What is the difference between accrual and cash accounting for clinics?

Cash basis is simpler and is the default for most small clinics. Revenue is recorded when collected, expenses when paid. For tax purposes, the law bars only certain entities from the cash method: C corporations and partnerships with a C-corporation partner, plus tax shelters. Those entities can still use cash if their average annual gross receipts for the prior three years are $31 million or less for 2025 (IRS Rev. Proc. 2024-40) or $32 million or less for 2026 (Rev. Proc. 2025-32), and a qualified personal service corporation (one whose activities are at least 95 percent in fields such as health, owned by the professionals who work there) can use cash regardless of size. Outpatient clinics usually qualify and benefit from cash basis because payment timing can defer income into the next year. Accrual basis matches revenue to the period services were performed and expenses to the period incurred, regardless of cash timing. Buyers, lenders, and partners typically require accrual statements because they show economic reality more accurately. Clinics planning a sale usually start producing accrual statements well before going to market: Breakwater M&A advises cleaning up the books 6 to 12 months before a sale and lists cash-basis reporting that needs accrual conversion among the record problems that add hours to a QofE (Quality of Earnings) review. Mixing systems is common: cash for tax filing, accrual for management and sale-prep reporting.