Read a dental practice income statement by confirming the period and accounting basis, tracing revenue to its supporting reports, and checking what each expense category includes. Only then interpret the bottom line. A P&L can be arithmetically correct while its timing or classifications make the month misleading.
The income statement reports income and expenses over a period; it is not a list of everything the practice owns or every bank transaction. The IRS makes that distinction in its recordkeeping and financial-statement guidance.
The review below is a practical owner workflow, not a prescribed accounting standard. Have your CPA resolve recognition, capitalization, owner-payment, and tax questions for your entity.
Read the report heading before the dollar amounts
Ask for the closed monthly statement, year-to-date statement, general-ledger detail, and the preparer's unresolved-item list. Confirm the legal entity and locations included. A building owned through another entity should not silently become part of the dental practice report.
Record the exact start and end dates, basis, preparation date, and whether all close entries have been posted. Compare the same period lengths and account definitions. A preliminary September report and a finalized August report are not equally complete.
Under the cash method, income and expenses generally follow receipts and payments; accrual accounting generally follows earning and incurring them. Exceptions apply, and tax accounting is not simply a software toggle. IRS Publication 538 explains accounting methods.
For example, an unpaid lab invoice may belong in a monthly accrual report even though no bank withdrawal occurred that month. Ask how the preparer handles that cutoff, along with annual payments and late invoices. Do not change the basis to make one month look stronger.
Identify what the revenue line actually measures
Request a short mapping from the practice system to the accounting ledger. Which report feeds revenue? Which adjustments are included before export? Which entries are added during the close?
Production, adjusted production, patient receipts, payer receipts, and net bank deposits are different inputs. A deposit can also contain a loan or an owner contribution. Use the production-versus-collections reconciliation to investigate those source reports rather than treating their totals as interchangeable.
For an accrual management statement, a useful review schedule might contain:
| Review line | Owner's question |
|---|---|
| Recorded service revenue | Which completed services and cutoff produced this amount? |
| Contractual and other revenue adjustments | Are these already reflected in the imported total? |
| Refunds and credits | Does the entry reverse revenue, settle a credit, or require another treatment? |
| Net reported revenue | Can the preparer reproduce it from the approved source and close entries? |
Ask the accountant to approve this mapping for your basis and payer arrangements. Do not subtract every adjustment report from a revenue figure that is already net. Likewise, a merchant fee withheld before settlement needs a documented treatment; the smaller deposit alone does not explain the full transaction.
Look inside expense groups
An expense heading is a summary, not evidence. Review the underlying transactions when a line changes sharply, turns negative, or contains unfamiliar vendors.
Check payroll against the payroll summary, lab spending against invoices, and occupancy against the relevant agreements. Ask whether employer payroll costs sit with wages or in a separate category. Identify where associate costs and the working owner's compensation appear.
Owner-payment treatment depends on the business structure. Corporate compensation and partnership payments do not follow identical rules, as the IRS explains in its guidance on paying yourself. Have the accountant classify an ambiguous transfer before interpreting it as an expense.
Useful questions for the ledger review include:
- Was the same vendor invoice entered twice through different payment routes?
- Was a loan payment split into its supported components?
- Was a purchased asset handled under the approved capitalization policy?
- Does a negative expense represent a legitimate credit or a misplaced receipt?
- Are uncategorized transactions still waiting for documentation?
The overhead guide addresses cost grouping in more depth. Here, the goal is to understand the rows already on the P&L, not to impose a new benchmark or reorganize the chart of accounts every month.
Work through a statement with one classification error
These figures are illustrative, not dental-industry averages. Assume an accrual management P&L with no entity-level income-tax expense for this example. Labor includes the owner's actual compensation and associated employer costs. The accountant has approved the revenue treatment shown.
| Statement line | Amount |
|---|---|
| Service revenue before listed adjustments | $128,000 |
| Revenue adjustments | −$18,000 |
| Net revenue | $110,000 |
| Labor | −$54,000 |
| Lab and clinical supplies | −$14,000 |
| Occupancy | −$8,000 |
| Other operating expenses | −$12,000 |
| Depreciation | −$3,000 |
| Operating result | $19,000 |
| Interest expense | −$1,000 |
| Reported net income | $18,000 |
The arithmetic works: operating expenses total $91,000, leaving $19,000 before interest and $18,000 afterward.
Now suppose the accountant discovers that the $12,000 other-expense line includes $4,000 of loan principal. The approved correction removes that principal from expense and reduces the recorded debt instead. Other operating expenses become $8,000, operating income becomes $23,000, and net income becomes $22,000.
The practice did not earn another $4,000 from patients. The correction changed the report, not the bank transaction. Retain the original entry, supporting loan statement, correction reference, and revised P&L so the next reviewer can explain the difference.
Ask why profit did not become cash
Keep the P&L result intact and request a separate reconciliation to the change in cash. In particular, identify unpaid revenue, unpaid expenses, noncash charges, asset purchases, borrowing, repayments, and owner transfers. The SEC explains why earnings and cash movements require different reports in its financial-statement guide.
As a deliberately simplified illustration, start with the corrected $22,000 profit. Assume $3,000 of noncash depreciation, $10,000 of additional uncollected receivables, and $4,000 of principal repaid, with no other differences. The resulting cash increase is $11,000: $22,000 + $3,000 − $10,000 − $4,000. That is an explanation of these assumptions, not a distribution recommendation.
Finish the monthly meeting with the final report version, the largest explained movement, any correction still pending, and the person responsible for resolving it. If the next question is profitability relative to revenue, use the separate profit-margin calculation. First make sure everyone is reading the same reliable statement.
