Many clinics typically operate the books on a cash accounting basis for most of their revenue. I'm assuming this is what you do today. Meaning, when you collect payment for the products or services you provide, you record revenue when that payment is collected. For special cases like wellness plans, the AVMA recommends a "modified cash basis" approach. This just means we’ll add one or two steps to your normal cash accounting process to handle these plans correctly. This won't require you to change your whole system, but it will ensure your financial reports are accurate.

This guide will walk you through the bookkeeping for your wellness plans, using the exact journal entries you've provided for each of your Otto reporting tabs.

Detailed Journal Entry

Step 1: The Enrollments Report (Recording New Annual Commitments)

When you enroll new members into your annual plans, this first entry gets the full value of that commitment onto your books. It recognizes both what the new members now owe you for the year (cost of the membership plan) and the full value of the services you now owe them (exam credits + instant account credit).

Your Journal Entry for New Enrollments:

What This Entry Means:

• Debit, A/R - Memberships (A): This is the total value of the annual plan enrollments you sold in this period. It is an asset (Accounts Receivable) because it represents the future payments you are supposed to receive from these new members. Labeled as Unbilled A/R in the Care Financial Report.
• Credit, Deferred Revenue - Memberships (B): This is the liability portion of the new plans. It acknowledges that you "owe" this value in future services to these members (ie. unused benefit credits). Labeled as Deferred Revenue in the Care Financial Report.
• Credit, Revenue: This represents any portion of the plan that is considered earned immediately at signup. A plan will have revenue associated with its enrollment if A/R > Deferred Revenue. Labeled as Plan Revenue in the Care Financial Report.
• Credit, Discounts: This represents any portion of the plan that is considered discounted immediately at signup. A plan will have a discount associated with its enrollment if Deferred Revenue > A/R. Labeled as Plan Discounts in the Care Financial Report.

Here's an example of what the journal entry looks like:

Step 2: The Payments Report (Recording Cash Disbursements)

When Otto collects monthly payments from your members, this report helps you record those payments. This entry shows the payments made by your active members. It accounts for Otto's processing fees and reduces the amount your members owe you.

Your Journal Entry for Payments Received:

What This Entry Means:

• Debit, Cash (C): This is the actual net cash deposit that hits your bank account after fees. Labeled as Net Payments in the Care Financial Report.
• Debit, Otto Fees: You are recording the processing fees charged by Otto as a business expense. Otto fees are 5% of the total monthly payment inclusive of the $10 teletriage fee if included in the plan (ex. for a $100 monthly payment, Otto fees will be $15, $10 for teletriage plus $5 from 5% of $100). Labeled as Fees Captures in the Care Financial Report.
• Credit, A/R - Memberships (A): This reduces the outstanding balance of what your members owe you - A/R. You are crediting your Accounts Receivable because their payment has lowered their balance. Labeled as Payment Amount Captured in the Care Financial Report. This is the same account for A/R that was adjusted in the enrollments entry from Step 1.

Here's an example of what the journal entry looks like:

Step 3: The Benefit Usage Report (Recognizing Your Earned Revenue)

This is the most important recurring entry for accuracy. As your members come in and use their plan credits (for exams, etc.), this report tells you how much of your Deferred Revenue liability you have now converted into actual, earned revenue.

What This Entry Means: This entry reflects two activities at once.

Let's look at them separately:

Part 1 - Revenue Earned from the Plan benefits used (exam credits and instant account credits):

• Debit, Deferred Revenue - Memberships (B): This reduces the liability you owe the members. Labeled as Deferred Revenue in the Care Financial Report. This is the same account for Deferred Revenue - Memberships (B) that was adjusted in the enrollments entry from Step 1.
• Credit, Revenue (benefit usage): This recognizes the income you have now officially earned because you performed the service. The same as the value above, labeled as Deferred Revenue in the Care Financial Report.

Part 2 - Other Services not covered by exam credits or the instant account credit:

The rest of the entry accounts for other services or products sold that are not covered by the deferred revenue (exam credits and instant account credits).

• Credit, Revenue (additional payment due): The total value of the remaining invoice amount after exam credits and instant account credits have been applied. The sum of the Invoice Remaining Balance column in the Care Financial Report.
• Debit, Cash (C): The portion of the invoice the client paid for out-of-pocket which wasn't covered by their membership benefits. Labeled as Payments in the Care Financial Report. This is the same account for Cash (C) that was adjusted in the payments entry from Step 2.
• Debit, Discount: The portion of the invoice that was further discounted, either because the client was able to use their bonus discount after the instant account credits were completely used up or because an exam credit did not fully cover the cost of the exam (which would be an additional exam discount). This is Revenue (additional payment due) minus Cash (C) which is also equal to Bonus Discount + Exam Discount

Here's an example of what the journal entry looks like:

A note on Revenue and Discounts:

The Revenue and Discount accounts are present in both Step 1 (enrollment) and Step 3 (benefit usage).

Journal entries for Step 1 and Step 3 can utilize the same accounts for Steps 1 and 3, or create separate accounts for each step.

This three-step process, tied directly to your reports, gives you a complete and accurate system for managing your wellness plan accounting from enrollment to final payment.

Simplified Journal Entry

The screenshot above provides an example of how the accounting journal entries are handled for a single member’s benefit usage and membership payment within a given month.

Benefit Usage Journal Entry

1. Compare the “Care Plan Coverage” (last column of the Benefit Usage report) to the Care Plan Payment method total in the practice management system.
   1. These two numbers should be equal.
   2. The Care Plan Coverage total is the amount of dollars discounted from member’s invoices for benefits consumed within report’s the filtered timeframe.
2. In your accounting software, Debit your Care Receivables account by the amount shown in the Benefit Usage section labeled “Deferred Revenue”
   1. The Deferred Revenue total is the calculated as the sum of:
      1. The exam credits used multiplied by the plan’s estimated exam value - listed as Exam Credits Used in the report.
      2. The Account Credits Used - the instant account credits used on all other invoice expenses
3. In your accounting software, Debit your Net Discounts account by the amount shown in the Benefit Usage section labeled the “Net Discounts”
   1. Net Discounts is the difference between Care Plan Coverage and Care Receivables (ie. Deferred Revenue).
      1. If the difference is positive (Care Plan Coverage > Receivables), then it is a discount
      2. If the difference is negative (Care Plan Coverage < Receivables), then it is a negative discount (i.e. revenue)
   2. The total for Net Discounts is calculated by subtracting Exam Revenue from the sum of Exam Discounts and Bonus Discounts in the Benefits Usage section of the Care Financial Report.

Payment Journal Entry

1. In your accounting software, Reduce (credit) the Care Receivables account (the same account that was adjusted in the Benefit Usage Journal Entry) by the gross payments received
   1. This entry reduces the amount owed to your practice from your members as they make their monthly membership payments.
2. In your accounting software, Debit the Net Payments (cash in) and Fees Captured (processing expense)

Cancellations

Detailed Journal Entry

The JE for cancellations reflects the true-up amount owed by the client at the time of cancellation

• Navigate to the Care Financial Report
• Use filter to look up Client and Patient
• Change the date filter’s Start Date to the date of the member’s most recent enrollment
• Use the data from the report to populate the journal entry

Simplified Journal Entry

Treat true up payments as a payment entry which reduces A/R by following the same steps outlined in the Payment Journal Entry section.