Nowicki Financial Mgmt chpt. 3

Question 1

What is the primary purpose of healthcare financial accounting?

Answer 1

To produce the 5 year reports required by generally accepted accounting principles (GAAP).

Question 2

What 5 financial reports are required by GAAP?

Answer 2

1. balance sheet
2. statement of operations
3. statement of changes in net assets
4. statement of cash flows
5. explanatory notes to the financial statements

Question 3

What does the balance sheet show?

Answer 3

The organization’s financial position at a specific point in time, typically the end of the accounting period

Question 4

What information does the balance sheet present?

Answer 4

the relationships between the organization’s:
1. assets
2. liabilities
3. net assets (shareholder’s equity in for profits)

Question 5

Accounting equation for the relationships in a balance sheet is:

Answer 5

Assets= Liabilities + Net Assets

Question 6

What are Assets:

Answer 6

the economic resources that provide or are expected to provide benefit to the organization

Question 7

What are current assets?

Answer 7

Economic resources that have a life of less than 1 year (the org expects to consume them within a year).

Question 8

What order are current assets listed on a balance sheet?

Answer 8

In order of liquidity

Question 9

What is Cash?

Answer 9

Money on hand and in the bank that organizations can access immediately.

Question 10

What are temporary investments?

Answer 10

Money placed in securities with maturities up to 1 year (like commodities and options)

Question 11

What are receivables, net?

Answer 11

Patient accounts receivables, net of allowances for contractual allowances, charity care, and bad debt- represents money due to the org from patients and third party payers for services already provided.

Question 12

What is Inventory

Answer 12

The cost of food, fuel, drugs, and other supplies purchased by the hospital but not yet consumed.

Question 13

What are prepaid expenses (also called deferred expenses)?

Answer 13

Expenditures made by the hospital for goods and services not yet consumed or used in hospital operations (also called deferred expenses)

Question 14

What are noncurrent assets?

Answer 14

Economic resources that have a life of 1+ years (the org expects to consume them over a span longer than 1 year)

Question 15

What are plant and equipment, net?

Answer 15

Economic resources, such as land, buildings, and equipment (which is called accumulated depreciation).

Question 16

What is considered a long term investment?

Answer 16

Economic resources that the hospital owns, such as corporate bonds and govt. securities, and intends to hold for more than 1 year.

Question 17

Other non-current assets include:

Answer 17

assets limited as to use (by contracts and other parties) and goodwill, which represents the amount above fair market value based on an equity’s future earning potential.

Question 18

What are Liabilities?

Answer 18

Economic obligations, or debts, of the organization.

Question 19

What are current liabilities?

Answer 19

Economic obligations, or debts, that are due within 1 year.

Question 20

What are accounts payable?

Answer 20

The amounts the organization owes to suppliers, and other trade creditors for merchandise and services purchased from them, but for which the organization has not yet paid.

Question 21

What are “notes” payable?

Answer 21

Short term obligations for which a formal contract has been signed, such as a short term loan.

Question 22

What are accrued expenses payable?

Answer 22

Liabilities for expenses that have been incurred by the hospital but for which the hospital has not yet paid, such as compensation to employees.

Question 23

What is deferred revenue?

Answer 23

Money received by the hospital but not yet earned by the hospital, such as registration fees for an educational program not yet provided.

Question 24

What are estimated third party adjustments?

Answer 24

Approximations of how much money the organization will be required to return to third party payers due to overpayments to the organization.

Question 25

What is the “current portion of long term debt”?

Answer 25

The amount of the organization’s long term debt (not including interest) that is expected to be paid within 1 year.

Question 26

What are “long term liabilities”?

Answer 26

Economic obligations, or debts, that are due in more than 1 year.

Question 27

What is “long term debt, net of current portion”?

Answer 27

An economic obligation, or debt, that is due in more than one year, minus the amount that is due in 1 year.

Question 28

What are “net assets”?

Answer 28

The current AICPA -approved term for the difference between assets and liabilities in NFP healthcare organizations and represents the owner’s (community’s or religion’s) and others (donors external to the organization) financial interest in the organization.

Question 29

What are “unrestricted net assets”?

Answer 29

This ncludes net assets that have not been externally restricted by donors or grantors, such as the excess of revenues to expenses from operations. Unrestricted net assets INCLUDE net assets that are contractually limited by the governing body, such as proceeds of debt issues, funds deposited with a trustee and limited to use by an indenture agreement, and funds set aside under self insurance arrangements and statutory reserve requirements.

Question 30

What are “restricted net assets”?

Answer 30

They include donor-restricted net assets that the organization can use for the donor’s specific purpose after the organization has met the donor’s restriction, such as an action by the organization. Restrictions can be temporary related to a time frame or may have permanent restrictions that never expire, such as endowment funds.

Question 31

What are the 2 catagories of net assets that organizations are expected to present since 12/15/2017?

Answer 31

1. “net assets without donor restrictions”
2. “net assets with donor restrictions”

Question 32

What information needs to be given/ disclosed under GAAP, for net assets without donor restrictions?

Answer 32

amount, purpose and type of board restrictions

Question 33

What information does GAAP require be disclosed for net assets with donor restrictions?

Answer 33

nature and amount of donor restrictions

Question 34

What is the current terminology for (AICPA-approved) the difference between assets and liabilities? in a for profit healthcare organization?

Answer 34

Shareholder equity (it represents the ownership interest of stockholders in the organization.

Question 35

What are some other terms for shareholder’s equity?

Answer 35

stockholder’s equity, owner’s equity, net worth (comprising of common stock and retained earnings)

Question 36

What is common stock?

Answer 36

the money invested in the organization by its owners

Question 37

What are retained earnings?

Answer 37

retained earnings result from the income earned by the organization from operations minus dividends.

Question 38

What are dividends?

Answer 38

Distribution of earnings paid to stockholders based on the number of shares of stock owned.

Question 39

What is the name for the “statement of operations” in a for profit organization?

Answer 39

Income statement (in for profit orgs)

Question 40

What is the “statement of operations”?

Answer 40

It summarizes the organization’s: net revenues, expenses, excess of net revenues over expenses
over a period of time

Question 41

What is another name for the excess of net revenues over expenses?

Answer 41

income before taxes (for profit orgs)

Question 42

What are revenues?

Answer 42

the amount earned by the organization or sometimes donated to it.

Question 43

What are “gross patient services revenue”?

Answer 43

the total amount of charges for patients utilizing the hospital, regardless of the amount actually paid.

Question 44

Does GAAP require reporting of gross patient services revenue?

Answer 44

NO

Question 45

What is “Net patient revenue”?

Answer 45

the money generated by providing patient care MINUS the amount the organization will not collect as a result of discounting charges per explicit price concessions and implicit price concessions

Question 46

What is an “implicit price concession”?

Answer 46

discount determinations made by the provider to the self-pay portion of the bill - often a result of high-deductible insurance policies and providing charity care.

Question 47

What is bad debt expense?

Answer 47

The amount for which the organization provided services with the expectation of payment, but will not collect.

Question 48

What is charity care?

Answer 48

The services the organization provided with no expectation of payment