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Financial accounting Meaning . This is useful for, BCOM,MCOM,CA,CS,CMA STUDENTSFinancial accounting Meaning . This is useful for, BCOM,MCOM,CA,CS,CMA STUDENTSBibek Prajapati
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HM480 Ab103318 ch25
- 2. © 2020 AHIMA
ahima.org
HIM and Financial Management
Board of Directors
Chief Financial
Officer
(CFO)
Patient Accounts
Accounting
Decision Support
Investment
Management
Managed Care
Contracting
Purchasing
Chief Operating Officer
(COO)
Ancillary Departments
(Radiology, Lab,
Pharmacy)
Case Management
Food Service
Facilities
Housekeeping
Human Resources
Marketing
Chief Information
Officer
(CIO)
HIM
Clinical Information
Systems
Enterprise Technology
Services
IT Infrastructure
Telecommunications
Chief Nursing
Officer
(CNO)
Nursing
Chief Executive Officer
(CEO)
- 3. © 2020 AHIMA
ahima.org
Accounting Concepts and Principles
Basic accounting concepts Basic accounting principles
Entity: The financial data of different entities
are kept separate.
Reliability: Amounts represent the
transactions that occurred.
Going concern: Organizations are assumed to
continue indefinitely, unless otherwise
stated.
Cost: Transactions are recorded at historical
cost.
Stable monetary unit: Money is the
measurement of financial transactions.
Revenue: In order to record revenue, it must
be earned and measurable.
Time period: Financial data represent a
specified time period.
Matching: Expenses are recorded in the
same period as the related revenue.
Conservatism: Resources must not be
overstated, and liabilities must not be
understated.
Consistency: When an accounting rule is
followed, all subsequent periods must reflect
the same rule.
Materiality: The financial data collected
by an organization are relevant to its
goals and objectives.
Disclosure: Financial reports must be
accompanied by helpful explanations, when
necessary.
- 4. © 2020 AHIMA
ahima.org
Authorities
• Financial Accounting Standards Board (FASB)
• Securities and Exchange Commission (SEC)
• Internal Revenue Service (IRS)
• Public Company Accounting Oversight Board
(PCAOB)
• Centers for Medicare and Medicaid Services (CMS)
- 7. © 2020 AHIMA
ahima.org
Sources of Financial Data
• Transactions
• Clinical Services
• Patient Accounts
• Health Information Management
• Administration
- 11. © 2020 AHIMA
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Liabilities versus Net Assets/Equity
Liabilities Net Assets/Equity
Accounts payable Synonymous terms
Loans payable Represent the “book value” of the
organization
Mortgage
- 13. © 2020 AHIMA
ahima.org
Revenue versus Expenses
Revenue
• Sources of revenue
• Categories of revenue
• Operating revenue
• Non-operating revenue
Expenses
• Purchasing
• Organization
• Purchase orders
• Shipping/receiving
documents
• Invoices
• Statements
• Inventory slips
- 20. © 2020 AHIMA
ahima.org
Ratio Analysis
• Liquidity and debt service
• Current ratio
• Days in accounts receivable
• Debt ratio
• Profitability
• Return on investment
• Total margin
- 30. © 2020 AHIMA
ahima.org
Cost Reports
• Allocation of overhead
• Direct method
• Step-down allocation
• Double distribution
• Simultaneous equations
• Impact of accounts receivable on financial
statements
- 41. © 2020 AHIMA
ahima.org
Capital Projects Cost Justification
• Replacement
• Expansion
• Mission
• Profitability
• Payback period
• Accounting rate of
return
• Return on investment
• Net present value
• Internal rate of return
• Profitability index
- 43. © 2020 AHIMA
ahima.org
Accounting Rate of Return
• Investment: $100,000
• Straight Line Depreciation over 5 years: $20,000 per
year
• Cash In: $50,000 per year
• ARR: 30% [(50,000 – 20,000) / 100,000]
- 44. © 2020 AHIMA
ahima.org
Return on Investment
• Investment: $100,000
• Straight Line Depreciation over 5 years: $20,000 per
year
• Operating Costs: $5,000 per year
• Cash In: $50,000 per year
• ROI: 25% [(50,000 – 25,000) / 100,000]
- 45. © 2020 AHIMA
ahima.org
Net Present Value
• Investment: $100,000
• Cash In: $25,000 per year (revenue minus
depreciation and operating costs)
• Interest Rate: 7%
• NPV: $2,505 (based on 5 years of service)
- 46. © 2020 AHIMA
ahima.org
Internal Rate of Return
• Investment: $100,000
• Cash In: $25,000 per year (revenue minus
depreciation and operating costs)
• NPV: $0 (based on 5 years of service)
• Interest Rate: 8%
- 47. © 2020 AHIMA
ahima.org
Profitability Index
Radiology
Pharmacy
• $1,500,000 Present value of cash inflows
$40,000
• $500,000 Present value of cash outflows
$10,000
• 3 Profitability index 4
