Question

Describe the ways in which financial management, incentives, and objectives for healthcare organizations, especially not-for-profits, tend to differ from accounting in other industries. Specifically refer to assets, liabilities, equities, revenue, and expenses.

Answer 1

Health Care Organisations can be structured as For-Profit, Not-for-Profit, and Governmental Public organisations.

Health Care Organisations use fund accounting for internal purpose.

• Donor-Restricted Funds
  • Specific purpose fund
  • plant replacement and expansion fund
  • endowment fund
• General unrestricted Funds.

Financial statements prepared for Health Care Organisations are:

• Statement of Net Assets (Balance Sheet)
• Statement of Operations
• Statement of Changes in Net Assets
• Statement of Cash Flows

Equity is reported as :

Not for Profit Organisations: Unrestricted net asset, temporarily restricted net asset, permanently restricted net assets.

Governmental Public Organisation: Restricted Net Assets, Unrestricted Net Assets, Net of related debt, inivested in Capital Assets.

For Profit Organisation: It is treated as capital stock and retained earnings.

For measuring the performance of the Not-for-profit organisation, they have to include performance indicator, which can measure performance. It is generally measured by comparing excess of revenue over expenses, performance earnings.

Performance Indicators include: Investment income, realised and unrealised gains and losses on trading securities. Transaction with owners, receipt of restricted contributions, and restricted investment income are excluded from the pereformance indicators.

Source of Revenue for Health Care Organisation:

1. Government Aid
2. Third Party Payers
3. Patience service revenue: reported as contractual adjustment
4. Investment income
5. Rental fees

For reporting Expenses, accural based accounting is used. Depreciation is charged on capital assets, bad debts are reported,

other expenses can be reported like salaries, supplies, inpatient services charges, administrative expenses.

Assets:

Current Assets: It includes receivables from related allowance accounts for contractual adjustments and bad debts.

Investments

Fixed assets: Plant, Machinery, Land and Buildings.

Assets on contract by outside parties.