Month-end revenue accrual and reserve
At month end some care has been delivered and not yet billed. Revenue is still recognised, at the amount expected to be collected. This build uses an invented practice. It shows the estimate an analyst prepares, the entries the accounting team books, and how the reserve moves from month to month.
What this shows
- Unbilled services accrued at expected collection and reversed next month
- Contractual adjustments, expected denials and a reserve roll-forward
- A liability for insurer claw-backs after review
- The journal entries, and a reconciliation of the billing system to the ledger
How I use it
- Preparing the estimates the accounting team books at month end
- Explaining why revenue is shown at the amount expected to be collected
- Reconciling receivables between the billing system and the ledger
Explore the model below. It uses an invented company and invented numbers.
Explore the model
Illustrative model · Synthetic dataWide tables scroll sideways: swipe inside a table to see every column.
Sample build: month-end revenue accrual and reserve
Larkwood Family Clinic is an invented outpatient practice closing June. Care delivered in the last days of the month has not been billed yet, but the revenue is still recognised, at the amount expected to be collected. This build prepares the estimates, shows the entries a controller would book, rolls the reserve forward, and reconciles the billing system to the ledger.
Invented practice and invented numbers for illustration. Not data from any employer or client.
What to try
- Load Billing backlog. Billed revenue shrinks and the accrual grows, so total revenue hardly moves. That is the point of accruing.
- Load Payer mix worsens, then open Unbilled accrual. The rate check shows the accrual is set too high for the new rates.
- Raise the amount written off and watch the reserve fall in the Reserve and claw-backs tab.
- In Reconciliation, mark each item until the difference reaches zero. One item needs a correcting entry.
- In Checks, plant a mistake and watch the checks that notice it turn red.
Who does what
The starting point.
Unbilled services
Care delivered in the last days of the month and not yet sent to payers. It is accrued at the share expected to be collected.
Rates on claims billed this month
A contractual adjustment is the part of the price list the payer contract does not allow. A denial is a claim the payer refuses to pay. An implicit concession is a patient balance the practice does not expect to collect.
Write-offs and claw-backs
Write-offs are balances given up on, charged against the reserve. Claw-backs are money payers take back after reviewing paid claims.
Unbilled revenue accrued
$66,000
8 days of services at 55.0% expected collection
Net revenue for the month
$244,631
After contractual adjustments, denials and claw-backs
Reserve at month end
$71,544
13.0% of billed receivables
Claw-back liability
$45,725
Set aside at 1.50% of revenue, less claw-backs taken back
Revenue bridge for June
Revenue is shown at the amount expected to be collected, not at the price list. The bridge runs from the gross charges billed this month to net revenue.
| Step | Amount | Running total |
|---|---|---|
| Gross charges billed | $428,000 | $428,000 |
| Contractual adjustments | -$171,200 | $256,800 |
| Expected denials and concessions | -$20,544 | $236,256 |
| Last month's accrual reversed | -$53,900 | $182,356 |
| New unbilled accrual | +$66,000 | $248,356 |
| Claw-back provision | -$3,725 | $244,631 |
| Net revenue | $244,631 | $244,631 |
| Step | Amount |
|---|---|
| Days of service delivered and not yet billed | 8 |
| Gross charges per day of service | $15,000 |
| Gross charges not yet billed | $120,000 |
| Expected collection on those charges | 55.0% |
| Accrued revenue, booked as unbilled receivables | $66,000 |
| Last month's accrual, reversed on the first day of the month | -$53,900 |
| Net change in revenue from accruing | +$12,100 |
Claims billed in the month would show $236,256 of revenue on their own. Accruing changes that by +$12,100: $66,000 is added for services not yet billed, and $53,900 comes out because last month's accrual is billed this month. Revenue follows the services delivered, not the date the claims were sent.
The $66,000 accrued now reverses the same way on the first day of next month. That entry debits unbilled revenue and credits unbilled receivables for $66,000, which takes the balance back to zero before next month's accrual goes in. The claims are billed in the meantime, so the billed revenue takes its place.
Why not accrue the full price list
| Measure | Value |
|---|---|
| Collection rate the billed side implies | 55.2% |
| Accrual rate used | 55.0% |
| Gap | -0.2 points |
| This month's accrual at the billed-side rate | $66,240 |
| This month's accrual as estimated | $66,000 |
| Last month's services at the billed-side rate | $54,096 |
| Last month's accrual | $53,900 |
The accrual rate is within 2 points of what the billed side implies (-0.2 points). No change is needed.
Last month's accrual of $53,900 was $196 low against the $54,096 the same services bill out at under this month's rates. The gap is the true-up that reaches revenue when those claims are billed.
The billed-side rate is what is left of each gross charge after the contractual adjustment, the expected denials and the implicit concessions.
Reserve as a share of receivables
13.0%
Against $550,800 of billed receivables
Write-offs the reserve covers
6.5 months
At this month's pace of write-offs
Receivables after the reserve
$479,256
What the practice expects to collect
Reserve for denials and implicit concessions
The reserve holds what the practice expects to lose on claims it has already billed. An implicit concession is a patient balance the practice does not expect to collect, though it has not promised to waive it. Contractual adjustments are not in the reserve, because they are known the day the claim is billed.
| Item | Amount |
|---|---|
| Opening reserve | $62,000 |
| Added: expected denials | +$12,840 |
| Added: implicit concessions | +$7,704 |
| Written off | -$11,000 |
| Closing reserve | $71,544 |
Payer claw-back liability
Payers review paid claims after the fact and can take money back, which the industry calls recoupment. Each month the practice sets aside 1.50% of the revenue it books ($248,356 before this provision), as a liability and a reduction of revenue. It sits apart from the reserve because the money is owed back to a payer, not uncollected from one.
| Item | Amount |
|---|---|
| Opening liability | $48,000 |
| Added: provision for the month | +$3,725 |
| Paid back to payers | -$6,000 |
| Closing liability | $45,725 |
The analyst prepares the estimates. The accounting team books every entry. Rows tagged Analyst estimate are the analyst's work. Feed rows post from the billing system or the bank, and the reversal runs by itself on the first day of the month.
| Entry and account | Debit | Credit |
|---|---|---|
| JE-1Claims billed in the month, from the billing systemBilling feed | ||
| 1100 Patient receivables, billed | $428,000 | |
| 4000 Patient service revenue, billed | $428,000 | |
| JE-2Contractual adjustments on those claimsBilling feed | ||
| 4100 Contractual adjustments | $171,200 | |
| 1100 Patient receivables, billed | $171,200 | |
| JE-3Cash applied to claims, from the bank feedBank feed | ||
| 1010 Cash | $235,000 | |
| 1100 Patient receivables, billed | $235,000 | |
| JE-4Balances written off against the reserveBilling feed | ||
| 1190 Reserve for denials and implicit concessions | $11,000 | |
| 1100 Patient receivables, billed | $11,000 | |
| JE-5Reverse last month's unbilled accrualAuto-reversal | ||
| 4050 Patient service revenue, unbilled accrual | $53,900 | |
| 1150 Unbilled receivables | $53,900 | |
| JE-6Accrue unbilled services at expected collection, reversed next monthAnalyst estimate | ||
| 1150 Unbilled receivables | $66,000 | |
| 4050 Patient service revenue, unbilled accrual | $66,000 | |
| JE-7Provision for expected denials and implicit concessionsAnalyst estimate | ||
| 4150 Provision for denials and concessions | $20,544 | |
| 1190 Reserve for denials and implicit concessions | $20,544 | |
| JE-8Provision for payer claw-backs after reviewAnalyst estimate | ||
| 4200 Provision for payer claw-backs | $3,725 | |
| 2400 Payer claw-back liability | $3,725 | |
| JE-9Claw-backs the payers took back in the monthBank feed | ||
| 2400 Payer claw-back liability | $6,000 | |
| 1010 Cash | $6,000 | |
| Total of the entries shown | $995,369 | $995,369 |
| Entry and account | Debit | Credit |
|---|---|---|
| JE-10Reverse the duplicate remittance posting found in the reconciliationProposed fix | ||
| 1100 Patient receivables, billed | $2,750 | |
| 1010 Cash | $2,750 | |
This entry is left out of the totals and the balances. The accounting team books it once the duplicate posting is confirmed.
| Account | Opening | Debits | Credits | Closing |
|---|---|---|---|---|
| 1010 Cash | $310,000 | $235,000 | $6,000 | $539,000 |
| 1100 Patient receivables, billed | $540,000 | $428,000 | $417,200 | $550,800 |
| 1150 Unbilled receivables | $53,900 | $66,000 | $53,900 | $66,000 |
| 1190 Reserve for denials and implicit concessions (credit balance) | $62,000 | $11,000 | $20,544 | $71,544 |
| 2400 Payer claw-back liability (credit balance) | $48,000 | $6,000 | $3,725 | $45,725 |
| 4000 Patient service revenue, billed (credit balance) | $0 | $0 | $428,000 | $428,000 |
| 4050 Patient service revenue, unbilled accrual (credit balance) | $0 | $53,900 | $66,000 | $12,100 |
| 4100 Contractual adjustments | $0 | $171,200 | $0 | $171,200 |
| 4150 Provision for denials and concessions | $0 | $20,544 | $0 | $20,544 |
| 4200 Provision for payer claw-backs | $0 | $3,725 | $0 | $3,725 |
The billing system and the ledger should agree on what payers and patients owe for billed claims. They do not, by $16,650. Mark each item below as you explain it. Two are timing and clear on their own. One is a mistake that needs an entry.
| Line | Amount |
|---|---|
| Billed receivables in the ledger, account 1100 | $550,800 |
| Receivables on the billing system aging report | $534,150 |
| Difference to explain | $16,650 |
| Explained by the items you have marked | $0 |
| Still unexplained | $16,650 |
$16,650 of the difference is still unexplained.
Unbilled receivables are reconciled separately
- TimingDeposit applied in the billing system on June 30
Ledger higher by $23,500. The deposit reached the ledger on July 1, so the ledger still shows receivables that the billing system has already cleared.
No entry. It clears in July.
- TimingCharges keyed in the billing system on June 30
Ledger lower by $4,100. The ledger feed runs overnight, so these charges are in the billing system and not yet in the ledger.
No entry. The feed posts them on July 1.
- MistakeOne payer remittance posted twice in the ledger
Ledger lower by $2,750. The same remittance was posted two times, so the ledger receivable is too low and cash is too high.
Book a correcting entry. It is proposed at the end of the Journal entries tab.
Every check re-posts the entries and compares the result with a roll-forward or a total. A check that cannot go red proves nothing, so plant a mistake below and watch the checks that notice it.
The package as built.
10 of 10 checks pass.
Checks on the entries and the roll-forwards
- PassEvery entry has debits equal to creditsAll 9 booked entries balance.
- PassTotal debits equal total creditsDebits and credits are both $995,369.
- PassThe reversal clears last month's accrual to zeroAfter the reversal, unbilled receivables stand at $0.
- PassUnbilled receivables in the ledger equal the estimateThe ledger shows $66,000 and the estimate is $66,000.
- PassThe reserve roll-forward ties to the ledgerOpening plus added less written off is $71,544. The roll closes at $71,544 and the ledger shows $71,544.
- PassThe claw-back liability roll-forward ties to the ledgerOpening plus provision less paid is $45,725. The roll closes at $45,725 and the ledger shows $45,725.
- PassThe receivables roll-forward ties to the ledgerThe roll closes at $550,800 and the ledger shows $550,800.
- PassNet revenue equals the revenue accounts in the ledgerThe bridge ends at $244,631 and the revenue accounts net to $244,631.
- PassThe revenue bridge adds upGross charges plus the steps give $244,631 and the bridge ends at $244,631.
- PassThe listed items explain the whole receivables differenceThe $16,650 difference is fully explained by 3 items.
June net revenue is $244,631, including $66,000 accrued for 8 days of services not yet billed. The reserve closes at $71,544 (13.0% of billed receivables) and the claw-back liability at $45,725. All 10 integrity checks pass.