Test Bank HCM 213 - 2023- 88 (1).pdf

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TEST BANK HCM 213 - 2023
Chapter 1: Context of Health Care Financial Management
1. Which of the following factors contributes to decrease in cost of healthcare?
A. Aging population
B. Emerging medical technology
C. More robust use of health IT
D. Professional liability and malpractice cost
2. Which of the following factors contributes to an increase in the cost of healthcare?
A. Chronic diseases
B. Generic drugs coming onto the market.
C. Lean/six sigma initiatives
D. Value based purchasing.
3. What will be the effect of increase of chronic disease on the cost of healthcare?
A. Decrease the cost.
B. Increase the cost.
C. No Change in Cost.
D. Not relation.
4. Which of the following factors Contributes to an increase in the cost of healthcare?
A. Value-based purchasing
B. Genetic drugs entering the market
C. Lean/Six Sigma initiatives
D. Aging population
5. Which of the following is a voluntary group of health care providers who provide coordinated care to a patient population
to improve quality and reduce the cost by eliminating unnecessary service duplication?
A. Centers for Medicare & Medicaid Services
B. Management care
C. Health Maintenance Organization
D. Accountable Care Organizations
6. Which of the following factor will contribute in reducing (decreases) the cost of healthcare?
A. Aging Population
B. Chronic Disease
C. Generic Drug
D. Malpractices
7. What is the term HIPAA means?
A. Health Insurance Patient Access Act
B. Health Insurance Portability and Accountability Act
C. Health Insurance Profit and Access Act
D. hospital Industry Profit Accountability Act
8. Which of the following acts is a federal compliance regulation to ensure standardization of billing, privacy, and reporting
practices as institutions convert to electronic systems?
A. EMTALA Act.
B. HIPAA Act.
C. HITECH Act.
D. ICD 10.

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9. Which of the following act was enacted with the goal of creating and expanding the current health care IT infrastructure,
promoting electronic data exchange, and substantially and rapidly increasing HR adoption?
A. EMTALA Act.
B. HIPAA Act.
C. HITECH Act.
D. 1CD 10.
10. The HITECH Act (2009) was enacted with the goal of:
A. Creating and expanding the current health care IT infrastructure.
B. Promoting electronic data exchange.
C. Substantially and rapidly increasing EHR adoption.
D. All of the above.
11. Which of the following payment system is used by Medicare to reimburse providers a predetermined amount?
A. Prospective payment system (PPS).
B. Retail Health care system.
C. Shared spending system.
D. Value Based purchasing system.
12. Which of the following quality improvement step is taken to reduce the variation in the activities conducted in the health
care organization?
A. Budget control
B. Improvement plans
C. Lean Thinking
D. Strategic planning
13. Which of the following factors could contribute to decrease in Health care cost?
A. Workplace wellness Centre.
B. Emerging medical technology.
C. Increased number of diabetes cases in a population.
D. Malpractices.
14. Which of the following is a partnership between primary care providers, patients, and their families to deliver a
coordinated and comprehensive range of services in the most appropriate settings?
A. Accountable Care Organizations
B. Centers for Medicare and Medicaid Services
C. Patient Protection and Affordable Care Act
D. Patient-Centered Medical Home
15. Which of the following is one of the goals of the healthcare system?
A. Access or Cost or Quality.
B. Patient revenues.
C. Profit.
D. Value based payment.
16. Which of the following is one of the health care system goals, which have remained unchanged?
A. Cost OR Quality OR Access.
B. Health.
C. Patient.
D. Value.

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17. Which of the following changes ways of financing care Health and its significant impact on health care delivery and
financing of care?
A. Center for Health and Care Services.
B. Key Elements Driving Changes in Health Care Delivery.
C. The Patient Protection and Affordable Care Act.
D. The requirement that nearly all individuals have insurance coverage.
18. Which of the following of healthcare financing system lowers the cost of healthcare services?
A. Cost accounting system
B. New DRG system
C. Mergers and Acquisitions
D. Value Based Purchasing (VBP).
19. What is the primary objective of Value Based purchasing? ch1 & ch13
A. To make Patients satisfied and give quality care at subsidized cost.
B. To increase the profits of the healthcare organization
C. To provide incentives to providers for delivering quality healthcare at a lower Cost.
D. To make hospital vendors competitive.
20. What type of group are Accountable Care Organizations?
A. Exclusive group.
B. Mandatory group.
C. State organizations.
D. Voluntary group.
21. When obligations are incurred (paid for) which account is increased or decrease?
A. Liability account.
22. Which of the following is the goal of the U.S. health care system?
A. Access
B. Cost
C. Quality.
23. ACA is the abbreviation for what legislation?
A. Accountable Care Organizations.
B. Patient Protection and Affordable Care Act.
C. Activity Based Costing.
D. Administrative Cost Accounting.
24. Which of the following is not a provision that is expected to have a significant impact from the ACA?
A. Requirement that all payments for health care be based on quality of services.
B. Requirement that almost all individuals have insurance coverage.
C. Establishment of payment mechanisms for bundled payments and value based purchasing system.
D. Requirement that states create insurance exchanges.
25. The number of uninsured U.S. citizens rose between 2001 and 2010 from:
A. 5 million to 15 million.
B. 20 million to 32 million.
C. 36 million to 50 million.
D. 55 million to 65 million.

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26. ACA provides a _______________ benefits package:
A. $0.
B. Minimum.
C. Maximum.
D. $5,000.
27. Accountable Care Organizations as part of ACA are:
A. Mandatory.
B. Exclusive.
C. Voluntary.
D. State organizations.
28. Patient –Centered Medical Home is:
A. An expensive delivery system.
B. An indication of poor quality.
C. A partnership between primary care providers, patients and families.
D. Not encouraged.
29. All of the following factors contribute to the rising cost of health care except:
A. Aging population.
B. New and returning consumers in the marketplace.
C. Chronic Disease.
D. Providers embracing lean Six Sigma and other techniques to deliver better care with less resources.
30. All of the following factors could contribute to a decrease in health care costs except:
A. Pharmaceuticals going off patent.
B. Providers using health information technology in robust ways.
C. Medical technology continuing to develop new systems.
D. Hospitals overriding physician preference in supplies.
31. Which of the following changing methods of health care financing and delivery has significant impact on healthcare
delivery and finance?
A. Center for Medicare and Medicare services
B. Key elements that are driving changes in health care delivery
C. Patient Protection and Affordable Care Act
D. Requirement that almost all individuals have insurance coverage.
❖ Easy question
• Lowering Costs
o Patient Protection and Affordable Care Act (ACA)
o CMS trying to control rising costs
o Value Based Purchasing (VBP)
• Goals of the Health Care System
o Access
o Cost
o Quality

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• Changing Methods Of Health Care Financing and Delivery
o Requirement that almost all individuals have insurance coverage.
o Requirement that states create insurance exchanges.
o Provisions for expansion of Medicaid (is a social health care program for families and individuals with low income and
resources).
o Provisions for medical loss ratio and premium rate reviews.
o Bundled payments and VBP.
o Accountable Care Organizations.
• List any four factors contributing to decrease the cost of healthcare?
o Value-based purchasing (VBP)
o Management of physician preferences in medical devices
o Generic drugs coming onto the market
o Lean/six sigma initiatives 5-Informed consumers responsible for more of the cost of care
o Workplace wellness and employer programs
o More robust use of health IT to manage populations and prevent medical errors
• Factors Contributing to Increases in Costs of Care?
o Emerging medical technology.
o chronic diseases.
o Aging population.
o professional liability and malpractice costs.
o Influx of participants into the market due to extended coverage and insurance mandate.
Chapter 2: Health Care Financial Statement
1. Which of the following is an example of current assets? OR Which of the following are example of Current Assets?
A. Capital equipment.
B. Cash OR Patient accounts receivable OR Pre-paid expenses.
C. Goodwill.
D. Self-insurance reserves.
E. Accrued pension.
F. Long term debt.
2. Which of the following consider as one of the types of Current Assets?
A. Long term Benefit plans.
B. Capital equipment.
C. Patient accounts receivable.
D. self-insurance.
3. Which of the following is the most liquid asset on the balance sheet?
A. Capital equipment
B. Cash and cash equivalents
C. Goodwill
D. Property and equipment
4. Which of the following is an approach to analyze financial statements?
A. Balance sheet analysis
B. Cash flow analysis
C. Horizontal analysis
D. Revenue analysis

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5. Which one of the following cash flow activities section is included in the statement of Cash flows?
A. Cash flow from administrative activities
B. Cash flow from clinical activities
C. Cash flow from investing activities
D. Cash flow from patient services activities
6. A statement of cash flows includes:
A. Cash flows from operating activities.
B. Cash flows from investing activities.
C. Cash flows from financing activities.
D. All of the above
7. Which of the following is Non-current liabilities section?
A. Accounts Payable
B. Accrued expenses.
C. Accrued pension and retiree health costs.
D. Salaries &wages.
8. Which of the following is a non-current liability?
A. Accounts Payable.
B. Accrued expenses.
C. Mortgages and bonds payable.
D. Salaries & wages.
9. Which of the following financial entry is included in cash inflow and outflow from investing activities under the
statement of cash flows? Book: p.71
A. Patients accounts receivables.
B. Proceeds from sale of long-term investments.
C. Repayment of long-term debts.
D. Transfers to parent firm.
10. Which of the following activities is a cash flow from investing activities? Book: p.71
A. Patient accounts receivables.
B. Proceeds from issuance of lang-term debt.
C. Proceeds from sale of plant, property, and equipment.
D. Proceeds from selected contributions.
11. Which financial statement is known as snapshot of an organization? OR Which of the following is the snapshot of an
organization's assets, liabilities and stockholders' equity?
A. Balance sheet
B. Statement of Cash Flows
C. Statement of Changes in Net Assets
D. Statement of Operation.
12. Which of the following is a component of the balance sheet?
A. Net assets.
B. Net profits.
C. Share-holders equity.
D. Stock-holders equity.

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13. Which of the following is one of the component of balance sheet of Not-for-profit healthcare entity?
A. Liabilities. OR net asset
B. Cash flows from financing activities.
C. Shareholders' equity.
D. Stockholders' equity.
14. What are the components of Not-for-Profit healthcare entity balance sheet?
A. Assets OR Liabilities OR Net Assets.
B. Assets, Liabilities and stockholder’s Equity.
C. Assets, Liabilities, Revenue and Expense.
D. Current Assets, Fixed Liabilities and Total Assets.
15. Which of the following type of non-current asset measures how much of an intangible asset (such as debt issuance cost
and goodwill) has been used up during the accounting period?
A. Amortization
B. Building
C. Depreciation
D. Equipment
16. Which of the following type of non-current asset a measure of how much of a tangible asset (such as a building or
equipment) has been used up during the accounting period?
A. Amortization
B. Building
C. Depreciation
D. Equipment
17. Which of the following is one of the financial statements used in not-for-profit health care entities?
A. Non-current assets
B. Assets
C. Current assets
D. Statement of operations.
18. Which of the following reflects Statement of operations?
A. Assets and liabilities and working capital over a period of time.
B. Financial position of an organization over a period of time
C. Liquidity position of an organization over a period of time.
D. Summary of revenues of an organization over a period of time.
19. Which of the following is an obligation due within one year?
A. Current liabilities
B. Accrued expenses
C. Accounts payable
D. Noncurrent liabilities.
20. Which of the following is one of the primary sources of equity financing for not-for-profit healthcare organization?
A. Share issuance
B. Stock issuance
C. Governmental grants
D. Profit generated funds

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21. Using the basic accounting equation Find out the value of assets if: Liabilities=35000 SAR and Net Assets 53000SAR?
A. 18000 SAR
B. 1855000 SAR
C. 85000 SAR
D. 88000 SAR. (Liabilities + Net Assets = 35000+53000)
22. Which of the following is a financial statement?
A. Cash accounts
B. Net patient service revenue
C. Provision of bad debt
D. Statement of cash flows.
23. Which of the following assets are those assets that, when they are increased, it decreases the value of a related asset on
the books?
A. Contra Assets.
B. Current Assets.
C. Long term Assets.
D. Non-current Assets.
24. Which of the following is resources to be used or consumed over a period of time longer than one year?
A. Cash and cash equivalents.
B. Current assets.
C. Liabilities.
D. Noncurrent assets.
25. What does the balance sheet indicate?
A. Profit of the business over a period of time.
B. The Cash Flow of business.
C. The financial performance and financial position of the business.
D. The financial performance of the business.
26. Which of the following term refers to the amount that come from transactions such as selling assets for more than their
carrying value (such as selling a building or other investment)?
A. Gains.
B. Income.
C. Revenue.
D. Loss.
27. Which of the following terms is used when an entity pays cash and assumes liabilities over the fair value of the assets
acquired in an acquisition? ch2 & ch7
A. Cash and cash equivalent.
B. Goodwill.
C. Investments.
D. Patient account receivables.
28. Which of the following statement defines Goodwill of the organization?
A. Account used for non-current assets.
B. Initial and additional contributions of owner/s (investments).
C. Represents the future earnings power of the acquired entity.
D. The Total amount of depreciation taken on an asset since it was put into use.

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29. The assets those are used or consumed within a year are known as?
A. Current Assets
30. Which is an example of non-current asset?
A. Self-insurance
31. Liabilities are defined as?
A. Financial obligations due within a year.
C. Patient accounts receivable
D. Inventories
32. The statement of changes in net assets includes:
A. A change in the entire net asset section of the balance sheet OR Why there was a change from one year to the next
in the entire net asset section of the balance sheet.
B. Account balances.
C. b. Accounting Methods.
D. d. Expense determinations
33. Cash flows from investing activities includes:
A. Purchase of plant property and equipment.
B. Accounts payable.
C. Accrued pension.
D. Estimated third party payor settlements.
34. Bank debt is an example of which of the following options?
A. Liabilities
35. Which of the following is an example of fixed asset?
A. Equipment.
36. Which of the following is a basic financial statement?
A. Balance Sheet.
B. Statement of Operations.
C. Statement of Cash Flows.
37. Balance Sheet for a non-profit contains all of the following except:
A. Organization’s assets.
B. Organizations liabilities.
C. Stockholders’ equity.
D. Cash flow.
38. Assets are defined as:
A. Long term debt.
B. Cash, investments, inventory and receivables.
C. Self-insurance reserves.
D. Accrued pension.

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39. Net assets do not include one of the following categories:
A. Unrestricted.
B. Belated.
C. Temporary.
D. Permanent.
40. A statement of operations summarizes the organization’s total assets, liabilities and net assets in what time period?
A. Last day of the accounting period.
B. Over a period of time.
C. Last quarter.
D. Annually.
41. Other revenue refers to all of the following except:
A. Salary and wages.
B. Appropriations and grants.
C. Income from investments.
D. Revenue from contributions.
42. Body of the statement of cash flows does not include:
A. Cash flows from operating activities.
B. Cash flows from investing activities.
C. Cash flows from financing activities.
D. Current liabilities.
43. Which of the following is a component of statement of operations?
A. Balance sheet
C. Cash summary
D. Depreciation and amortization
43. Which of the following financial statements include the component of provision for bad debt?
A. Balance sheet
B. Statement of cash flows
C. Statement of changes in net assets
D. Statement of operations
44. Which of the following is an example of current liabilities?
A. Capital equipment
B. Investments
C. Patient accounts receivable
D. Salaries & wages
45. Which of the following define the amount the health care entity would have earned if all the payors paid full charges?
A. Net assets released from restriction.
B. Net patient service revenue
C. Operating income
D. Premium revenue
46. Which of the following categories of Net Asset represent the following condition? "Donation of land by a county to a
hospital with the provision that the hospital cannot sell it for five years."
A. Current net assets
B. Permanently restricted net assets
C. Temporarily restricted net assets
D. Unrestricted net assets

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❖ Easy question:
• Statements used in Not-for-Profit Health Care Entities OR list the financial Statements used in Not-for-Profit Health
Care Entities
o Balance sheet
o Statement of Operations
o Statement of Changes in Net Assets
o Statement of Cash Flows
• Current assets may include :
o cash, investments, limited or restricted as to use current position, patient accounts receivable, estimated
receivables from 3
• Non-current assets may include:
o self insurance, benefit plans, capital equipment (includes long-lasting goods acquired and owned by a company or
organization that are not consumed in the normal course of business—goods such as machinery, trucks, large
computers, and office furniture), held by the board under bond indenture agreements, property and equipment,
goodwill, net of accumulated amortization.
• Current Liabilities could include:
o accounts payable, accrued expenses (expenses are recognized when incurred), salaries & wages, estimated
payables to third parties, short term borrowings, commercial paper
• Noncurrent Liabilities could include:
o long term debt, self-insurance reserves, accrued pension and retiree health costs
• Operating Activities
o Inflows : Receipts from customers • Cash dividends received • Interest from borrowers • Other
o Outflows :Salaries and wages • Payments to suppliers • Taxes and fines • Interest paid to lenders • Other
• Investing Activities
o Inflows: • Selling long-term productive assets • Selling equity investments • Collecting principal on loans • Other
o Outflows :• Purchasing long-term productive assets • Purchasing equity investments • Purchasing debt
investments • Other
• Financing Activities
o Inflows: • Issuing its own equity securities • Issuing bonds and notes • Issuing short- and long-term liabilities
o Outflows: • Pay dividends • Purchasing treasury stock • Repaying cash loans • Paying owners’ withdrawals
• Items requiring separate disclosure include:
o Retirement of debt by issuing equity securities.
o Conversion of preferred stock to common stock.
o Leasing of assets in a capital lease transaction.
• What are the 3 classes of Net Assets:
o Permanently restricted
o Temporarily restricted
o Unrestricted.
• Write down the four basic financial statements used for not-for-profit healthcare entities.
o Balance sheet
o Statement of Cash Flows

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• What is Balance Sheet ?
o -A statement of the assets, liabilities, and capital of an organization at a particular point in time
o -It details the balance of income and expenditure over the preceding period.
- Created usually the last day of the accounting period
Chapter 3: Principles and Practices of Health Care Accounting
1. Which of the following is one of the rules of recording the transactions?
A. At least two accounts must be used to record a transaction
B. Income and expenses should always be equal
C. Revenue should match with liabilities
D. Total revenue should be equal to total expenses
2. Which of the following is one of the disadvantages of using cash basis of accounting? Book: p.106
A. It only records cash transaction.
B. It takes a lot of time to prepare this accounting method.
C. Transactions are susceptible to managerial manipulation.
D. It is not a correct method of accounting.
3. Which of the following is a disadvantage of cash-based accounting? Book: p.106
A. Cash flow cannot be tracked.
B. It does not match revenue with resources.
C. More difficult to implement.
D. Not easy to maintain.
4. Which of the following is an advantage of using accrual basis of accounting?
A. It is simple and easy to implement it.
B. It matches revenues with the resources which are used to generate these revenues.
C. It's a technologically intensive endeavor when keeping the track of revenues and resources.
D. It's open to bending accounting rules.
5. Which of the following is a standard accounting method used in health care / Organizations? OR Which of the following
is a standard system of accounting method used in health care? OR Health care systems use which accounting method?
A. Accrual
B. Asset
C. Cash
D. Expense.
6. Which type of accounting is used by the healthcare organizations?
A. Accrual accounting.
B. Cash based accounting.
C. Cost accounting.
D. Management accounting.
7. Which of the following provides information about "how much revenue was generated, and the amount of resources
used to generate those revenues", when accrual accounting is used?
A. Balance Sheet.
B. Statement of operations.
C. Statement of cash flows.
D. Statement of change in net assets.

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8. Which of the following accounting tracks cash when received and when cash is expended? OR Which of the following
accounting method tracks when cash was received and when cash was expended, regardless of when services were
provided or resources were used?
A. Operations accounting.
B. Accrual basis of Accounting.
C. Cash basis of accounting.
D. Resources accounting.
9. Which of the following accounting methods, management can manipulate reported profits through its payment and
collection policies?
A. Cash basis of accounting.
B. Taxation basis of accounting.
C. Revenue basis of accounting.
D. Accrual basis of accounting.
10. Which of the following is a book used to prepare the four financial statements?
A. Accounts
B. Accrual accounts
C. Cash account
D. Ledger
11. Which of the following type of accounting records revenues are earned and resources used?
A. Accrual basis of accounting
B. Cash basis of accounting
C. Operations accounting d
D. Resources accounting
12. Which of the following documents is used to record all transactions?
A. Balance Sheet.
B. Diaries.
C. Journal.
D. Statement of Operation.
13. Which of the following is a document used to summarize the transactions under different accounts?
A. Bank account
B. Bonds
C. Certificates
D. Ledger.
14. Transactions summarized by account are called:
A. Journal.
B. Ledger.
C. Balance.
D. Asset.
15. Which of the following two books in accounting lists the chronological transactions and the current balance in each
account of an organization?
A. Ledger and Journal
16. The transaction of health care Organization are recorded chronologically in a "book" called?
A. Journal
17. How are transactions recorded in a journal?
A. Based on the time of transaction.

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18. Which of the following accounting method is where the financial transactions are recorded chronologically by row?
A. Journal.
B. Ledger.
C. Balance.
D. Asset.
19. Which of the following is the fundamental accounting equation? OR Which of the fundamental accounting equation must
be in balance after each transaction?
A. Assets = Liabilities + Net Assets
B. Assets = Liabilities - Net Assets
C. Assets = Liabilities *Net Assets.
D. Net Assets = Liabilities + Assets
20. How many rules under accrual accounting?
A. 2
B. 3
C. 4
D. 5
21. How many rules must be followed to record transactions under the accrual basis of accounting?
A. Five.
B. Two.
C. Unlimited.
D. Zero.
22. What is the meaning of operating expenses?
A. Costs that are incurred on day to day operation.
B. Costs that are incurred on luxuries.
C. Costs that are incurred on purchasing current assets.
D. Costs which are made to raise infrastructure.
23. Rules for recording transactions do not include:
A. Increase in revenues, gains or other support account when earnings are received.
B. After each transaction, the fundamental account equation must be in balance.
C. An accounting method when cash was received or expended.
D. Increase an expense account when an asset is used.
24. To develop financial statements, transactions:
A. Must be on a cash basis.
B. Are recorded according to staff availability.
C. Focus only on assets.
D. Have been analyzed and recorded.
25. Statement of Operations includes:
A. Operating Expenses.
B. Increase in unrestricted net assets.
C. a & b.
D. None of the above.
26. The “book” refers to transactions:
A. Only done by computer entry.
B. Journal recorded chronologically.
C. Current balance in each account.
D. Current ratio.

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27. In the accrual accounting method:
A. Revenues are recognized when cash is received.
B. Expenses are recognized when cash is paid out.
C. Revenues are recognized when revenues are earned.
28. Functions of an internal audit department include:
A. Resources used to generate revenues.
B. Ensuring that hospitals comply with their financial record keeping.
C. Reporting and recording of revenues and expenses.
D. b & c.
29. Recording transactions assists in:
A. Accuracy of financial acts.
B. Summarizing accounts.
C. Ease of tracking financial transactions.
30. Which of the following refer to the cost that is incurred in the day-to-day operation of the business?
A. Excess of revenues
B. Operating expenses
C. Operating income
D. Over expenses
31. Which of the following document is used to record all the transactions chronologically?
A. Balance sheet.
B. Diary
C. Journal.
D. Statement of operations
32. Which of the following is the main disadvantage of accrual basis of accounting?
A. a. Focuses on the flows of revenue
B. b. Keep track of revenues generated and resources used.
C. c. Matches revenues with the resources
D. d. More difficult to implement.
33. Which of the following is a disadvantage of cash based accounting?
A. Cash flow cannot be tracked.
B. It does not match revenue with resources.
C. More difficult to implement.
D. Not easy to maintain.
34. Which of the following types of accounting is used by healthcare organizations?
A. Accrual accounting
B. Cash based accounting
C. Cost accounting
D. Management accounting
35. Who in large health care systems should provide assurance that cash dollars are spent for their declared specific
purposes
A. Board of directors
B. Chairman
C. Healthcare manger
D. Internal auditors

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❖ Easy question
• organization can develop the four financial statements:
o Balance Sheet
o Statement of Cash Flows.
• Name four financial statements and Why healthcare organizations prepare those?
o Balance Sheet.
o Statement of Operations.
o Statement of Changes in Net Assets.
o Statement of Cash Flows.
Healthcare organizations prepare these financial statements to keep track of their finances, evaluate their financial
performance, and make informed decisions. They use these statements to communicate their financial health to
stakeholders (e.g. investors, creditors, and regulatory bodies)
• Methods of Accounting: Write down in short about cash basis of accounting and accrual basis of accounting? OR How
accrual basis of account differs from cash basis of accounting? OR what is difference between cash basis of accounting
and accrual basis of accounting?
o Cash basis of accounting:
tracks cash when received and when cash is expended regardless of when services were provided or resources
were used
o Accrual basis of accounting:
records revenues when earned and resources used regardless of the flow of cash in or out of the entity.
OR
o The cash basis of accounting focuses on the flows of cash in and out of the organization, whereas the accrual basis
of accounting focuses on the flows of resources and the revenues those resources help to generate.
• Why healthcare organizations use accrual basis of accounting?
o Healthcare organizations use accrual basis accounting because it provides a more accurate picture of revenue and
expenses incurred during a particular reporting period, which helps healthcare organizations to report their
financial performance more accurately because they often provide services that are covered by insurance or
government programs that provide payment at a later time.
• Rules of Recording Transactions for Accrual Accounting:
o At least two accounts must be used to record a transaction
o After each transaction, the fundamental accounting equation must be in balance
• What is the Fundamental Accounting Equation:
Assets = Liabilities + Net Assets
• Write down in short about cash basis of accounting and accrual basis of accounting
o Cash basis of accounting:
▪ tracks cash when received and when cash is expended regardless of when services were provided or
resources were used
o Accrual basis of accounting:
▪ records revenues when earned and resources used regardless of the flow of cash in or out of the entity.
• balance sheet includes
o assets,
o liabilities
o net assets

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• statement of operation includes OR component of statement operations
o unrestricted revenue, gains, and other support
o Operating income and Excess of Revenues over Expenses
o Operating Expenses
o Increase in Unrestricted Net Assets
Chapter 4: Financial Statement Analysis
1. Which of the following equation is used to calculate return on assets ratio for not for profit organizations?
A. Excess of Revenues over Expenses/ Total Assets.
B. Long term debts/ Net Assets
C. Net Assets/ Total Assets
D. Revenues/ Assets
2. Which one among the following is the preferred approach for detailed analysis of financial statements of healthcare
organizations?
A. Horizontal Analysis
B. Ratio Analysis
C. Trend Analysis
D. Vertical Analysis
3. In which of the following a group of ratios measure how effectively the firm is using its assets?
A. Debt ratios.
B. Profitability ratios.
C. Activity ratios.
D. Coverage ratios.
4. Which of the following ratios is also known as Activity Ratio?
A. Current Ratio.
B. Efficiency Ratio.
C. Operating Revenue Ratio.
D. Quick Ratio.
5. Which of the following is an ideal level of current ratio?
A. 1:1
B. 2:1
C. 0.5:1
D. 3
6. What can be measured by using Liquidity ratios for Health care organization?
A. Ability to measure operating revenues for short term assets purchases
B. Ability to measure the profitability of the organization
C. Ability to meet short term obligations, collect receivables and maintain cash position
D. Salary and benefit expense of the employees and staff
7. Which of the following ratio is obtained when you divide Current assets by current liabilities?
A. Current ratio.
B. Quick ratio.
C. Debt ratio.
D. Profitability ratio.

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8. What would be the current ratio of Sehaty Hospital for the year 2021, if their current asset is $1,50,000 and their current
liabilities is $30,000?
A. 5. (Current Assets/Current Liabilities = 150,000/30,000)
B. 120000.
C. 20%.
D. 500.
9. Which of the following analysis compares changes over a longer period of time by comparing each year with a base year?
OR Which of the following compares changes over a longer period of time by comparing each year with a base year?
A. Horizontal Analysis
B. Trend Analysis
C. Ratio Analysis
D. Vertical Analysis
10. In which of the following group of ratios measure a firm's ability to meet short-term obligations?
A. Cash Flow Statement
B. Dividend Analysis
C. Vertical Analysis
D. Liquidity ratios.
11. Which of the following ratio analysis provide information on organization positioned to meet its short-term obligations?
OR Which of the following ratio analysis provide information on organization’s position to meet its short-term obligations?
A. Activity Ratio.
B. Capital Structure Ratio.
C. Liquidity Ratio.
D. Profitability Ratio.
12. Which one of the following is a liquidity ratio?
A. Age of Plant Ratio.
B. Operating Margin Ratio.
C. Return of Asset Ratio.
D. Acid Test Ratio.
13. Which of the following is the horizontal analysis and vertical analysis methods based on?
A. Line addition.
B. Fraction.
C. Percentage.
D. Ratio.
14. Vertical analysis answers which general question?
A. What is the percentage change in a line item from one year to the next?
B. What percentage of one-line item is another line item?
C. Which analysis is best to use in financial decision making?
D. Which financial statement is best to use in financial decision making?
15. Why is the vertical analysis method also called Common-size analysis?
A. It allows comparisons between the financial accounts of organizations of different sizes
B. It allows size analysis between different statements of operations
C. It is commonly used for calculating time value of money
D. It is commonly used in healthcare organizations
16. Which of the following is an approach to analyze financial statements?
A. Partial analysis.
B. Collateral analysis.
C. Overhead analysis.
D. Horizontal analysis OR vertical analysis OR ratio analysis.

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17. Approaches to analyze financial statements do not include:
A. Ratio analysis.
B. Collateral analysis.
C. Vertical analysis.
D. Horizontal analysis.
18. Which of the following analysis is useful for analyzing the balance sheet?
A. Current analysis
B. Ratio analysis
C. Trend analysis
D. Vertical analysis
19. Which of the following financial statement analysis calculates the percentage of one line item is another line item?
A. Horizontal Analysis.
B. Ratio Analysis.
C. Trend analysis.
D. Vertical Analysis.
20. Vertical analysis is also called:
A. Trend analysis.
B. Financial leverage analysis.
C. Common-size analysis.
D. Activity cost analysis.
21. Why Vertical analysis is also called common-size analysis?
A. It converts every line item to a percentage.
B. It gives in depth analysis.
C. It is used in all hospitals financial analysis.
D. It shows relationship between two numbers as a single number.
22. In which of the following financial analysis methods, one of the major issue is that the percentage change can hide major
dollar effects?
A. Horizontal Analysis.
B. Ratio Analysis.
C. Trend Analysis.
D. Vertical Analysis.
23. Which of the following is a category of Ratios?
A. Operation Activity Ratio.
B. Capital Structure Ratio.
C. Revenue Ratio.
D. Financial Ratio.
24. Categories of ratios include:
A. Liquidity ratios.
B. Profitability ratios.
C. Capital Structure ratios.
25. How do you define 'Days cash on Hand Ratio' in financial statement analysis?
A. How many days on an average it takes an organization to pay its long term bills.
B. Number of days' worth of expenses an organization can cover with its most liquid assets.
C. No of days when profits are earned from the organizations through main line of business.
D. How many days on an average it takes an organization to pay its long term bills.

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26. Which of the following ratios measures how much profit is earned for each dollar invested in Assets?
A. Fixed asset turnover ratio.
B. Return on net assets ratio.
C. Return on total assets ratio.
D. Total asset turnover ratio.
27. Analyzing financial statements helps a health care organization to:
A. Determine if profitable.
B. Determine the effectiveness in collecting receivables.
C. a & b.
28. Trend analysis compares changes over:
A. 3 month period.
B. 6 month period.
C. 1 year period.
D. Each year with the base year.
29. Which of the following is not a point to consider when using and interpreting ratios?
A. No one ratio is necessarily better than any other ratio.
B. With benchmarking, it is not necessary to make sure the same formula is used.
C. A ratio can best be interpreted relative to a benchmark.
D. Ensuring reliability of data.
30. Liquidity ratios measure:
A. A facility’s ability to meet short term obligations, collect receivables and maintain cash position.
B. Operating revenues per adjusted discharge.
C. Operating expense per adjusted discharge.
D. Salary and benefit expense.
31. Operating margin ratio measures:
A. How dependent the organization is on patient related income.
B. Profits earned from the organization’s main line of business.
C. How much profit is earned for each dollar invested in assets.
D. Total operating expenses incurred from providing patient care services.
32. Age of Plant ratio provides:
A. An indication of the average age of a hospital’s plant and equipment.
B. An evaluation of the most productive assets.
C. For every dollar invested in assets.
D. Overall efficiency of the organizations assets.
33. Which of the following capital structure ratio enables creditors and lenders to evaluate a hospital's ability to generate the
earnings necessary to meet interest expense requirements?
A. Debt service coverage
B. Long term debt to net assets
C. Net assets to total assets
D. Times interest earned.
34. Which of the following is a preferred approach for financial statement analysis for gaining an in-depth understanding of
financial statements?
A. Horizontal analysis.
B. Ratio analysis
C. Trend analysis.
D. Vertical analysis.

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35. Which of the following liquidity ratio analysis explain the proportion of all current assets to all current liabilities?
A. Acid test ratio
B. Current ratio
C. Days in accounts receivable ratio
D. Quick ratio
36. Which of the following analysis is more useful for analyzing the balance sheet
A. Horizontal analysis
B. Vertical analysis
C. Trend analysis
D. Ratio analysis
❖ Easy question
• we need standards or benchmarks for comparisons that include the following:
o Intracompany: The company under analysis can provide standards based on prior performance and
relationships between financial statement items.
o Competitor benchmarks for comparison purposes. One or more direct competitors can be analyzed for the
comparison to see how the company measures up to others in their industry.
o Industry statistics, such as those that are available from Dun and Bradstreet, Standard & Poor’s, and Moody’s.
o General rules of thumb (GUIDELINES ) to help assess performance. For example, we know that the level of 2:1 is
generally a positive benchmark for the current ratio.
• Compare Horizontal Analysis and Vertical Analysis and trend Analysis
o Horizontal Analysis :Comparing a company’s financial condition and performance across time
o Vertical Analysis :Comparing a company’s financial condition and performance to a base amount
o Trend Analysis :Compares changes over a longer period of time by comparing each year with a base year.
• Types of Financial Statement Analysis?
o Horizontal Analysis.
o Vertical Analysis.
o Ratio Analysis.
o Trend Analysis
• Categories of Ratios: OR write down the four different Categories of Ratios in the ratio analysis of financial
statements
o Liquidity
o Profitability
o Activity
o Capital structure
• What are the 6 Liquidity Ratios?
o Acid-Test Ratio: Most stringent test of liquidity; how much cash is available to pay off all current liabilities?
o Current Ratio: Proportion of all current assets to all current liabilities
o Quick Ratio: Used in industries in which net accounts receivable is relatively liquid (not usually in healthcare
organizations)
o Days Cash on Hand ratio Number of days worth of expenses an organization can cover with its most liquid
assets
o Days in Accounts Receivable ratio How quickly a hospital is converting its receivables into cash
o Average Payment Period :how long on average it takes an organization to pay its bills

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• What are the Most Common Revenues, Expenses and Profitability Ratios?
o Operating revenue per adjusted Discharge: measures total operating revenues generated from the patient
care line of business based on its adjusted inpatient discharges
o Operating Expense per Adjusted Discharge: measures total operating expenses incurred for providing its
patient care services based on its adjusted inpatient discharges
o Return on Total Assets: measures how much profit is earned for each dollar invested in assets
• Four Capital Structure Ratios:
o Long term debt to net assets
o Net assets to total
o Times Interest Earned
o Debt service Coverage
• Define ratio analysis approach of financial statement analysis?
o Preferred approach for gaining an in depth under standing of financial statements .
o Ratio expresses the relationship between two numbers as a single number. This provides an indication of the
organization’s ability to cover current obligations with current assets (ability to pay short term debt) .
• What critical information can be retrieved from the analysis of financial statements of healthcare organization?
The critical information is The financial performance of health care organizations by answering theses
questions:
o How well is an organization positioned to meet its short-term obligations?
o Is the organization profitable? Why or why not?
o How effective is the organization in collecting its receivables?
o Is the organization in a good position to pay its bills?
o How efficiently is the organization using its assets?
o Are the organization’s plant and equipment in need of replacement?
o Is the organization in a good position to take on additional debt?
OR:
o Financial statements are a foundation for decision making in health care organizations. External stakeholders
use it to understand the overall health of an organization as well as to evaluate financial performance and
business value. Internal constituents use it as a monitoring tool for managing the finances.
Chapter 5: Working Capital Management
1. Which of the following refer to how an organization choose to finance its working capital need
A. Asset mix strategy.
B. Cash management.
C. Financing mix strategy.
D. Working capital.
2. Which of the following refers to financing mix strategy?
A. Amount of working capital an organization keeps on hand.
B. How organization chooses to finance its working capital needs.
C. Investing excess funds in non-liquid assets.
D. Maximizing returns by investing in non-liquid assets.
3. Under which one of the following working capital management strategy an organization chooses to finance its working
capital needs? OR Which of the following refers to how the organization chooses to finance its working capital needs?
A. Financing mix.
B. Conservative financing.
C. Financing blended.
D. Aggressive financing.

ABRAR & THAMER .M88
4. Finance mix strategy includes:
A. Cash management.
B. Investing excess funds in non-liquid assets.
C. An aggressive asset mix strategy.
D. Maximizing returns by investing in non-liquid assets.
5. Which of the following defines amount of working capital an organization keeps relative to its potential working capital
obligations?
A. Asset Mix Strategy.
B. Capital Strategy.
C. Financing Mix Strategy.
D. Operation Strategy.
6. An asset mix strategy includes:
A. How an organization chooses to finance its working capital needs.
B. The amount of working capital an organization keeps on hand relative to its working capital obligations.
C. Risk of greater return to lower liquidity.
D. Coin and currency.
7. Which of the following defines net working capital?
A. Difference between current assets and current liabilities.
B. Difference between net assets and net liabilities.
C. Difference between noncurrent assets and noncurrent liabilities.
D. Difference between total assets and total liabilities.
8. What will be the net working capital of a health clinic with current assets of SAR 180,000 and current liabilities of SAR
55000?
A. SAR 180,000.
B. SAR 55,000.
C. SAR 235,000.
D. SAR 125,000. (current assets - current liabilities= 180,000 - 55,000)
9. Which of the following is a reason for healthcare organization to hold cash?
A. Bank loan purpose
B. Extension of credits from suppliers
C. Long term investment purpose
D. Precautionary purpose.
10. Which of the following is not a major reason to hold cash:
A. Hedge against inflation.
B. For daily operation purposes.
C. Precautionary purposes.
D. Speculative purposes.
11. Which of the following types of capital refer to both current assets and current liabilities?
A. Assets capital
B. Common capital
C. Revenue capital
D. Working capital
12. Which one of the following refers to the difference between current assets and current liability?
A. Net working capital.
B. Balance sheet.
C. Operation sheet.
D. Capital management.

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13. Which of the following term defines amount of working capital an organization keeps on hand relative to its potential
working capital obligations?
A. Asset mix
B. Capital mix
C. Financing mix
D. Liability mix
14. Which one of the following is referred as accounts payable?
A. Accounts receivable
B. Commitment lees
C. Compensating balances
D. Trade payable.
15. Trade payable are referred to as:
A. Compensating balances.
B. Commitment fees.
C. Accounts payable.
D. Accounts receivable.
16. Which of the following is an example of investing cash on a Short Term Basis?
A. Equipment
B. lockboxes
C. Treasury bills
D. Wire transfers
17. Which one of the following is an asset mix strategy?
A. Borrowing capacity of the organization
B. How an organization chooses to finance its working capital needs
C. Risk of greater return to lower liquidity
D. The amount of working capital an organization keeps on hand relative to its working capital obligations.
18. Which of the following is an asset with clear value that is pledged against a loan to reduce risk to the lender?
A. Bonds
B. Colloidal
C. Trustee
D. Collateral
19. Which one of the following is called as working capital strategy?
A. Extra working capital determined by the organization
B. Increasing borrowing capacity of the organization
C. Increasing purchasing capacity of the organization
D. Less than normal working capital determine by the organization
20. How many phases are there in working capital cycle?
A. Five
B. Four
C. Six
D. Three
21. Which of the following is a source of temporary cash?
A. Treasury bills
B. Trade credit
C. Commercial paper
D. Money market mutual finds

ABRAR & THAMER .M88
22. Which of the following determines the success of cash management in a healthcare organization?
A. Accurately maintained balance sheet
B. Ensuring a timely and accurate billing
C. Minimizing operation cost.
D. Preparing accurate journal.
23. Which of the following refers to an extension of credit from suppliers?
A. Bank balance.
B. Bank Loans.
C. Cash flow.
D. Trade credit or payables.
24. Under which of the following approaches the health care organization attempts to minimize its risk of having insufficient
short-term funds by maintaining higher liquidity?
A. Absorptive approach.
B. Aggressive approach.
C. Conservative approach.
D. Dominant approach.
25. Which of the following is an example of short term borrowing to meet organizations maturing obligations?
A. Capital Bonds.
B. Commitment fee.
C. Trade Discounts.
D. Transaction notes.
26. Why the healthcare organizations should hold cash?
A. For increasing the wealth of the business.
B. For supply management purposes.
C. For speculative purposes.
D. For coping against profit purposes.
27. Which of the following hinders the billing process and collection of cash for health care organizations?
A. Coding and electronic billing of the patient.
B. Identifying Capturing charges and billing items.
C. Health care insurance information.
D. Address change or no phone number on the patient file.
28. What does the following trade payable jargon refer to '6/15 net 30'? EXHIBIT 5.5
A. A discount of 15% will be given for full payment within 6 days. Failing that, the account must be settled in 30 days.
B. A discount of 6% will be given for full payment within 15 days. Failing that, the account must be settled in 30 days.
C. A discount of 6% will be given for full payment within 30 days. Failing that, the account must be settled in 15 days.
D. A discount of 30% will be given for full payment within 15 days. Failing that, the account must be settled in 6 days.
29. The working capital cycle includes:
A. Obtaining cash.
B. Billing and collections.
C. Providing Services.
30. Sources of Temporary Cash include:
A. Line of Credit.
B. Commitment fees.
C. A & b.

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31. Revenue Cycle Maintenance can be hindered by:
A. Patients giving correct demographic information.
B. Lack of clarity about who is responsible for the bill.
C. Current health care insurance information.
D. An accurate/clean final bill.
32. Part of the revenue cycle is:
A. Registration.
B. Charge of Capture.
C. Payment.
33. Collecting Cash payments includes:
A. Electronic billing.
B. Lockboxes.
C. Wire Transfer.
D. b & c.
34. Methods to monitor accounts receivable:
A. Net accounts receivable.
B. Treasury bills.
C. Aging Schedule.
D. a & c.
35. Which of the following strategy has a rule as to finance short term working capital needs with short term debt
A. Aggressive strategy.
B. Asset mix strategy.
C. Conservative strategy
D. Financing mix strategy
36. Which of the following asset mix approach attempt to maximize returns by investing excess funds in nonliquid assets
expected to have high earnings?
A. Aggressive approach.
B. Classical approach
C. Conservative approach
D. Mix approach
37. Which of the following cash management purpose requires holding cash to take advantage of unexpected apport?
A. Daily operations purposes
B. Finance fluctuation purposes
C. Precautionary purposes
D. Speculative purposes
❖ Easy question
• Compare
o Working capital refers to both current assets and current liabilities
o Net working capital refers to the difference between current assets and current liabilities
• Working Capital Cycle
o Obtain cash
o Purchase reassures and pay bills
o Provide services
o Billing and collection.

ABRAR & THAMER .M88
• Discuss the difference between asset mix strategy and financing mix strategy?
o Asset Mix-amount of working capital an organization keeps on hand relative to its potential working capital
obligations.
o Financing Mix-how an organization chooses to finance its working capital needs.
• What is the asset mix strategy and Why it is beneficial for healthcare organizations to follow it for working capital
management?
Asset Mix Strategy is The amount of working capital an organization keeps on hand relative to its potential working
capital obligations.
It help healthcare organizations to minimize their overall financial risk and improve their financial management by
maintaining a balanced and diversified portfolio of assets, through:
o In aggressive approach, it seeks to maximize its returns by investing in nonliquid assets but faces the risk of lower
liquidity.
o In conservative approach, it seeks to minimize its risk of having insufficient short-term funds by maintaining higher
liquidity.
• 3 rules to follow to decide between short term and long term borrowing to finance working capital need
o Finance short term working capital needs with short term debt
o Finance long term working capital needs with long term financing
o Finance fluctuating needs for working capital by employing a mixed strategy
• 3 major reasons to hold cash:
o Daily operations purposes: meeting daily operations purposes requires holding cash to pay day-to-day bills.
o Precautionary purposes: holding cash to meet unexpected demands, such as unforeseen maintenance.
o Speculative purposes: holding cash to take advantage of unexpected opportunities, such as buying a competing
group practice that has decided to sell.
• 2 primary sources of short term funds are:
o Bank Loans-lines of credit, commitment fees, compensating balances, transaction notes
o Extension of credit from suppliers (trade payables)
• Trade Credit or Payables:
o Trade credit: short term credit offered by the supplier of a good or service to the purchaser.
o Trade payables: short term debt that results from supplies purchased on credit for a given length of time.
• Revenue Cycle Management Process:
o Scheduling
o Registration
o Charge capture
o Coding
o Electronic billing
o Payment
• Investing Cash on a Short-Term Basis:
o Treasury Bills.
o Negotiable Certificates of Deposit.
o Commercial Paper.
o Money Market Mutual Funds.
• Define Precautionary Purposes of cash holding in cash management
o holding cash to meet unexpected demands, such as unforeseen maintenance.
• Define Cash Balance-The amount of cash an organization must have on hand at the end of the current period to ensure
that it has enough cash to cover expected outflows during the next forecasting period.

ABRAR & THAMER .M88
• Defined cash management : Refers to currency and cash equivalents (interest-bearing savings and checking
accounts
Chapter 6: The Time Value of Money
1. Which of the following term defines taking future value back to the present?
A. Discounting.
B. Future value.
C. Present value.
D. Present value factor.
2. Which of the following explains converting future cash flows into their present value, taking into account the time value
of money?
A. Compound interest.
B. Compounding.
C. Discounting.
D. Simple interest.
3. Discounting is:
A. Converting present value into its future value.
B. Value today of a payment to be received.
C. Calculating the future value using a formula.
D. Converting future cash flows in the their present value.
4. Which of the following defines a series of equal annuity payments made or received at the end of each period? OR
Which of the following term refers to a series of payments to be paid or received at the end of each period?
A. Annuity Due
B. Future Value of Annuity
C. Ordinary Annuity
D. Present Value of Annuity.
5. Which of the following is a series of equal annuity payments made or received at the beginning of each period? OR
When series of payments made or received at the beginning of each period is called?
A. Annuity.
B. Annuity Due.
C. Ordinary annuity.
D. Perpetuity.
6. Annuity due refers to:
A. A series of equal annuity payments made or received at the beginning of each period.
B. A series of equal payments in the future is worth today.
C. Factors that show the value today of equal flows at the end of each future period.
D. An equal series of payments worth at some future date.
7. Which one of the following are methods to calculate interest calculated only on the original principal each year? OR In
which of the following method, interest is calculated only on the original principal each year?
A. Abstract method
B. Compound method
C. Difficult method
D. Simple method

ABRAR & THAMER .M88
8. Which of the following method is a method in which interest is calculated on both the original principal and on all
interest accumulated since the beginning of the investment time period?
A. Compound interest
B. Current value
C. Future value
D. Simple interest
9. Which of following is a series of equal payment made or received at regular time intervals?
A. Annuity
B. Bank Loan
C. Perpetuity
D. Present Value
10. Which of the following is termed as the worth today of a future payment, or the worth today of a series of payments
made over time? OR Which of the following indicates the current value of future dollars?
A. Cost Value
B. Future Value
C. Present Value
D. Time Value
11. Which of the following is termed as the worth in the future of an amount invested today, or the worth in the future of a
series of payments made over time? ‫ن‬
‫وبي‬ ‫بينه‬ ‫نفرق‬
‫السؤال‬
‫فوق‬ ‫ي‬
‫الل‬
A. Cost Value
B. Future Value
C. Time Value
D. Present value
12. Which of the formula is used to calculate future value?
A. FV=FVX(1+i)n
B. FV=PV+(1+i)n
C. FV=PVX(1+i)n
D. FV=PVX(1-i)n
13. In Formula FV = PV × (1+i)n to calculate Future value of a product, PV represents?
A. Initial Investment amount. (present value)
B. Interest Rate.
C. Percentage value.
D. Time-period.
14. Which of the following terms complete the Future Value formula "PV = FV x 1/ (1 + i)?" to calculate future Value of a
dollar invested today?
A. Present Value.
B. Time period of the investment. (n
).
C. Bank Discount.
D. Interest rate.
15. Which of the following methods is used to calculate future value in healthcare?
A. Compound interest method
B. Discounted method
C. Ratio Analysis
D. Simple interest method

ABRAR & THAMER .M88
16. Which of the following interest method is calculated on both the original principal and on any accumulated interest
earned up to that point?
A. Interest method
B. Simple interest method
C. Compound interest method
D. Accumulated interest method.
17. Compound interest method refers to:
A. Interest is calculated only on the original principle.
B. Interest is calculated on a dollar received today.
C. Interest is calculated on both the original principle and on all interest accumulated since the beginning of interest
period.
D. All of the Above.
18. Which of the following defines converting a present value into its future value, taking into account the time value of
money?
A. Compounding.
B. Interest rate.
C. Received value.
D. Total value.
19. "The interest forgone by not having the dollar to invest now" is an example of which of the following terms?
A. Asset Cost.
B. Fixed Cost.
C. opportunity cost.
D. Variable Cost.
20. Present value (PV) refers to:
A. Worth in future of an amount invested today.
B. Worth today of future payment.
C. Worth in the future of a series of payments over time.
21. Future Value Table is used:
A. As an alternative to calculating the future vale using the formula.
B. An alternative to calculating the present value.
C. An alternative to calculating the time value of money.
D. B&C.
22. Present value of an annuity refers to:
A. What series of equal payment in the future is worth today taking into account time value of money.
B. A factor that when multiplied by a stream of equal payments equals present value.
C. What an equal series of payments will be worth at some future date using compound interest.
D. None of the Above.
23. The time value of money refers to:
A. Factors that show future value.
B. Factors that show past value.
C. Concept that a dollar received today is worth more than a dollar received in the future.
D. Concept that a dollar received today is worth less than a dollar received in the future.
24. An effective interest rate is:
A. The stated annual interest rate of a loan which does not account for compounding.
B. The actual interest rate earned or charged which is affected by the number of compounding periods.
C. The frequency of compounding for any given interest level and time period.

ABRAR & THAMER .M88
25. Which of the following interest method is calculated only on the original principal each year?
A. Accumulated interest method
B. Compound interest method
C. Interest method
❖ Easy question
• Compare
o Future value measures what cash-flows are worth after a certain amount of time has passed or
will be worth at a given time in the future using the compound interest method, which accounts for the time value
of money
o Present value measures what future cash-flows are worth before a certain amount of time has passed or The value
today of a payment (or series of payments) to be received in the future, taking into account the cost of capital.
• Explain the relationship between future value factor and present value factor?
o Future Value Factor:
The factor used to compound a present amount to its future worth. It is the reciprocal of the present value factor
and is calculated using the formula (1 + i)n
.
o Present Value Factor:
The factor used to discount a future amount to its current worth. It is the reciprocal of the future value factor and
is calculated using the formula 1 / (1 + i)n
.
• What is the method to calculate compound interest?
2 types of methods to calculate interest :
o Simple method-calculated only on the original principal each year .
o Compound interest-calculated on both the original principal and on any accumulated interest earned up to that
point. Future value implies the compound interest method
o Definition:
• Annuity- A series of equal payment made or received at regular time intervals
• Ordinary Annuity- A series of equal annuity payments made or received at the end of each period
• Future value of an annuity-What an equal series of payments will be worth at some future date
• Future Value Factor of an Annuity (FVFA)-A factor that when multiplied by a stream of equal payments equals the
future value of that stream
• Annuities Continued
o Present Value of an Annuity- What the series of payments in the future is worth today
o Present Value Factor of an Annuity (PVFA)- A factor that when multiplied by a stream of equal payments equals the
present value of that stream
o Present Value of an Annuity Table- Table of factors that shows the value today of equal flows at the end of each
future period, given a particular interest rate.
Chapter 7: The Investment Decision
1. Which of the following is a weakness of "Internal Rate of Return Analysis"?
A. Considers all relevant cash flows of the investment project (strengths)
B. Estimates may be difficult to develop
C. Takes a time value of money-based approach (strengths)
D. Widely used by practitioners and easily understood (strengths)

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2. Which of the following capital investment decision technique calculates the time needed to recoup each investment.?
A. Financial returns
B. Payback method
C. Long term benefits
D. Nonfinancial benefits
3. Which of the following is a strength of Net Present Value Method?
A. Discount rate may be difficult to determine
B. Answer in dollars, not years
C. Capital can be difficult to determine
D. Cash flow estimates may be difficult to develop
4. Which of the following capital investment enhances the survival of the organization and supports its mission, patients,
employees, and the community?
A. Financial returns
B. Future funding
C. Nonfinancial benefits
D. Retained earning
5. What decision should be made for the project if the internal rate of return IRR is less than required rate of return?
A. Accepted
B. Handled indifferently
C. Reinvented
D. Rejected
6. Which of the following value is the amount of cash to be received when an asset is sold, usually at the end of its useful
life?
A. Depreciation Value
B. Good will Value
C. Salvage Value
D. Discounted Value
7. Which of the following is the portion of profits that an organization keeps for itself to use for growth and to support its
mission?
A. Buffer
B. Retained earnings
C. Income
D. Net profit
8. Which of the following methods calculates the time needed to recoup each investment?
A. Internal rate of return method
B. Investment return method
C. Net present value method
D. Payback method
9. Which of the following is a method to evaluate the feasibility of an investment by determining how long it would take to
recover the initial investment, disregarding the time value of money?
A. Payback method
B. Compound interest method
C. Future value method

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10. Which of the following is a depreciation method that depreciates an asset an equal amount each year until it reaches its
salvage value at the end of its useful life?
A. Accelerated Depreciation
B. Simple Depreciation
C. Straight line Depreciation
D. Declining Balance Depreciation
11. Which of the following capital investment decisions designed to increase the operational capability of a healthcare
organization?
A. Expansion decision
B. Long term decision
C. Replacement decision
D. Strategic decision
12. Which of the following is one of the three categories of capital investment decisions?
A. Expansion decisions
B. Executive decisions
C. Formal decisions
D. Informal decisions
13. Which of the following defines the minimal internal rate of return on any investment that will justify that investment?
A. Required rate of return (also called cost of capital or hurdle rate).
B. Cost return
C. Internal rate of return
D. Replacement return
14. Which of the following is one of the objectives of capital investment alternatives?
A. Future funding
B. Goodwill
C. Short term investment
D. Time value
15. Which is the element of capital budgeting decision?
A. Long term benefits
B. Short term benefits
C. Short term effect
D. Short term investment
❖ Easy question
• Capital Investments
o Strategic Decisions: decisions designed to increase a health care organization’s strategic (long-term) position
▪ Example: purchasing physician practices to increase horizontal integration.
o Expansion Decisions: decisions designed to increase the operational capability of a heath care organization
▪ Example: increasing examination space in a group practice to accommodate increased volume.
o Replacement Decisions: decisions designed to replace older assets with newer, cost-saving ones
▪ Example: replacing a hospital’s existing cost-accounting system with a newer cost-saving one.
• Capital Investment Decisions
o Financial Return: direct financial benefits are a primary concern not only to health care organizations but also to
many –if not all investors who invest in health care organizations and their projects.
o Future Funding: without new capital funds, many health care organizations would be unable to offer new services,
support medical research, or subsidize unprofitable services.
o Nonfinancial Benefits : how well an investment enhances the survival of the organization and supports its mission,
patients, employees and the community is the primary concern

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• Strengths and weaknesses of Payback method:
o Strengths
▪ Simple to calculate
▪ Easy to understand
o Weaknesses:
▪ Answers in years not dollars
▪ Disregards cash flows after payback
▪ Does not account for the time value of money
• Strengths and weaknesses of an NPV analysis
o Strengths
▪ Answers in dollars, not years.
▪ Accounts for all the cash flows in the project.
▪ Discounts at the cost of capital.
o Weaknesses
▪ Cash flow estimates may be difficult to develop.
▪ Discount rate may be difficult to determine.
• Strengths and weaknesses of the IRR analysis
o Strengths
▪ Considers all relevant cash flows of the investment project.
▪ Takes a time value of money-based approach.
▪ Widely used by practitioners and easily understood.
o Weaknesses
▪ Assumes reinvestment of proceeds at the internal rate of return.
▪ Estimates may be difficult to develop.
▪ Can generate multiple rates of return if future cash flows are estimates.
❖ Financial techniques (use only cash flows)
o Payback Method-calculate the time needed to recoup each investment.
o Net Present Value Method- difference between the initial amount paid for an investment and future cash
inflows the investment brings in adjusted for the cost of capital.
o Internal rate of return method (IRR)
Chapter 8: Capital Financing for Health Care Providers
1. Which of the following is one of the steps of bond issuance process to a heath care entity ?
A. Financial evaluation
B. Private evaluation
C. Process evaluation
D. Public evaluation
2. Which of the following statement is correct for bond issuance process?
A. Bonds can be sold by either public or private placement
B. Bonds can only be sold by private placement
C. Bonds can only be sold by public placement
D. Bonds cannot be sold or buy
3. Which of the following is a source of debt financing by maturity?
A. Bonds
B. Fixed interest rate debt
C. interest rate swap
D. Variable interest rate debt

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4. Which of the following should be done before issuing the bond to a healthcare entity ?
A. Public evaluation
B. General evaluation
C. Market evaluation
D. Process evaluation
5. Which of the following is used for service equipment leased for periods shorter than the equipment's economic life
usually between a few days and a year?
A. Pooled Equipment Financing
B. Financial lease
C. Operating Lease
D. Capital Lease
6. Which of the following term defines debenture?
A. Non-existent
B. An unsecured bond
C. Subject to harsh regulations
D. A secured bond
7. Which of the following equation shows that any increase in assets must be balanced by a similar increase in debt or
equity, or both?
A. Debt Assets - Equity
B. Assets= Debt + Equity
C. Assets =Debt - Equity
D. Equity=Assets + Debt
8. Which of the following is a type of a fund in which monies are set aside each year to ensure that a bond can be liquidated
at maturity?
A. Investment fund
B. Administrative fund
C. Sinking fund
D. Long term fund
9. Which of the following refers to an agreement between the issuer and the trustee highlighting the rules and
responsibilities of each party?
A. Pooled Equipment Financing
B. Indenture of trust
C. Loan agreement
D. Subordinated debenture
10. Which of the following lease that lasts shorter than the useful life of the leased asset, typically one year or less?
A. Official Lease
B. Capital Lease
C. Premium Lease
D. Operating Lease
11. Which of the following refers to an investment for a for- profit entity that reduces the amount of income tax to be paid
often because interest and depreciation expenses are tax deductibles?
A. Tax shield
B. Interest rate swap
C. Sinking fund
D. Hedging

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12. Which one of the following is the major alternative to equity financing?
A. Debt financing
B. Assets
C. Budget
D. Stock
13. What is the net present value when the project whose cash flows are sufficient to repay the capital invested for the rate
for the return?
A. Zero
B. Negative
C. Independent
D. Positive
14. Which of the following is the primary choice of debt financing for not-for profit health care organizations due to the
lower interest rate?
A. Tax-Exempt Bonds
B. Conventional Mortgages
C. Debenture
D. Taxable Bonds
15. Which of the following time span is the maturity of the Term loan?
A. Twenty to 25 Years
B. One to Ten Years
C. Eleven to Fifteen Years
D. One to Five Years
16. An entity that owns an asset that is then leased out is called?
A. Lessor
B. Lessee
C. Vendor
D. Owner
17. An entity that negotiates the use of another’s asset via a lease. is called?
A. Lessor
B. Lessee
C. Vendor
D. Owner
17. Which of the following is one of the primary sources of equity financing for profit healthcare organization?
A. Governmental grants
B. Money lending
C. philanthropy
D. Stock issuance
18. Which of the following is an example of Good will?
A. Customer or supplier relationship
B. Profitability of the organization
C. Reward system for employee relation
D. Mission and vision of the organization
19. Which of the following refers to a not-for-profit health care provider in bond issuance process ?
A. Borrower
B. Investor
C. Issuer
D. Trustee

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20. Which of the following refers to an organization that is a conduit between the borrower and the
investors, that is able to issue tax-exempt debt on behalf of the borrower in bond issuance process ?
A. Borrower
B. Investor
C. Issuer
D. Trustee
21. Which of the following refers to purchasers of the debt in bond issuance process ?
A. Borrower
B. Investor
C. Issuer
D. Trustee
22. Which of the following refers to a financial institution that acts on behalf of the investors and issuer and who collects and
disburses payments in bond issuance process ?
A. Borrower
B. Investor
C. Issuer
D. Trustee
23. Which of the following basic accounting equation is correct in the scenario of a source of financing ?
A. Assets=Debt +Equity
B. Assets=Debt -Equity
C. Assets= Equity+ Debt
D. Assets= Equity- Debt
24. Which of the following is one of the primary sources of equity financing for not for the profit healthcare organization ?
A. Governmental grants
B. Money lending
C. philanthropy
D. Stock issuance
25. Which of the following has a maturity of twenty to thirty five (20-35) years ?
A. Bond
B. Assets
C. Loan
D. Goodwill
❖ Easy question
❖ bond issuance process
o borrower: not‐for‐port health care provider
o Indenture of trust: an agreement between the issuer and the trustee highlighting the rules and responsibilities
of each party
o Investment banker: financial services rm placing the borrower’s debt with investors
o Investors: purchasers of the debt (in non-bank-quailed transaction will be the bank)
o Issuer:an organization that is a conduit between the borrower and the investors, that is able to issue tax‐
exempt debt on behalf of the borrower
o Loan agreement: formal document between the issuer and borrowers recognizing the loan and detailing terms,
conditions, covenants, restrictions,
o Trustee: a financial institution that acts on behalf of the investors and issuer and who collects and disburses
payments

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o Equity Financing
o Equity Financing Primary sources for not-for- profits
• Internally generated funds
• Philanthropy
• Governmental grants
• Sale of real estate including medical office buildings
o Primary source for profits
• Issuing stock
• Retained earnings
o Type of Interest Loan
• Fixed Interest rate debt
• Variable rate demand bonds
• Auction rate securities
• Interest rate swap
• Definition
o Lessor: an entity that owns an asset that is then leased out.
o Lessee: An entity that negotiates the use of another’s asset via a lease.
• Compare
o Discount
▪ When the market rate is higher than the coupon rate, a bond is said to be selling at a discount from its par
value (also see the definition of premium).
o Premium
▪ When the market rate is lower than the coupon rate, a bond is said to be selling at a premium (also see the
definition of discount).
❖ Definition
o Fixed Income Security A bond that pays fixed amounts of interest at regular periodic intervals, usually semiannually.
o Market Value What a bond would sell for in today’s open market.
o Par Value The face value amount of a bond; it is the amount the bondholder is paid at maturity, and it does not
include any coupon payments.
o Yield to Maturity The rate at which the market value of a bond is equal to the bond’s present value of future coupon
payments plus par value. Required Market Rate The market interest rate on bonds of similar risk.
❖ Compare OR write down difference between lease and capital lease
o Operating lease- service equipment leased for periods shorter than the equipment’s economic life (one year or less).
o Capital Lease- lease the asset for all of its economic life possible option to buy.
❖ Fixed rate debt Fixed rate debt
• Advantages
▪ Fixed debt service payments.
▪ Fixed interest rate; no risk related to interest rate changes (interest rate risk).
▪ No risk that investors will sell bonds back (put risk).
▪ No letter of credit required from bank
• Disadvantages
▪ Higher up-front or issuance expenses.
▪ Market conditions may result in low variable rate debt over the life of the fixed rate loan; this may result in
paying higher interest cost over life of loan.
▪ Typically, for the first 10 years, the issuer cannot call or refund bonds back, unless the issuer uses advance
refunding, which can only be done once.
▪ Can result in a negative arbitrage situation, whereby income earned from investments is less than the interest
cost of fixed debt.

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❖ Variable rate debt
o Advantages
▪ Lower up-front issuance costs.
▪ Lower initial interest rate.
▪ Greater call or refund flexibility for issuer.
▪ Greater matching or hedging between interest income from investments and interest expense from
variable debt.
• Disadvantages
▪ Higher interest costs if interest rates increase (interest rate risk).
▪ Unstable debt service payments.
▪ Decline in cash flow if interest rates increase.
▪ Bondholders can sell, or put, the bonds back (put risk).
▪ Requires liquidity to pay off bondholders if unable to find buyers. Hospitals typically pay for a bank
letter of credit rather than use their own liquidity.
▪ Banks require a renewed letter of credit every 3 to 5 years (renewal risk). Highcredit-risk hospitals
may have trouble renewing letter of credit.
Chapter 9: Using Cost Information to Make Special Decisions
1. Which of the following term is interchangeable for "Break-Even analysis"?
A. Amount-Scale-Number analysis
B. Cost-Investment-Debt analysis
C. Cost-Volume-Profit analysis
D. Volume-Price-Investment analysis
2. Which of the following cost stays same per unit but change directly in total with a change in activity over the relevant
range?
A. Direct cost
B. Fixed cost
C. Total cost
D. Variable cost
3. Which of the following is correct for break-even- point?
A. Point where total assets equal total liabilities
B. Point where total debt equals total profit
C. Point where total investment equals total return
D. Point where total revenues equal total costs.
4. Which of the following is defined as the cost that an organization can measure or trace to a particular patient or service?
A. Indirect Cost
B. Non-Avoidable cost
C. Direct costs
D. Avoidable Cost
5. What is the formula to find out Break Even?
A. Revenue per Unit- Variable Cost per Unit
B. Total Revenue Total Variable Cost
C. Price x Volume Fixed Cost Variable Cost
D. Price x Volume Fixed Costs (Variable Cost per Unit x Volume) Desired Profit

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6. Which of the following term refers to the point where the total revenue is equal to the cost?
A. Dropping Point
B. Cost line Point
C. Break Even point
D. Even Margin Point
7. Which of the following is obtained when avoidable fixed cost is subtracted from the total contribution margin? OR what is
total contribution margin minus avoidable fixed cost equal to ?
A. Quantity
B. Unavoidable cost
C. Break Even point
D. Product margin
8. Which of the following alternative must be chosen in a special decision like a Make-or-Buy Decision?
A. Alternative with no product margin
B. Product margin is not considered at al
C. Alternative with a higher product margin
D. Alternative with a lower product margin
9. Which of the following is the formula to determine total revenues when price and quantity are known
A. Total Revenues = Price x Quantity
B. Total Revenues= Price / Quantity
C. Total Revenues= Price - Quantity
D. Total Revenues = Price + Quantity
10. Which of the following is also known as Cost-Volume-Profit (CVP) analysis?
A. Ratio Analysis
B. Vertical Analysis
C. Break Even Analysis
D. Horizontal Analysis
11. Find out total cost when fixed cost 19500 and variable cost 60500?
A. 60500
B. 80500
C. 41000
D. 80,000
12. Which of the following term completes the formula of Total Revenues="?" x Quantity?
A. Price
B. Variable Cost
C. No. of activities
D. Fixed Cost
13. What is the relationship between price per unit and volume when total revenue remains constant?
A. Price per unit varies directly with volume
B. Price per unit varies inversely with volume
C. Price per unit is subtracted from volume
D. Price per unit is unaffected by volume
14. Full-time nursing cost that would be saved if a service were to be closed, is an example for which of the following cost?
A. Non-Avoidable Fixed cost
B. Variable cost
C. Avoidable fixed cost
D. Indirect Cost

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15. Which of the following should happen for a health service organization to reach a break even?
A. Revenue Cost
B. Revenue > Cost
C. Revenue < Cost
D. Revenue = Cost
16. Which of the following costs that stay the same per unit but change directly in total with a change in activity over the
relevant range?
A. Total Cost
B. Fixed cost
C. Activity Cost
D. Variable cost
17. Which of the following terms yield , subtracting avoidable fixed cost from the total contribution margin
A. cost margin
B. Fixed margin
C. Process margin
D. Product margin
14. Which of the following is correct for the break-even point
A. The point where total revenues equal total costs.
B. The point where total dept equal total profit.
C. The point where total investment equal total return.
D. The point where total assets equal total liabilities.
❖ Easy question
o Break Even equation Revenue=Cost
o Formula to determine total revenues: Total revenue=Price x Quantity
• There are two major errors that must be avoided when using fixed cost information to make decisions:
o assuming that cost per unit does not change when volume changes.
o using fixed cost per unit derived at one level to forecast total fixed costs at another level.
• Fixed costs:
Costs that stay the same in total over the relevant range but change inversely on a per unit basis as activity changes.
• Variable Costs;
costs that stay the same per unit but change directly in total with a change in activity over the relevant range.
• The two major characteristics of variable costs have been identified, and they are just the opposite of those for fixed
costs:
o Total variable costs change directly with a change in activity.
o Variable cost per unit stays the same with a change in activity.
• Break even formula can be used to :
o Find Price
o Find quantity
o Find Fixed cost
o Find Variable cost per unit
• There are four methods to apply economy of scale principles to affect health care:
o Scale up volume.
o Reduce costs.
o Alter fixed and variable cost structure.
o Innovate business model.

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• Compare
o direct costs: are those that an organization can measure or trace to a particular patient or service (e.g., the time a
nurse or nursing assistant spends with a client)
o Indirect costs: are those that the organization is not able to associate with a particular patient or service (e.g., the cost
of the billing clerk or computer system).
• compare
o Break Even Chart-Graphically displays the relationships in the break even equation.
o Break even point- is the point where total revenues equal total costs
• The product margin concept is useful to help answer questions related to:
o Make or Buy Decisions: After comparing product margins, the alternative with the higher product margin should
be chosen.
o Adding or Dropping a Service: If proposed service is expected to have a positive product margin it should be added,
if lower drop.
o Expanding or Reducing Service: Compare both product margins, the higher anticipated product margin should be
chosen.
❖ There are two major errors that must be avoided when using fixed cost information to make decisions:
o assuming that cost per unit does not change when volume changes,
o using fixed cost per unit derived at one level to forecast total fixed costs at another level.
❖ two major characteristics of variable costs have been identified, and they are just the opposite of those for fixed costs:
o Total variable costs change directly with a change in activity.
o Variable cost per unit stays the same with a change in activity
❖ summarizes and compares the major characteristics of fixed and variable costs in relation to volume within a relevant
range.
Fixed costs stay the same in total but change per unit as volume changes, whereas variable costs change in total but remain
constant per unit with changes in volume
❖ Compare
o Avoidable fixed costs-a fixed cost that can be avoided if a service is not provided.
o Nonavoidable fixed costs- A fixed cost that will remain even if a specific service is discontinued.
❖ In order to make a decision regarding service what tools help make these decision
o Tools help make these decisions
o Break even analysis
o Role of fixed and variable costs
o Break even chart
o Contribution Margin
o Product Margin
Chapter 10 : Budgeting
1. Which of the following is one of the four components of planning-and-control cycle?
A. Buying
B. Identification
C. Purchasing

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2. Which of the following organizations is defined as a network of healthcare organizations all contracting with the same
third-party vendor?
A. Group Selling tor Organization (GSO)
B. Group coordinators supplies (GCS)
C. Group assistant tor organization (GAO).
D. Group purchasing organization (GPO)
3. Which of the following terms best describes this statement" To guide the organization into the future by identifying the
unique attributes of the organization, why it exists and what it hopes to achieve?
A. Controlling
B. Planning
C. Mission statement
D. Vision.
4. Which of the following budget summarizes anticipated major purchases for the year?
A. Finance Budget
B. Operating Budget.
C. Capital Budget
D. Cash Budget.
5. Which one of the following allows an organization to monitor the actual revenues generated and its use of resources
against what was planned?
A. Product analysis
B. Net present value
C. Budgeting
D. Ratio analysis
6. Which of the following is an extension of the program budget?
A. Line-category budget
B. Zero-based budget
C. Line-ending budget
D. Static Budge
7. In which type of Budgeting, budgeting & decision making done by relatively few people concentrated in the highest level
of the organizational structure?
A. Bottom-up budgeting
B. Left-right budgeting
C. Top-down budgeting (authoritarian approach)
D. Group-level budgeting
8. Which of the following is the first step in planning and controlling cycle of Budgeting?
A. Planning
B. Financial forecasting
C. Creating a capital amount
D. Strategic Planning
9. Which one of the following is about identifying an organization's mission, goal, and strategy to best position itself for the
future?
A. Implementation
B. Step-up costing approach
C. Strategic planning
D. Income-to-cost approach

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10. Which of the following is a multiyear budget that is updated more frequently than annually, such as semiannually or
quarterly?
A. Rolling Budget
B. Zero Based Budget
C. Static Budget
D. Flexible budget
11. Which of the following is one of disadvantages of participatory approach to budget?
A. Cost awareness.
B. Time consuming.
C. Complicated
D. Increases competition
12. What are the four major components of Planning and Control cycle of budgeting?
A. Planning, Leading, Organizing, Controlling
B. Strategic planning, Plan, Evaluation, Controlling
C. Short Planning, Leading, Implementing, Controlling
D. Strategic planning, Planning, Implementing. Controlling
13. Which of the type of budget out of four major types, displays the organization's projected money inflows and outflows?
A. Capital Budget
B. Expense Budget
C. Fixed Budget
D. Cash Budget
14. Which one of the following is a combination of two budgets developed using the accrual basis of accounting: the revenue
budget and the expense budget?
A. Cash budget
B. Operating budget
C. Statistics budget
D. Commercial budget
15. Which one of the following provide guidance and feedback to keep the organization within its approved budget?
A. Controlling activities
B. Income-t0-cost approach
C. Step-up costing approach
D. Implementation activities
16. What is the purpose of strategic planning in the healthcare organization?
A. It identifies the organization's mission, goals and strategy to best position itself for the future.
B. It assesses the firm strength and weakness and evaluates opportunities and threat of the organization.
C. lt assists in control payment and make reduces risk aversions.
D. It only identifies the organization in terms of vision.
17. Which of the following activity of planning-and-control cycle is the process of creating individual budgets?
A. Controlling
B. Implementing
C. Planning
18. Which of the following management oversight the process of supply chain?
A. Group purchasing
B. Supply chain management
C. Vendor identification
D. Vendor group

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19. In which of the following process, entities involved in distributing finished goods from the manufacturer to the end
consumers?
A. Supply chain
B. Vendor group
C. Group purchase organization
D. Group purchasing
20. Which of the following statement defines incremental or decremental budget?
A. A method of budgeting that starts with an existing budget to plan future budget
B. Budget where expenses exceed revenue and indicate the financial health of a country.
C. Approach to budgeting that continually questions the need for existing programs.
D. Detailed budget of what a business is doing low further its growth and development
21. Which of the following term is another name for authoritarian approach in budgeting?
A. Top-down spending
B. Top-down budgeting
C. Monopolistic practices
D. Bottom-up strategizing
22. Which of the following term is another name for participatory approach in budgeting?
A. Top-down spending
B. Top-down budgeting
C. top-down-bottom-up approach.
D. Bottom-up strategizing
23. Which of these is a tangible factor
A. history
B. reputation
C. strength of its board of directors
D. financing OR staff OR services OR structure
24. Which of these is a intangible factor
A. financing
B. history OR reputation OR strength of its board of directors
C. staff
D. services
25. which of the following is a type budget
A. assets budget
B. statistics budget
C. total budget
D. variance budget
26. which of the following stage of the planning-and-control cycle identifying goals, objectives, tasks, activities, and
resources necessary to carry out the strategic plan
A. controlling
B. implementing
C. planning
D. strategic planning
27. which of the following budgeting approaches where roles and responsibilities of the budgeting process are diffused
throughout the organization
A. Top-Down approach
B. participatory approach
C. Authoritarian Approach
D. common Approach

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28. What is meant by supply chain management ?
A. Responsible for storing the goods and services
B. Management of formal relationship of Manufacturer and consumer
C. Inventory transactions within the organization for good and services
D. Distribution of finished goods from the manufacturer to the end consumers
❖ Easy question
• Define of budget is one of the most important documents of a health care organization , it serves as a plan and control
document that allow an organization to monitor the actual revenues generated and its use resources against what was
planned.
• Define of Group Purchasing Organization (GPO) A network of health care organizations and a third-party vendor who are
able to acquire large volumes of supplies from manufacturers at negotiated discounted rates owing to economies of scale.
• Define of Implementing activities- are the process of creating these individual budgets, which roll up to service line
budgets which feed into the overall organizational budget.
• Explain any two types of budgets most health care organizations develop.
o Statistics Budget: Identifies the amount of services that will be provided
o Operating Budget: Combination of 2 budgets developed using the accrual basis of accounting of revenue budget
and expenses budget .
o Cash Budget: organization's cash inflows and outflows.
o Capital Budget: summarizes anticipated major purchases for the year
• The planning and control cycle: Four major components of contorting cycle
o Strategic Planning
o Planning
o Implementation
o Controlling
• For revenue generating cost centers materials used:
o historical trends.
o market projections.
o revised fee schedules.
o gross revenues expected.
❖ Five Approaches to budgeting OR five key dimensions over which organizations vary in regard to budgeting:
o Participation
o Budget models
o Budget detail
o Budget forecast
o Budget Modifications
❖ Control tools vary from organizational structure and information systems to such as
o supplying monthly reports
o expenditures against budget
❖ Two basic budget model:
o Incremental –decremental budgeting approach
o zero-based budgeting approach
❖ define Strategic Planning- Identifying an organization’s mission, goal, and strategy to best position itself for the future.

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❖ Advantage and disadvantage of participatory approaches
o Advantages
▪ Motivation
▪ Shared understanding
▪ Cost awareness
▪ Clarified roles and responsibilities
o Disadvantage
▪ Loss of control
▪ Time consuming
▪ High resource use
▪ Disappointment
❖ Three categories based on the amount of detail they contain:
▪ Line-Item Budget The least detailed budget, showing only revenues and expenses by category, such as labor or
supplies.
▪ Program Budget An extension of the line-item budget that shows revenues and expenses by program or service lines.
▪ Performance Budget An extension of the program budget, lists revenues and expenses by line item for each program
or service but adds performance measures
❖ Write down the four budgeting methods and explain two of them
o Strategic Planning
▪ Identifying an organization’s mission, goal, and strategy to best position itself for the future.
o Planning
To identify:
▪ Goals
▪ Objectives
▪ Tasks
▪ Activities
▪ Resources needed
o Implementation
o Controlling
❖ includes both tangible factors
o financing
o staff
o services
o structure
❖ intangible factors, such as its
o history
o reputation
o strength of its board of directors
chapter 11: Responsibility Budgeting
1. Which of the following responsibility centers in healthcare organizations is responsible for providing service and
controlling their costs?
A. Cost centers
B. Investment centers
C. Profit centers
D. Service centers

ABRAR & THAMER .M88
2. Which of the following is a type of responsibility center in health care organization
A. Cost center
B. Management center
C. Patient center
D. Quality center
3. Which of the following is a disadvantage of decentralization?
A. Efficient use of time
B. Increased motivation
C. Increased need for formal communication
D. More relevant information
4. Which of the following is an advantage of decentralization?
A. Decreased goal congruence
B. High quality decisions
C. Increased need for coordination
D. Lack of managerial talent
5. Which of the following is an attribute to measure the performance of the responsibility centers of a health care
organization?
A. Compensation system
B. Process progress
C. Goal achievement
D. Authority
6. What do we call it When more income was received than was budgeted is called?
A. Equal revenue variance
B. Favorable revenue variance
C. Negative revenue variance
D. Total revenue variance
7. Which of the following compensation system is based totally on achieving certain targets, called performance goals?
A. At-risk compensation system
B. Mixed compensation system
C. Portion compensation system
D. Salary based compensation system
8. Which of the following are the four most common types of responsibility centers in health care?
A. Production, Clinical, Administrative, Service
B. Planning. Responsibility, Authority, and Accountability
C. Service, Cost, Profit, and Investment
D. Revenue, Expense, Profit, Cost
9. In which of the following compensation system only a portion of salary is guaranteed, and remainder is based on
meeting the performance goals?
A. No risk compensation system
B. At Risk Compensation System
C. Mixed Compensation System
D. Salary Based Compensation System
10. Which of the following is one of the advantages of decentralization?
A. Decreased goal congruence
B. Loss of control
C. Lack of managerial talent
D. More efficient use of time

ABRAR & THAMER .M88
11. Which of the following is used by the employers other than financial and nonfinancial ratios to attain operational as well
as strategic goals?
A. Compensation System
B. Reward system
C. Profit system
D. Budget system
12. Which of the following center is responsible for earning the revenues?
A. Investment centers
B. Services centers
C. Profit centers
D. Cost centers
13. Which of the following is an example of Clinical Cost centers?
A. Quality Control (Administrative Cost Center)
B. Housekeeping (Administrative Cost Center)
C. Medical records (Administrative Cost Center)
D. Physical Therapy or nursing
14. Which of the following are major attributes of responsibility centers?
A. Decentralization and control
B. Cost, Profit and Service
C. Responsibility OR Authority, OR Accountability
D. Planning, Implement and control
15. What is a budget variance?
A. A type of flexible budget
B. Sum of what was budgeted and what occurred.
C. Difference between what was budgeted and what was achieved.
D. A ratio of hypothetical budget and practically achieved budget
16. Which of the following refers to the degree of dispersion of responsibility within an organization?
A. Decentralization
B. Accountability
C. Centralization
D. Investment
17. Which one of the following is a type of responsibility centers?
A. Investment Centre
B. Production Centre
C. Maintenance Centre
D. Sales Centre
18. Which of the following means, "earning the amount of revenue budgeted?"
A. Cost containment
B. Cost avoidance
C. Variance
D. Revenue attainment
19. Which of the following responsibility centers in healthcare organizations is responsible for controlling costs and earning
revenues.
A. Cost centers
B. Investment centers
C. Profit centers
D. Service centers

Test Bank HCM 213 - 2023- 88 (1).pdf

Test Bank HCM 213 - 2023- 88 (1).pdf

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