Part 3 Focus Q&A Flashcards Preview

LTCA > Part 3 Focus Q&A > Flashcards

Flashcards in Part 3 Focus Q&A Deck (69):
1

What is an Assets?

P.187
Anything that the facility owns

2

What is a Liability?

P.187
Things owned by the facility, or its OBLIGATIONS

3

What is Capital?

P.187
Money INVESTED in the facility, also known as FACILITY NET WORTH

4

What is Revenue?

P.187
EARNINGS from OPERATIONS

5

What is Expense?

Costs of SALARIES, SUPPLIES, and so on. That have been USED UP. (Normally through a provision of services).

6

What is a Fund Account?

ANY funds that have been ESTABLISHED for restricted or unrestricted use.

7

What is the purpose for Numbering accounts. Example, RN Nurse Salaries is 5201.

Category 5 would = a Nursing Dept. Account
1 would = that it is a Salary account

1st number = Department. Last number = Type of account.

**Note that the salary expense account number for every other department ends with 1 also. This system of classifying accounts is useful, as it identifies every account of the facility and thus is a means of control;

8

What is a Cash Receipt Journal?

P.187
Records ALL CASH received for services provided. Example: Sales from a popcorn machine.

9

What is Billings Journal?

P.187
A LIST of ALL bills for SERVICES RENDERED.

10

What is the Accounts Payable Journal?

P.187
it is a Purchase Journal - It records ALL purchases made that WILL be paid with in the next FEW months (under a year)

11

What is Cash Disbursement Journal?

P.187
Records all payments MADE for SERVICES and SUPPLIES used for resident care and for all other operations of the facility.

12

What is Payroll Journal?

P.187
Summarizes all payroll checks distributed during the pay period.

13

What is the General Journal?

P.187
a record of non-repetitive entries.

**The General Journal records transactions that do not properly fit into any of the other journals. Note that the first five journals all record cash transactions; the General Journal is used to make adjustments in the books to conform to the accrual system of accounting**

**In addition to adjustments for inventory, entries for depreciation and prepaid expenses are also recorded in the General Journal to reflect the cost of using the plant or equipment over the time period, as well as the amount of prepaid expenses used up.**

14

A summary of the nursing home's financial well-being, within a time period, is normally referred to as_____.
1-Financial Statements
2-Profit and Loss
3-Notes to changes in financial condition
4-Statements of change.

P.187
1-Financial Statements

**3 Main Financial Statements are: Cash flow, Balance Sheet, Income Statement.

**GAAPs require that the financial statements include the following four reports
1. Income statement or profit/loss statement
2. Balance sheet, or statement of financial position
3. Statement of changes in financial position
4. Notes to the financial statements

15

If the administrator asked the bookkeeper for a LIST containing every account in the facility, the bookkeeper would hand the administrator the ______
1-Books
2-Financial report
3-Chart of Accounts
4-General Journal

P.187
3-Chart of Accounts
The chart of accounts is simply a list of every account in the facility. The accounts are organized into five main groups: Assets, Liability, Capital, Revenue, Expenses.

16

If the administrator asks the accountant for the journals, the administrator wants to look at__________.
1-The Original Entries
2-The Assets
3-The Debts
4-Current summaries of income and out go.

1-Orginal Entries

**The journals are the first place that transactions are recorded; they are the books of original entry. Each facility will have its own system of journals, but generally there are six journals: Cash Receipts, Billings, Accounts Payable, Cash Disbursement, Payroll, General**.

17

What are DEBTS? and where do they go?

P.190 (Table 3.2)
Left side of the Journal Entry
They are:
Increase in Assets
Decrease in Liability
Decrease in Capital
Decrease in Revenues
Increase in Expenses

18

What are Credits? and where do they go?

P.190 (Table 3.2)
Right side of the Journal Entry
They are:
Decrease in Assets
Increase in Liability
Increase in Capital
Increase in Revenues
Decrease in Expenses

19

The new accountant informs the administrator that to simplify things, he has incorporated all purchases that will be paid for the next few years into the accounts payable journal. The administrator should _____.
1-Compliment the accountant
2-Ask for last years books to be conformed to the new system
3-Look for a new accountant
4-Ask that these purchases be transferred to the general journal.

P.188
3-Look for a new accountant

** Accounts payable Journal is ALL purchases that will be paid for within the next few months, NOT YEARS.**

20

What is the difference in the GENERAL JOURNAL and the GENERAL LEDGER?

P.192
General Journal is for transactions that is used to make adjustments, and don't FIT into a proper category.

General Ledger is the collection of ALL the Journals including the general journal. The General Ledger can be thought of as a summary of all debits and credits contained in the journals for the time period. It usually has a page for each account in the Chart of Accounts.

21

What is Working Capital?

P.200
Current assets - Current liabilities = Working Capital.

*This can also be considered the funds available to the facility year*

22

If the administrator asks the accountant for a statement analyzing the financial position of the facility at the beginning of the fiscal year, the best statement to hand the administrator is the ___________.
1-Statement of Profit and Loss
2-Statement of Net Worth
3-Balance Sheet
4-General Ledger

p.199
3-Balance Sheet

**Balance sheet shows the financial position of the facility for only one point in time.
It is a snap shot at the health of the facility because of
its relation with the income statement is the retained earnings, which usually include the net income in the net worth.

23

The certified public accountant end of year report for a 15 year old, 120 bed for profit facility with NO debt, shows an EXCESS of income over expenses of $95,000. The Owners would likely be __________
1-Very Pleased with the FACILITY performance
2-Very Displeased with the FACILITY performance
3-Generally Satisfied
4-Neutral

P.199-201
2-Very displeased with the facility performance

Working Capital + (Rev-Expenses)= (Current Assets - Current Liabilities)

WC + (95000) = CAssets - 0
No bills or Debt, there was also NO Investment into the facility

24

When asked whether funds are readily available for a $75,000, purchase and the accountant responds that the NET WORTH is WELL over $800,000 and to go ahead with the purchase, the administrator should____________.
1-Ask for a statement of working capital
2-make the purchase
3-Seek a vertical analysis
4-Amortize the purchase

P.200-201
1-Ask for a statement of WORKING CAPITAL

Working Capital = CURRENT Assets - Current Liabilities

Current assets remaining after current liabilities have been subtracted yields the amount of money that the administrator has at his/her discretion --"Working Capital"

**Net worth is NOT a POOL of CASH .The funds recorded as net worth are monies that have been put into the facility at some time; it is merely a record of these funds, not cash available for operations or investment.**

25

When the CFO identifies trends in measures of the facilities financial performance by comparing the same relationships for several time periods he is doing _____
1-Comparison Analysis
2-Time period Analysis
3-Ratio Analysis
4-Trade-off comparison

P.202
3-Ratio Analysis

**Ratio analysis allows the administrator to identify trends in many measures of the financial performance of the facility by comparing the SAME ratio RELATIONSHIP for several periods. **can also be used to compare the financial performance of several facilities**One ratio itself reveals very little about the performance of the facility. Ratios must be compared either over time or with the rest of the industry**

26

What is the Current Ratio?

P.202
Current Ratio = Current Assets / Current Liabilities

** Ratio greater than 1 shows a facility can MEET its CURRENT obligations.
A good rule of thumb is having twice as much working capital to Cover Assets , and then to invest. OR industry Standard. Anything more than a 2 you should think about INVESTMENTS.

**However, interpretation of all ratios is relative to both past performance and industry averages**

27

A facility has current assets of $403,898 and current liabilities of $367,000, what is the Current Ratio?
1-9
2-3
3-1.1
4-2.1

3-1.1

Current Ratio = Current Assets / Current Ratio

403,898 / 367,000 = 1.1

28

What is NET OPERATING MARGIN RATIO? Also know as R.O.S. (Return on SALES)

P.204
It is a way of calculating how much you MAKE off of what YOU DO
( Net Profit/ Operating Income) = Net Operating Ratio
** Net Profit = OP Income - OP Expense

Ex: The facility made $334,693 in Operating Income and spent $339,078 in Operating Expenses.
$334,693-$339,078 = Net Profit of [-$4385]
$-4385 / $334,693 = -.013 OR -1.3 % *** Because the Revenue is a LOSS the facility LOST -$.013 for every Dollar Spent

**A low operating margin may indicate that rates for services should be raised or expenses reduced**Best used when you compare INDUSTRY STANDARD, but in this case a negative net profit margin is never good.**
. ** This is all before TAXES**

29

What is DEBT to EQUITY RATIO?

P.204
Long Term Debt / Total Equity OR
TOTAL of NON Current Liabilities / Total NET WORTH

EX:
if NON-Current liabilities is 4135202 and Total Net worth is 3529508 then the Debt to Equity Ratio would be:
4135202 / 3529508 = 1.17
** A small Ratio (like this) shows that the facility COULD incur more Long term debt if needed. *** A number higher than shows that the FACILITY MAY HAVE more DEBT than is advisable when compared to the INDUSTRY STANDARD.

30

Ratios to be Truly useful, should be ______.
1-Used to measure over time
2-Compared with industry averages over time
3-In simple mathematical terms
4-Compared to expected future ratios

P.202
2-Compared with industry averages overtime

1 is correct because you can use it to compare yourself to yourself overtime, but 2 is better because to truly be useful you need to know how you measure against the industry standard.

31

What is the Quick Ratio? [or Acid Test Ratio]

P.203
Quick Ratio = (CASH + Accounts Recivables + Mrkt Securities)/Current liabilities.

**Quick Ratio is like the "Current Ratio" but only takes into account the most Liquid Assets. Current ratio takes into account all ASSETS that may be tied up into supplies, and equipment. Quick ratio is a better reflection of being able to cover your current obligations using your most liquid items. Anything below a 1 shows that you do not have enough $$$ coming in to cover your current Bills.**

32

The new administrator in a private pay for profit facility is told by the accountant that the accounts receivable are $105,800 and the net operating revenues are $334,000. Upon calculating the average collection period ratio, which turns out to be ____ days, the administrator should be ____?
1-29 Pleased
2-29 Displeased
3-115 Pleased
4-115 Upset

4- 115 days and upset

Average Collection Period Ratio = (Accounts Recivables* 365 [days in year] / Net Operating Revenues.)

($105,800*365) / $334,000 = 38617000/334000 = 115.6 days

Would be upset because the standard is close to 90 days or 3 months for re-imbursement.

33

What is and how do you calculate the AVERAGE PAYMENT RATIO?

Average PAYMENT RATIO is a calculation on how FAST we pay our bills. To FAST we loose money but taking it out of an interest baring account, to LATE damage relationships and may incur penalties.

APP = (Accounts Payable*365 Days) /Supplies Expense.

34

How do you calculate AVERAGE LENGHTH of STAY?

AVERAGE LENGHTH of STAY = TOTAL Pt. Days in the year / Number of Admissions in a Year

35

How do you Calculate Percent of occupancy?

Percent of Occupancy = AVERAGE daily census / Number of beds

36

How do you calculate FTE hours (Full time equivalent)

FTE = Total of hours worked / 40

* FTE is for 5 days a week USE FTE*1.4 if you want to use 7 days

37

How do you calculate COST per Patient Day? or Cost PPD

Costs per Patient day = COSTS in MONTH/Total Patient Days in a month

38

How do you calculate HOURS per patient day? or HOURS PPD?

Hours PPD = Total hours worked / Number of patients

39

a facility with long term debt of 4,000,000 and the total equity of 3,000,000 has a debt to equity ratio of ____, which is ____ the INDUSTRY STANDARD.
1-1.33 ----- much higher
2-1.33 ---- much lower
3-2.33 --- far above
4-2.33 ---well above

1- 1.33 --- much Higher Than the industry Standard.

4,000,000 / 3,000,000 = 1.33

*** According to CISMARKET.COM the average D/E ratio for Healthcare .61 is the standard.
So 1.33 would be much higher. The 1.33 Shows how Much $$$ is being invested into the company/ and how much we Owe. 1 Means The Equity can cover all long term debt, anything above 1 will show the company does not have enough to Cover Debt. Anything below 1 shows there is enough equity to cover long term debt.**

40

What is VERTICAL ANALYSES?

P.205-206
Vertical analysis is the proportional analysis of a financial statement, (Balance Sheet, Income Statement ect..) Where each line item on a financial statement is listed as a percentage of another item.
EX: Income Statement will typically use each line statement as a reflection of SALES.

IF Sales are $10,000 then a line item such as Office Supplies that are 1,000 would be shown as 1,000 / 10000
= 10% [Supplies are 10 % of the sales]

41

What is LIFO / FIFO? and How does inflation impact both?

P.220
LIFO and FIFO are inventory methods.

LIFO is LAST in First Out: If it is the Last item in it will be the first to leave and be used.

FIFO is First in First Out: If it is the First item inventory it will be the first to be used.**Dietary**

If you take into account Inflation then any items purchased RIGHT now will be more expensive then the items you have in inventory. If you USE FIFO you will be using items that were purchased before the inflation. LIFO is the opposite.
GAAP recognize both methods but must be you must choose one and stick to it.

42

The use of LIFO to PRICE inventory during a period of INFLATION will have the effect of making the value of the goods remaining in inventory_____.
1-Higher
2-Lower
3-About the Same
4-At market Value

P.220
2-Lower

Ex: If you purchase 12 pads for a $1 each and use 6. you have 6 in inventory. Inflation hits, and pads now cost $2. You order 12 at $2 each. You have a total of 18 pads. If you use LIFO (Last in First Out) You are using the Pads at $2 a piece first. The cost of the original 6 pads were purchased at a LOWER Price.

43

What is a controllable cost? What is the biggest Controllable COST in a NURSING HOME?

P.220
A cost that the ADMINISTRATOR has INFLUANCE or "Control" over.

PAYROLL/LABOR is the biggest COST more than 50% and the LARGEST CONTROLABLE cost at 85%

44

What is a Capital Asset?

P.224
A capital Assets is an asset that can:
1-Used in Operations for more than ONE time period
2-WILL NOT be converted into CASH within the YEAR.
3-Must be OWENED by the facility

** This type of Assets is Depreciable ** Most depreciable Assets have a MINIMUM of $500. Meaning if you buy something under $500 you will not Depreciate it, it will just be a one time cost. EX: A calculator.

*** Things like SHIPPING, TAXES, DELIVERIES ect... should be part of the Purchase Price of an ASSET, and therefore part of the deprecation formula**

45

Upon discovering that a NEW accountant had set the actual purchase price paid (NO TAX) for the assets to be depreciated, the facility administrator would normally feel the accountant was ____
1-Sharp and on the ball
2-Not serving the facility well
3-Overestimating historical costs
4-Doing ok all things considered

P.224
2-Not serving the facility well.

*** Things like SHIPPING, TAXES, DELIVERIES ect... should be part of the Purchase Price of an ASSET, and therefore part of the deprecation formula** This is Historical cost

46

What is does HISTORICAL COST of an asset mean?

P.224
Is the cost of ACQUIRING the asset that is depreciated over several time periods. In addition to the purchase price, the cost of taxes, shipping, delivery, installation, and so forth can be included along with any other one-time costs

47

What is "USEFUL LIFE" and "SALVAGE VALUE" of an asset?

P.224
Useful Life is the "expected" life of an Asset. Ex: a VAN is expected to run for 5 years.

Salvage Value is after the "useful life" is over is there VALUE left in the Asset? If so what is the Value of the asset after the useful life is over, if any. EX: what would the VAN sell for after 5 years.

48

What is straight line depreciation?

Straight line depreciation is a way to calculate the depreciation of a Asset. It spreads the annual depreciation of the item EVENLY over the useful life of the asset.

EX: Historical cost/Useful life = Annual depreciation expense
If a new purchase of physical therapy equipment is worth $20,000 with an estimated useful life of 5 years, the annual depreciation expense for the equipment would be: $20,000/5 = $4,000 per year depreciation

49

One practical reason for using the straight line method of depreciation is that_________
1-It brings a faster write off
2-It is the ONLY fully acceptable method
3-MOST 3rd party payers require it
4-It has the approval of the IRS

P.225
3-most 3rd party payers require it

** ACCELERATED DEPRECIATION is also a acceptable method. Makes the yearly depreciation HIGHER in the first years and brings a faster write off [ good for some tax breaks ].

50

Congress purpose for passing accelerated depreciation was to ____ of new facilities.
1-Discourage overbuilding
2-Encourage more building
3-Regulate construction
4-Deregulate construction

P.225
2-Encourage more building

** when you use an accelerated depreciation you pay off the asset faster and you get a tax break by gaining a tax advantage through earlier tax recognition of the investment.

51

As a practical matter, most owners do not fund depreciation and treat it as _____
1-MONEY available to the facility to spend.
2-MONEY to be placed in reserve
3-a fiction
4-a useless set of calculations

P.226
1-Money available to the facility to spend

** Funding depreciation means to put cash in an interest-bearing account reserved for replacing equipment. Such a fund would appear in the Capital or New Worth section of the balance sheet as “Funded Depreciation.”

52

Land _____ is a depreciable asset?
1-Never
2-Sometimes
3-For for-profit-asset
4-For nonprofit facilities.

P.226
1-Never

Land is a FIXED ASSET

* along with Buildings and Improvements

53

Using several differing depreciation schedules for a single piece of equipment is _____ as an accounting behavior.
1-Unacceptable
2-Quite Acceptable
3-Risky
4-Illegal

P.226
2-Quite Acceptable
If two differing schedules are used to depreciate the same assets—one for reimbursement and one for other purposes—there will be a difference in depreciation expense for each asset every year. Since the total amount of depreciation taken for each asset should be the same (total depreciation will equal the historical cost less salvage value),
***this difference between the two is a timing difference.

54

What are the two methods to budget preparation?

P.234
1-The Top Down - Think Corporate or Administrator Alone does the budget.
2-The Participatory Approach-Each Department head is part of the budget process.

55

In order to develop a reasonable estimate of income and expenses for a coming time period, it is important to do BOTH a ____ budget and a ____ Budget.
1-Capital / Cash
2-Expenses / Revenue
3-Expense / Balanced
4-Cash / Capital

P.237-238
2-Expenses / Revenue

** Both the expense and revenue budgets are OPERATING Budgets.** operating budget is used throughout the fiscal year to measure performance by a technique called variance analysis, which is a comparison of actual versus budgeted monetary and volume values at the end of each month**

56

Plans for expenditures for buildings, Major equipment, and the like are normally part of the ____ Budget.
1-Cash
2-Revenue
3-Expense
4-Capital

P.239
4-Capital

Cash Budget is a measure of the INFLOW and OUT FLOW of cash. P.239 for more info..

Capital Budget is a summarization of all anticipated capital (items with a life of more than 12 months). A building or Major Equipment is that type of item.*** The capital budget is the result of the decision concerning capital projects that will be undertaken, and, most important, how they will be financed**

57

What is a Pro Forma financial statement?

P.239
preliminary financial statements based on budgeted amounts.

58

What is the BASIC Accounting Formula?

P.199
Assets = (Liabilities + Owner’s equity)

Extended:
Assets = (Liabilities + Owner’s equity) + (Revenues − Expenses)

59

What are the 4 Fiance reports required by GAPP?

P.193
1. Income statement or profit/loss statement
2. Balance sheet, or statement of financial position
3. Statement of changes in financial position (Compare two Balance Sheets side by side year over year)
--Shows the way WORKING Capital was used during the year)
4. Notes to the financial statements

**Statement of CASH Flow is not REQUIRED

60

What are FIXED Assets? What are Non-Current Assets?

Fixed Assets and Non-Current Assets are both assets that Will or Can not be liquidated with in the YEAR.
Ex: Plant / Building / Property / Equipment

61

What are Capital Costs ? What are Current Liabilities?

Capital Cots are costs associated with Investment:
Ex: Building / Equipment / Mortgage Payment / ** anything that will be USED for MORE than a YEAR.

Current Liabilities are Bills that will be PAID with in the year

62

What are different names for Owners Equity?

Capital accounts,
new worth,
shareholder’s equity,
fund balance, or
retained earnings,

63

What is Working Capital? How is it different than the Normal accounting equation? and what does it mean?

Accounting Equation is:
Assets = Liabilities + Owners Equity OR
Equity = Assets -Liabilities

Working Capital is:
WC= Current Assets - Current Liabilities

** This represents the FUNDS that are Available for the YEAR. (The amount of INVESTMENT that is AVAILABLE)

64

What is the Average collection period for accounts receivables in a SNF?

90 days or 3 Months

65

What is a Direct COST? What is an EXAMPLE of a direct cost?

Direct cost are costs traceable and incurred for the MAIN/SOLE benefit of a specific revenue-producing service or DEPT.

EXAMPLE: Nursing salaries and supplies.
It is In-cured for the main benefit for producing a RUG that in-turn pays the facility back.

66

What is an INDIRECT COST? What is an example?

Indirect cost are for the JOINT benefit of more than one DEPT. They are SUPPORT departments where there is not a direct line between COST and Revenue.
Examples: Laundry, Maintenance, Social Work.

67

What is "Days of Cash"

NAB p.179
Number of Days during which expenses COULD BE paid using cash on hand.

Cash + Marketable Securities / (Total operating expenses - Depreciation)/365

68

What is Return on Equity? (ROE) what does it measure?

NAB p.190
ROE = NET Income / Owners Equity.
This shows how profitable you are PER dollar of money invested.

* Net Income = Revenues - Expenses

69

What is the purpose of Depreciation?

To recognize the matching principal

The matching principle states that expenses should be recorded during the period in which they are incurred, regardless of when the transfer of cash occurs.