Expense vs Liability

[Mike or Penny Novack]

Dennis Powless wrote:

>This is so very confusing.  I guess I want to treat the medical bill
>account as if it was a credit card where you will have periodic
>increases and then pay on it monthly or from time to time.
>
>  
>
You have the correct instinct but if keeping your books on a "cash 
basis" a formal debt (like the liability account for the credit card) 
isn't quite the same as an unpaid cash expense. The only importance of 
the difference is having the expense show up in the correct time period 
(if that line gets crossed before you pay the doctor bill).

If you like you can have a liability account for "owed to Dr. Jones" (or 
whoever). You book the expense against that account when incurred and 
then when you pay the doctor you debit your checking account and credit 
the liability.

If these are just personal books and you don't itemize on your income 
tax with "medical expenses" as one of the categories and you don't have 
one of those pre tax medical deduction accounts (use it or lose it by 
the end of the year BUT the check can go out a certain amount of time 
after the end of the year) you have lots of leeway how you want to 
handle this.

We itemize, are on a cash basis, and so don't book medical expenses till 
we pay them. For large items around the end of the year whether to wait 
or to pay the whole thing early before completion (say a major dental 
procedure) would be influenced by tax considerations.

Sounds like in your case you more or less have a running account with 
this doctor. That alone would make me suggest setting up a liability 
account a good way to go.

Michael