> ## Documentation Index > Fetch the complete documentation index at: https://mso.getlemma.com/llms.txt > Use this file to discover all available pages before exploring further. # Your first month-end close > Reconcile EHR postings to 835s to bank deposits, invoice the management fee, and close two entities' books without commingling. **Month-end close** in an MSO-PC group is the ordinary accounting close plus two things that don't exist in a single-entity business: a **three-way revenue reconciliation** and an **intercompany management fee** that must be invoiced, paid, and documented. Doing it properly the first month is much easier than reconstructing it in year two. ## What Meridian did Meridian closed month one in six hours, most of it spent discovering that three 835s had posted to the PM system but two of the corresponding deposits hadn't cleared until the first of the next month. That timing difference is normal, and finding it in month one meant Alex knew to expect it thereafter. ## The three-way reconciliation The core discipline. Three independent records of the same revenue must agree: ```mermaid theme={null} graph LR A[PM system
posted payments] <--> B[835 remittances
payer's record] B <--> C[Bank deposits
PC operating account] A <--> C ``` By payer, and split between payer payments and patient payments. Claim payments plus or minus PLB adjustments. Remember that **one 835 does not equal one bank deposit** — match using the TRN reassociation trace number. Payer EFTs, patient card settlements (net of processor fees), and check deposits. You will have differences. The legitimate ones: * **Timing**, an 835 received on the 30th whose EFT lands on the 2nd * **Processor fees**, card deposits arrive net; gross revenue and fee expense must be recorded separately * **PLB takebacks**, reduce the deposit without a corresponding claim-level entry * **Paper checks**, deposited days after the remittance * **Payer virtual credit cards**, arrive as card transactions, not EFTs Anything you *cannot* explain is an error. Find it now. **Do not force the reconciliation with a plug entry.** An unexplained variance in month one becomes a systemic misstatement by month twelve, and it is exactly the kind of thing a quality-of-earnings review surfaces during a raise. See [How investors read MSO-PC financials](/concepts/finance/how-investors-read-mso-pc-financials). ## Revenue is not charges The most common first-close error is booking **gross charges** as revenue. | Line | Meridian, month 1 | | ------------------------------------------- | ----------------- | | Gross charges | \$84,200 | | Less contractual adjustments (CO) | (\$39,850) | | **Net revenue** | **\$44,350** | | Less expected bad debt / patient write-offs | (\$1,900) | | **Net realizable revenue** | **\$42,450** | Your chargemaster rate is not what anyone pays. Booking charges as revenue overstates the business by roughly the contractual adjustment rate, commonly 40–60%, and every downstream metric built on it is wrong. If you are on accrual accounting, revenue is recognized when the service is performed, at the amount you **expect to collect**, with a receivable for the difference. Your CPA will set the estimation method. See [Set up bookkeeping and consolidation](/guides/banking/set-up-bookkeeping). ## The management fee This is the intercompany transaction that makes the structure work, and it must look like a real transaction between real parties. Whatever the agreement says, flat monthly, cost-plus, or percentage where permitted. Use the contractual method, not a number you'd prefer. With an invoice number, a date, the period covered, and a description of services rendered. Not a journal entry. An invoice. A real transfer, initiated on the PC's authority, after the PC has covered clinical payroll and its direct expenses. Management fee expense in the PC; management fee revenue in the MSO. The amounts must agree to the cent. In both entities' records. This is the documentation a regulator, auditor, or acquirer asks for. **A standing sweep is not a management fee.** An MSO that automatically pulls all cash out of the PC's account with no invoice and no service documentation has created the fact pattern that gets structures recharacterized. The fee must be for services actually rendered, at a defensible amount, paid on an invoice. See [Move money between PC and MSO](/guides/banking/move-money-mso-pc). ### When the PC can't pay the full fee Common in the first months, when the credentialing ramp means claims revenue lags expenses. Two legitimate options: 1. **Defer part of the fee**, documented in writing, with a stated repayment expectation. Watch that a perpetually accruing, never-paid fee is itself a diligence red flag. 2. **The MSO lends the PC money**, on a real promissory note with a real interest rate, at least the applicable federal rate for the note's term, and a real repayment schedule. See [Intercompany loans between MSO and PC](/reference/legal/intercompany-loan-note). What you must not do is quietly skip it, or retroactively reprice it later. Both create problems that are far worse than the cash-flow problem they solve. ## Closing two sets of books | Task | PC | MSO | | --------------------------------------------- | ------- | ---------- | | Reconcile bank accounts | ✓ | ✓ | | Reconcile credit card / processor accounts | ✓ | — | | Book net revenue and contractual adjustments | ✓ | — | | Book clinical payroll | ✓ | — | | Book non-clinical payroll | — | ✓ | | Book management fee | Expense | Revenue | | Book intercompany loans and accrued interest | Payable | Receivable | | Reconcile intercompany accounts to each other | ✓ | ✓ | | Review AR aging | ✓ | — | | Review credit balances | ✓ | — | **The intercompany accounts must tie.** The PC's management fee payable and the MSO's receivable are the same number viewed from two sides. If they diverge, one entity booked something the other didn't, and that divergence compounds monthly. ## What never to do * **Pay a PC expense from the MSO account, or vice versa, without recording an intercompany entry.** This is how commingling happens, not through fraud, but through convenience on a Friday afternoon. * **Use one bank account for both entities.** Ever. * **Let the same person be the sole reviewer and the sole preparer.** Even in a two-person company, someone other than the preparer should look at the reconciliation. ## Your first close package Produce these five documents monthly from month one. They cost little now and are exactly what an investor asks for later: 1. PC profit and loss 2. MSO profit and loss 3. Combined view with intercompany eliminations 4. AR aging by payer 5. The three-way reconciliation, with variances explained See [Produce investor-grade financial reporting](/guides/banking/produce-investor-reporting) for what this grows into. ## Checklist * [ ] Three-way reconciliation complete, every variance explained * [ ] Revenue booked net of contractual adjustments, not at gross charges * [ ] Management fee invoiced by the MSO * [ ] Management fee paid from the PC account after clinical obligations * [ ] Both entities booked the fee at identical amounts * [ ] Intercompany accounts tie between entities * [ ] Any intercompany loan documented with a note and stated rate * [ ] No expense paid from the wrong entity without an intercompany entry * [ ] Five-document close package produced ## Next The recurring obligations that ambush groups in year two. ## Related topics - [Set up bookkeeping and consolidation](/guides/banking/set-up-bookkeeping.md) - [Move money between PC and MSO (the right way)](/guides/banking/move-money-mso-pc.md) - [Produce investor-grade financial reporting](/guides/banking/produce-investor-reporting.md) - [Intercompany money movement](/concepts/banking/intercompany-money-movement.md) - [Where the profit lives: MSO economics and fee structures](/concepts/finance/where-the-profit-lives.md) - [Intercompany loans between MSO and PC: structure and example clause](/reference/legal/intercompany-loan-note.md)