the default template, and eighteen months later has a single account called “Income” holding gross charges, insurance deposits, and patient copays in one undifferentiated pile. The books balance. They just cannot answer the questions that matter: what do we actually collect per visit, which service line is losing money, and how much of that bank balance is not ours? Fixing that starts with the account structure, which is also the foundation for outsourced bookkeeping and accounting for medical practices.

Key Takeaways

Segment revenue by payer class – Medicare, Medicaid, commercial, and self-pay – not by individual insurance company.
If you record gross charges, you must also record contractual adjustments in a contra-revenue account; otherwise your revenue is fiction.
Patient and payer overpayments are liabilities, not income. Medicare overpayments carry a statutory 60-day refund clock.
Separate direct clinical costs (supplies, injectables, send-out labs) from overhead so you can see margin by service line.
Track provider, location, and service line with classes or tags – not by creating a new GL account for each one.
Design the revenue accounts around what your practice management system can actually export, or the sync will fight you every month.

Why a Generic Chart of Accounts Breaks in a Medical Practice?

Three structural facts about clinical revenue break the standard template.

You Bill One Price and Get Paid Another

You bill $400 for a visit. Medicare’s allowed amount is $138. The $262 difference is a contractual adjustment – a write-off you agreed to when you signed the payer contract. A generic COA has nowhere to put it, so practices either book only the $138 (losing all visibility into billing performance) or book $400 as revenue and bury the write-off in an expense account (overstating both revenue and expenses).

Money in Your Bank Account Is Not Always Yours

Patients prepay. Deductibles reset and secondary payers pay after you have already collected patient responsibility. Payers recoup prior claims by netting them against current deposits. Every practice carries a running balance of money it holds but has not earned. If that sits in revenue, your P&L is overstated and your refund obligations are invisible.

Your Revenue Arrives From Four Different Kinds of Payer

Medicare, Medicaid, commercial insurers, and self-pay behave differently on timing, adjustment rates, collection rates, and compliance risk. Blending them into one account means you cannot calculate a net collection rate by payer class – the single most useful revenue metric a practice has. This is one of the first things a specialist looks at in medical practice bookkeeping and accounting.

The Decision Most Practices Get Wrong: Accounts vs. Dimensions

Before you write a single account name, decide what belongs in the account number and what belongs in a class, location, or tag. Getting this backwards is why practice charts of accounts bloat to 300 lines and become unusable.

The rule: if you would never want to see it as a separate line on your tax return, it is a dimension – not an account.

What you want to track	Use a GL account	Use a class / location / tag
Payer class (Medicare, commercial, self-pay)	Yes	-
Type of cost (supplies vs. rent vs. payroll)	Yes	-
Individual provider	-	Yes (class)
Clinic site or office	-	Yes (location)
Service line (procedures, in-house lab, aesthetics)	Only if the economics differ sharply	Usually yes
Individual insurance company	No	No - track in your PM system

A three-provider, two-site practice tracking both dimensions in the GL would need six revenue accounts per payer class – 24 accounts before you have recorded a single expense. With classes and locations, you need four, and you can still run a P&L by provider, by site, or by both.

The Numbering Framework

Use a four-digit block structure and leave gaps so you can insert accounts later without renumbering everything.

1000-1999 Assets – cash, insurance AR, patient AR, inventory, prepaid, fixed assets
2000-2999 Liabilities – payables, patient credit balances, payroll liabilities, loans, lease liabilities
3000-3999 Equity – capital, distributions, retained earnings
4000-4999 Revenue – patient service revenue by payer, contra-revenue, other income
5000-5999 Direct clinical costs – supplies, drugs, implants, outside labs, clinical staff if you want contribution margin
6000-6999 Operating overhead – administrative payroll, occupancy, insurance, software, professional fees
7000-7999 Owner compensation, other income and expense – interest, depreciation, owner comp if kept below the line

Increment by 10 within each block. When you add “Vaccines and injectables” next year, it slots in cleanly.

Building the Revenue Section

This is where practice accounting is genuinely different from every other small business, and where most of the value sits

Should You Book Gross Charges or Net Collections?

Both approaches are defensible; pick one deliberately.

Net method (most solo and small practices): record revenue at the allowed or collected amount. Simpler, matches cash-basis tax reporting, requires fewer accounts. The downside is that your GL tells you nothing about billing performance – you cannot see write-offs, denials, or how much of what you billed you actually captured.

Gross method (multi-provider practices, anyone benchmarking): record gross charges as revenue, then reduce them with contra-revenue accounts. This gives you a net collection rate directly from the P&L. It requires that your practice management system can export charges, adjustments, and payments as separate figures – most can.

If your practice is growing past three providers, or you are preparing for a sale or an MSO transaction, use the gross method. Buyers and lenders will ask for the adjustment detail either way.

Contractual Adjustments Belong in Contra-Revenue

Under the gross method, create separate contra-revenue accounts for contractual adjustments (the negotiated write-down), bad debt write-offs, courtesy or hardship discounts, and prompt-pay discounts. Keeping them apart matters: contractual adjustments are a contracting outcome, bad debt is a collections outcome, and courtesy discounts are a policy decision. Merging them hides which one is moving.

Patient Credit Balances Are a Liability

Create 2210 Patient Credit Balances and 2220 Payer Refunds Payable on day one, even if the balances look small. When a patient prepays or a secondary payer covers something you already collected, that money goes here – not into revenue – until you refund it or apply it to a future service.

This is not just bookkeeping tidiness. Under Section 1128J(d) of the Social Security Act, providers must report and return Medicare and Medicaid overpayments by the later of 60 days after the overpayment is identified or the date the corresponding cost report is due, with a six-year look-back period. Retained overpayments can trigger False Claims Act exposure. current CMS regulations at 42 CFR 401 Subpart D and any 2025-2026 updates to the identification and suspension provisions. A GL account that surfaces the balance every month is the cheapest compliance control you will ever build.

Split Insurance AR From Patient AR

They age differently, collect differently, and are worth different amounts. Use 1200 Accounts Receivable – Insurance and 1210 Accounts Receivable – Patient, with a separate allowance account if you are on accrual. A practice with 45 days in AR overall might have 28 days on the insurance side and 90 on the patient side – a completely different problem with a completely different fix.

Cash-Pay and Retail Revenue

Aesthetics, supplements, DME, and dispensed products need their own revenue accounts. They carry different margins, often carry inventory, and – unlike clinical services – are frequently subject to state sales tax. sales tax treatment of retail and cosmetic services in the practice’s state. If retail is buried in patient service revenue, nobody notices the sales tax exposure until a state notice arrives.

Direct Clinical Costs vs. Overhead

Standard templates dump medical supplies into “Office Expense.” That single choice destroys your ability to see which service line makes money.

Direct clinical costs are those that vary with patient volume or attach to a specific service: medical and surgical supplies, drugs and injectables (including buy-and-bill J-code products), vaccines, implants and hardware, send-out laboratory and pathology fees, imaging reads and professional interpretation fees, and – if you want true contribution margin – the clinical staff time directly attached to service delivery.

Overhead is everything that would continue if you saw half as many patients: rent, front-desk and administrative payroll, malpractice premiums, software subscriptions, professional fees, marketing.

With the split in place, a P&L by class shows you that your in-house lab runs at 70% margin while the aesthetics line, after product cost and dedicated staff, runs at 12%. Without it, you are guessing.

If you dispense or retail, add inventory accounts – 1300 Inventory – Medical Supplies, 1310 Inventory – Drugs and Injectables, 1320 Inventory – Retail Products – and count them at least annually. Injectable inventory in a busy aesthetics practice can be a five-figure balance sitting entirely off the books.

Where Physician Compensation Actually Sits?

How you record owner pay depends on entity type, and getting it wrong distorts every benchmark you will ever run.

PC or PLLC taxed as an S corporation: owner-physicians take reasonable W-2 wages through payroll, plus distributions recorded in equity – never as an expense.
Partnership or multi-member PLLC: partner physicians take guaranteed payments (an expense account) and distributions (equity). They are not on payroll.
Sole proprietor or single-member LLC: owner draws hit equity; there is no owner wage account.
Employed physicians, NPs, and PAs: W-2 wages, typically a direct clinical cost if you are measuring provider contribution margin.
Locum tenens: 1099 contractors, in their own account so you can see the true cost of coverage gaps.

Keep owner compensation in the 7000 block, below the operating line. Practice overhead benchmarks – MGMA and specialty society data – are calculated before physician compensation. If your owner W-2 sits inside operating expenses, your overhead ratio will look catastrophic against a benchmark that excludes it, and you will chase a problem you do not have.

If you operate under an MSO or friendly-PC structure, add explicit accounts for management fees paid or received and due-to/due-from related entities. Related-party flows in healthcare attract scrutiny under Stark and anti-kickback rules; they should be visible in the GL, not reconstructed later.

Balance Sheet Accounts Most Templates Omit

1400 Prepaid Malpractice Insurance – premiums are often paid annually; amortize them monthly
1410 Prepaid Tail Coverage – material when a provider exits a claims-made policy
1500-1590 Fixed Assets – medical equipment, leasehold improvements, computer and EHR hardware, furniture, with matching accumulated depreciation accounts.
1600 Right-of-Use Asset – Equipment and Suite Leases and 2600 Lease Liability – required under ASC 842 for GAAP-basis statements.
2100 Payroll Liabilities and 2110 Payroll Clearing – separate withheld taxes, employer taxes, retirement plan deferrals, and HSA/FSA withholdings.
2210 Patient Credit Balances and 2220 Payer Refunds Payable
2300 Merchant Fee Clearing – so card processing fees are an expense, not a silent reduction of revenue.

2500 Equipment Notes Payable and 2510 SBA / Practice Acquisition Loan – split current and long-term portions.

Sample Chart of Accounts for a Medical Practice

Use this as a starting structure, not a mandate. Delete what does not apply and add what your specialty needs.

Account	Account Name	What goes here
1000	Operating Checking	Primary depository account
1010	Payroll Checking	Optional, funded per payroll cycle
1020	Savings / Tax Reserve	Estimated tax and reserve funds
1030	Undeposited Funds	Payments received, not yet deposited
1100	Merchant Deposits in Transit	Card batches not yet settled
1200	Accounts Receivable - Insurance	Claims submitted, not yet adjudicated
1210	Accounts Receivable - Patient	Patient responsibility after adjudication
1220	Allowance for Doubtful Accounts	Contra-asset; accrual basis only
1300	Inventory - Medical Supplies	Countable clinical supply stock
1310	Inventory - Drugs and Injectables	Buy-and-bill and dispensed drug stock
1320	Inventory - Retail Products	Supplements, skincare, DME
1400	Prepaid Malpractice Insurance	Annual premium, amortized monthly
1410	Prepaid Software and Subscriptions	EHR, PM, billing platform prepayments
1500	Medical Equipment	Capitalized clinical equipment
1510	Leasehold Improvements	Buildout of clinical space
1520	Computer and EHR Hardware	Workstations, servers, tablets
1590	Accumulated Depreciation	Contra-asset
1600	Right-of-Use Asset - Leases	ASC 842, if applicable
2000	Accounts Payable	Vendor invoices outstanding
2010	Credit Cards Payable	One sub-account per card
2100	Payroll Liabilities - Withheld Taxes	Employee withholding due
2110	Payroll Liabilities - Employer Taxes	FICA, FUTA, SUTA employer share
2120	Retirement Plan Payable	401(k)/SIMPLE deferrals and match
2130	Health, HSA and FSA Withholdings	Employee benefit withholdings
2140	Accrued Payroll and PTO	Earned but unpaid wages
2210	Patient Credit Balances	Patient money held, not earned
2220	Payer Refunds Payable	Identified overpayments pending refund
2300	Merchant Fee Clearing	Gross-to-net card settlement
2400	Sales Tax Payable	Retail and taxable service sales
2500	Equipment Notes Payable	Split current / long-term
2510	Practice Acquisition / SBA Loan	Split current / long-term
2600	Lease Liability	ASC 842, if applicable
3000	Owner / Member Capital	Contributed capital
3100	Owner Distributions	S-corp or partnership distributions
3900	Retained Earnings	Accumulated results
4000	Patient Service Revenue - Medicare	Part A/B and Medicare Advantage
4010	Patient Service Revenue - Medicaid	State Medicaid and managed Medicaid
4020	Patient Service Revenue - Commercial	All commercial payers
4030	Patient Service Revenue - Self-Pay	Uninsured and direct-pay patients
4040	Workers' Compensation / Auto Revenue	If material to the specialty
4100	Ancillary Revenue - In-House Lab	CLIA-waived and in-house testing
4110	Ancillary Revenue - Imaging	X-ray, ultrasound, in-office imaging
4120	Cash-Pay / Aesthetic Services	Non-covered elective services
4130	Retail Product Sales	Supplements, skincare, DME
4500	Contractual Adjustments	Contra-revenue; payer write-downs
4510	Bad Debt Write-Offs	Contra-revenue; uncollectible patient AR
4520	Courtesy and Hardship Discounts	Contra-revenue; policy-based
4530	Refunds Issued	Contra-revenue; refunds to patients/payers
4900	Other Income	Grants, rebates, incentive payments
5000	Medical and Surgical Supplies	Consumables used in patient care
5010	Drugs, Vaccines and Injectables	Including buy-and-bill product cost
5020	Implants and Hardware	Procedure-specific device cost
5030	Outside Laboratory and Pathology	Send-out testing fees
5040	Imaging and Professional Reads	Radiology interpretation fees
5100	Clinical Staff Wages	MA, RN, tech wages
5110	Employed Provider Wages - NP/PA	Mid-level provider compensation
5120	Locum Tenens and Contract Providers	1099 provider coverage
5200	Cost of Retail Products Sold	Matches retail revenue
6000	Administrative and Front-Desk Wages	Non-clinical payroll
6010	Payroll Taxes - Employer	Employer share of payroll taxes
6020	Employee Benefits	Health, dental, retirement match
6100	Rent and Occupancy	Suite rent, CAM, utilities
6110	Repairs and Maintenance	Facility and equipment upkeep
6120	Equipment Service Contracts	Recurring maintenance agreements
6200	Malpractice Insurance	Expensed monthly from prepaid
6210	General and Cyber Liability Insurance	Including HIPAA breach coverage
6300	EHR and Practice Management Software	Core clinical systems
6310	Billing and Clearinghouse Fees	Including outsourced RCM fees
6320	Merchant and Bank Fees	Card processing, bank charges
6400	Licenses, Credentialing and Dues	State licenses, DEA, board fees
6410	Continuing Medical Education	CME and conference costs
6500	Legal and Professional Fees	Counsel, accounting, consulting
6600	Marketing and Patient Acquisition	Web, referral, advertising spend
6700	Medical Waste and Sterilization	Regulated waste disposal
7000	Owner Physician Compensation - W-2	S-corp reasonable wages
7010	Guaranteed Payments to Partners	Partnership entities only
7100	Depreciation and Amortization	Book depreciation
7200	Interest Expense	Loan and lease interest
7300	Management Fees - Related Party	MSO or friendly-PC structures

How the COA Changes by Specialty

Primary care: add vaccine inventory, VFC program tracking, and chronic care management or value-based incentive revenue in its own account.
Dental: lab fees are a major direct cost and need their own account; expect a much higher self-pay and membership-plan mix.
Mental health and therapy: low supply cost, high self-pay and EAP mix; add accounts for supervision fees and no-show or late-cancellation fees.
Med spa and aesthetics: the most divergent – heavy injectable inventory, retail sales tax, prepaid packages and memberships (deferred revenue liability), and gift certificates.
Physical therapy: visit-based revenue with capped payer authorizations; track units and cash-pay wellness separately.
Practices dispensing controlled substances: DEA-scheduled inventory needs its own account and a perpetual count, since the accounting record supports the regulatory record.

Design Your COA Around Your PM/EHR Sync

Athenahealth, Tebra, eClinicalWorks, DrChrono, and similar systems do not post individual transactions to your GL. They post a summarized journal entry – daily, weekly, or monthly – built from the categories the system can export.

So before you finalize revenue accounts, pull a sample export from your practice management system and see what it actually gives you: charges, adjustments, payments, and refunds by payer class, by location, by provider. Build your revenue accounts to match those fields. If your COA has eight revenue categories and the export supports four, someone reallocates by hand every month, and that reconciliation eventually stops happening.

Then reconcile in the right order: PM system deposit batch, then bank deposit, then GL entry. The deposit total is your control. If they do not tie, the break is between the batch and the bank, not somewhere in the ledger.

Cash-Basis Taxes, Accrual-Style Visibility

Most small practices file on the cash basis for tax purposes, which is generally available to service businesses below the gross receipts threshold. current Section 448(c) gross receipts threshold for the applicable tax year.That does not mean you should ignore AR.

Keep the AR and contractual adjustment accounts in the COA and maintain them for management reporting, then convert to cash basis at year end. A practice with $400,000 in insurance AR and no visibility into it is flying blind for eleven months to save a bookkeeping step.

Also map each account to its destination on your return – Form 1120-S for S corporations, Form 1065 for partnerships – while you are building the COA. Owner W-2 wages, guaranteed payments, distributions, meals, health insurance, and retirement contributions all have specific treatment. Mapping them once at setup is far cheaper than untangling them every January. current form line references for the filing year.

Seven Mistakes We See in Medical Practice Books

1. Gross charges booked as revenue with no contra-revenue account. Revenue is overstated by the entire contractual write-down.

2. One catch-all “Income” account. No payer mix, no collection rate, no way to evaluate a contract renewal.

3. Patient overpayments recorded as income. Overstates profit and hides a refund obligation with statutory deadlines.

4. Merchant fees netted against revenue. Understates both revenue and expense; you lose sight of what card processing costs.

5. Personal and practice spend commingled. Common in solo practices and a direct audit risk, particularly around vehicles, travel, and CME.

6. No written capitalization policy. Equipment gets expensed or capitalized inconsistently. For 2026, Section 179 allows up to $2,560,000 of qualifying property with a phase-out beginning at $4,090,000, and 100% bonus depreciation applies to qualifying property acquired and placed in service after January 19, 2025. confirm current-year limits and state conformity – several states decouple from federal bonus depreciation.

7. An account list that grew to 300 lines. Almost always a practice that used accounts where it should have used classes.

Rebuilding an Existing Chart of Accounts Without Losing History

8. Change at a fiscal year boundary where possible. Mid-year changes are workable but require a mapped comparative.

9. Build a mapping table – old account, new account, effective date – before touching the file. This is your audit trail.

10. Merge, do not delete. Merging preserves transaction history; deleting an account with activity either fails or orphans data.

11. Set up classes and locations first, then post new activity against them from day one.

12. Re-run the prior twelve months under the new structure and compare to the old reports. Any variance you cannot explain means the mapping is wrong.

13. Document it in a one-page COA guide telling staff what goes where. A COA nobody understands reverts to “Ask My Accountant” within a quarter.

Frequently Asked Questions

1. What is a chart of accounts for a medical practice?

It is the structured list of general ledger accounts a practice uses to classify all financial activity, organized so that revenue is segmented by payer, contractual adjustments are tracked separately, patient credits are held as a liability, and direct clinical costs are separated from overhead.

2. How many accounts should a medical practice chart of accounts have?

Most practices need 60 to 90 accounts. If yours has grown past 150, you are almost certainly using accounts where classes, locations, or tags would work better.

3. Should a medical practice record gross charges or net collections?

Record net collections if you are a small practice on cash basis and want simplicity; record gross charges with contra-revenue accounts if you are multi-provider, benchmarking, or preparing for a transaction. The gross method is the only one that shows your net collection rate directly from the P&L.

4. Where do contractual adjustments go in the chart of accounts?

In a contra-revenue account in the 4000 block, immediately below gross patient service revenue – not in expenses. Keep contractual adjustments separate from bad debt and courtesy discounts, since they have different causes and different fixes.

5. How do you record patient credit balances and refunds?

Post the overpayment to a liability account such as Patient Credit Balances or Payer Refunds Payable, then clear it when the money is refunded or applied to a future service. Medicare and Medicaid overpayments carry a 60-day statutory reporting and refund obligation once identified.

6. Do you need a separate revenue account for each insurance company?

No. Segment by payer class – Medicare, Medicaid, commercial, self-pay – and track individual payers in your practice management system, which already reports contract-level detail far better than a GL can.

7. What chart of accounts should a medical practice use in QuickBooks Online?

Start from the structure above, map each account to the correct QBO account type and detail type (this drives your financial statement presentation), and enable classes for providers and locations for sites before you begin posting.

8. Can you change a chart of accounts mid-year?

Yes. Build an old-to-new mapping table first, merge accounts rather than deleting them to preserve history, and re-run the prior twelve months under the new structure to confirm nothing was lost before you rely on the new reports.

Parth Shah, Managing Director

(CPA-US, FCA, RV-S&FA, DISA)

Parth Shah who is head of Accounts and Book keeping has experience of more than 10 years. A Certified Public Accountant – US, fellow Chartered Accountant, Registered Valuer and Diploma in Information System Audit.