Financial Reporting Accounting Dissertation Projects

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Financial Reporting Accounting Dissertation Projects

  1. 1. Accounting for Health Care Organizations www.study-aids.co.uk © 2014 www.study-aids.co.uk (c) 2014
  2. 2. Learning Objectives      Account for unique hospital revenue sources Prepare journal entries for hospital transactions Prepare government hospital financial statements Understand key differences between accounting & reporting for government and nongovernment not-for-profit hospitals Prepare nongovernment not-for-profit hospital financial statements www.study-aids.co.uk (c) 2014
  3. 3. Development of GAAP  Industry associations – assist in development of GAAP  American Hospital Association  Healthcare Financial Management Association  AIPCA Health Care Organizations audit guide, together with GASB & FASB standards, constitute GAAP www.study-aids.co.uk (c) 2014
  4. 4. Governmental Hospitals Report as enterprise activities  If functioning as separate legal entity, hospital will be a special purpose government engaged in business-type activities  Primary difference from other BTAs will be certain revenue recognition practices  www.study-aids.co.uk (c) 2014
  5. 5. Governmental Hospital Restricted Funds    Specific Purpose Funds – used to account for assets restricted by donors and grantors Plant Replacement & Expansion Funds – used to account for financial resources restricted by donors or grantors for capital asset purposes Endowment Funds – used to account for principal of permanent endowments, term endowments, and similar gifts www.study-aids.co.uk (c) 2014
  6. 6. Unique Measurement & Display Features Distinguishing primary activities  Classes of revenues  Gains  Donations  Expense classification  Restricted assets  Property, plant, & equipment  www.study-aids.co.uk (c) 2014
  7. 7. Distinguishing Primary Activities  Health Care Audit Guide applies FASB Concept #6  Revenues and expenses come from ongoing major or central operations  Gains and loses are incidental items  GASB #34 adopts these same ideas and adds expectation of consistency with operating cash flows www.study-aids.co.uk (c) 2014
  8. 8. Reporting issue Revenue for one hospital may be gain for another  Contribution   Could be revenue if hospital has major, ongoing fund-raising activity  Will still be nonoperating revenue in governmental hospital  For hospitals without ongoing fundraising activity, contributions are gains www.study-aids.co.uk (c) 2014
  9. 9. Classes of Revenues  Patient service revenues  Daily patient services  Other nursing services  Other professional services   Premium fees – revenues from other organizations based on agreement to provide services for specific fee Other revenues – derived from ongoing activity other than patient services www.study-aids.co.uk (c) 2014
  10. 10. Deductions from patient service revenues Charity services – indigent patients  Policy discounts – members of groups that receive discounts as a result of hospital policy  Contractual adjustments – third-party payments that are lower than standard rates by contract  Uncollectible accounts  www.study-aids.co.uk (c) 2014
  11. 11. Contractual Adjustments Reimbursement rates based on national or regional averages  Standard hospital rates not based on cost  Difference needs to be adjusted at time service is provided so that receivables will reflect amount expected to be collected  www.study-aids.co.uk (c) 2014
  12. 12. Sample patient service entries (720 – amounts in thousands) Accounts & Notes Receivable Revenues – Patient Service Charges Gross billings for services at established rates. www.study-aids.co.uk (c) 2014 1,000 1,000
  13. 13. Adjustments Revenue Deductions – Charity Services Revenue Deductions – Contractual Adjustments Revenue Deductions – Provision for Uncollectible Accounts Allowance for Uncollectible Receivables & Third-Party Contractuals Accounts & Notes Receivable www.study-aids.co.uk (c) 2014 40 60 50 110 40
  14. 14. Financial Reporting Statement of Net Assets Accounts & Notes Receivable Less: Allowance for uncollectible Receivables and Third-Party Contractuals Operating Statement Net Patient Service Revenues (1,000 – 40 – 60 – 50) www.study-aids.co.uk (c) 2014 $960 110 $850 $850
  15. 15. Typical Gains Sales of investments in securities  Sales of capital assets  Gifts or donations (may be revenues in some hospitals)  Investment income (may be revenues in some hospitals)  www.study-aids.co.uk (c) 2014
  16. 16. Unrestricted & Restricted Gifts and Grants Unrestricted gifts, grants, & bequests are typically reported as gains  Restricted grant rules are the same as for C&Us  www.study-aids.co.uk (c) 2014
  17. 17. Gifts of Professional Services and Other Items  Professional services common donation for hospitals  Reporting is optional  If reported, show as nonoperating revenues  Gifts of supplies and commodities reported as other revenues or gains www.study-aids.co.uk (c) 2014
  18. 18. Expense Classification Measurement & recognition criteria same as business entities  Exceptions for   Pensions – follow rules in GASB #27  OPEB – follow rules in GASB #45 www.study-aids.co.uk (c) 2014
  19. 19. Typical Expense Functions Nursing services  Other professional services  General services  Fiscal services  Administrative services  Other services May use either natural or functional classifications in operating statement  www.study-aids.co.uk (c) 2014
  20. 20. Common Examples of Restricted Assets Contracts such as bond indentures  Restrictions by third-party agreements  Restrictions by donors or grantors  All these are legal restrictions www.study-aids.co.uk (c) 2014
  21. 21. Restricted Assets Cash and investments designated or restricted for long-term purposes are reported as noncurrent assets  Separate classifications used for   Internally designated assets  Assets restricted by other than donor or grantor requirements  Donor or grantor restrictions  Principal of permanent endowments www.study-aids.co.uk (c) 2014
  22. 22. Board Designations Created at Board’s discretion  Unrestricted resources to be used for specific noncurrent or nonoperating purpose  www.study-aids.co.uk (c) 2014
  23. 23. Nongovernment NFP Hospitals Use of the term “restricted” reserved for resources limited by donors or grantors  Examples of purposes for restrictions   Specific operating purposes  Additions to capital assets  Endowment www.study-aids.co.uk (c) 2014
  24. 24. Restrictions lifted by Meeting a specific condition – complying with restrictions by spending for specific purposes  Passage of time – term endowments  www.study-aids.co.uk (c) 2014
  25. 25. Property, Plant, & Equipment Assets recorded at historical cost or fair value for donations  Depreciation recorded on all assets  Capitalization policy, method of valuing assets, and depreciation method must be disclosed in notes to financial statements  www.study-aids.co.uk (c) 2014
  26. 26. Alzona Hospital Example Example limited to general ledger accounts  Characteristics   Medium size hospital  General short-term health care facility  Financing from patient services, fees, donations, and investment earnings www.study-aids.co.uk (c) 2014
  27. 27. Gross charges to patients Accounts & Notes Receivable Revenues – Patient Service Charges Allowance for Uncollectible Receivables & ThirdParty Contractuals Accounts & Notes Receivable www.study-aids.co.uk (c) 2014 (723) 4,400,000 4,400,000 85,000 85,000
  28. 28. Write-off of receivables (723) Allowance for Uncollectible Receivables & ThirdParty Contractuals Accounts & Notes Receivable www.study-aids.co.uk (c) 2014 85,000 85,000
  29. 29. Contractual adjustments (724) Revenue Deductions – Contractual Adjustments Accounts & Notes Receivable www.study-aids.co.uk (c) 2014 265,000 265,000
  30. 30. Indigent patients (724) Revenue Deductions – Charity Services Accounts & Notes Receivable 125,000 125,000 Charity services do not result in patient service revenues since there is no expectation of payment. Level of charity services must be disclosed in the notes; this entry is a good way to capture that information. This disclosure can take several forms: revenue, cost, units, or other statistics. www.study-aids.co.uk (c) 2014
  31. 31. Collections and additional write-offs (724) Cash Accounts & Notes Receivable Allowance for Uncollectible Receivables & ThirdParty Contractuals Accounts & Notes Receivable www.study-aids.co.uk (c) 2014 3,800,000 3,800,000 55,000 55,000
  32. 32. Adjustments Revenue Deductions – Uncollectible Accounts Revenue Deductions – Contractual Adjustments Allowance for Uncollectible Receivables & ThirdParty Contractuals www.study-aids.co.uk (c) 2014 120,000 25,000 145,000
  33. 33. Purchase (724) and use (725) of materials Inventory of Materials & Supplies Accounts Payable Expenses – Nursing Services Expenses – Other Prof Serv Expenses – General Services Expenses – Fiscal Services Expenses – Admin Services Inventory of Materials & Supplies www.study-aids.co.uk (c) 2014 600,000 600,000 170,000 50,000 319,000 8,000 3,000 550,000
  34. 34. Paid Accounts Payable and Salaries & Wages (725) Accounts Payable Cash Expenses Expenses Expenses Expenses Expenses Cash – – – – – 725,000 725,000 Nursing Services Other Prof Serv General Services Fiscal Services Admin Services 1,316,000 828,000 389,000 102,000 65,000 2,700,000 www.study-aids.co.uk (c) 2014
  35. 35. Other Expenses (725) Expenses Expenses Expenses Expenses Expenses Cash – – – – – Nursing Services Other Prof Serv General Services Fiscal Services Admin Services 86,000 79,000 221,000 44,0000 327,000 757,000 www.study-aids.co.uk (c) 2014
  36. 36. Year-end Salary Accrual (725) Expenses – Nursing Services Expenses – Other Prof Serv Expenses – General Services Expenses – Fiscal Services Expenses – Admin Services Accrued Salaries & Wages Payable www.study-aids.co.uk (c) 2014 35,000 21,000 19,000 6,000 2,000 83,000
  37. 37. Principal & interest payment and interest accrual (726) Notes Payable Expenses – Interest Cash Accrued Interest Payable www.study-aids.co.uk (c) 2014 20,000 8,000 27,000 1,000
  38. 38. Interest earned during the year on unrestricted investments (726) Cash Accrued Interest Receivable Nonoperating Gains – Unrestricted Investment Income www.study-aids.co.uk (c) 2014 3,000 2,000 5,000
  39. 39. Unrestricted interest earned on restricted investments (726) Cash Nonoperating Gains – Unrestricted Investment Income www.study-aids.co.uk (c) 2014 24,000 24,000
  40. 40. Donated professional services (726) Expenses – Nursing Services Expenses – Other Prof Serv Nonoperating Revenues – Donated Services 17,000 3,000 20,000 Donated services are objectively valued (fair value). Recognize expense and donation in same entry. Note the net effect on net assets: zero. www.study-aids.co.uk (c) 2014
  41. 41. Other revenues collected (726) Cash Revenues – Cafeteria Sales Revenues – TV Rentals Revenues – Medical Record Transcript Fees Revenues – Vending Machine Commissions www.study-aids.co.uk (c) 2014 95,000 45,000 30,000 15,000 5,000
  42. 42. General contribution (726) Cash Nonoperating Gains – General Contribution www.study-aids.co.uk (c) 2014 100,000 100,000
  43. 43. Bonds issued for construction and debt retirement (726) Cash – Construction Cash – Debt Service Bonds Payable www.study-aids.co.uk (c) 2014 2,900,000 100,000 3,000,000
  44. 44. Mortgage payment and contract bill received & paid (727) Mortgage Payable Cash Construction in Progress Cash – Construction Contracts Payable – Retained Percentage www.study-aids.co.uk (c) 2014 100,000 100,000 2,500,000 2,375,000 125,000
  45. 45. Sale of Equipment (727) Cash Accumulated Depreciation – Equipment Nonoperating Losses – Disposal of Capital Assets Equipment www.study-aids.co.uk (c) 2014 30,000 60,000 10,000 100,000
  46. 46. Board designation (727) Investments – Designated for Plant Replacement Investments www.study-aids.co.uk (c) 2014 100,000 100,000
  47. 47. Error correction (727) Equipment Expenses – Gen Services 5,000 5,000 An earlier expense entry had included equipment that should have been capitalized. www.study-aids.co.uk (c) 2014
  48. 48. Record Depreciation (727) Expenses – Nursing Services Expenses – Other Prof Serv Expenses – General Services Expenses – Fiscal Services Expenses – Admin Services Accumulated Depreciation – Land Improvements Accumulated Depreciation – Buildings Accumulated Depreciation – Equipment www.study-aids.co.uk (c) 2014 150,000 80,000 40,000 12,000 18,000 5,000 170,000 125,000
  49. 49. Accrue interest (727) Expenses – Interest Accrued Interest Payable www.study-aids.co.uk (c) 2014 30,000 30,000
  50. 50. Restricted government grant received (728) Cash – Restricted for Specific Programs Deferred Grant Revenues 400,000 400,000 Grant is to defray specific operating costs. Must be used within 18 months or be returned. www.study-aids.co.uk (c) 2014
  51. 51. Purchase of investments with grant (728) Investments – Restricted for Specific Programs Cash – Restricted for Specific Programs www.study-aids.co.uk (c) 2014 300,000 300,000
  52. 52. Investments mature at par Cash – Restricted for Specific Programs Investments – Restricted for Specific Programs www.study-aids.co.uk (c) 2014 (728) 150,000 150,000
  53. 53. Earnings on restricted investments (728) Cash – Restricted for Specific Programs Nonoperating Gains – Restricted Investment Income www.study-aids.co.uk (c) 2014 15,000 15,000
  54. 54. Change in fair value (728) Investments – Restricted for Specific Programs Nonoperating Gains – Restricted Investment Income www.study-aids.co.uk (c) 2014 500 500
  55. 55. Donation – principal to remain intact (728) Investment – Endowment Contributions to Permanent Endowments www.study-aids.co.uk (c) 2014 200,000 200,000
  56. 56. Unrestricted income from endowment investments (728) Cash Nonoperating Gains – Unrestricted Investment Income www.study-aids.co.uk (c) 2014 45,000 45,000
  57. 57. Restricted earnings (729) Cash – Restricted for Plant Replacement & Expansion Nonoperating Gains – Restricted Investment Income 15,400 15,400 Earnings are from investments for plant replacement and expansion. Earnings are restricted for plant replacement and expansion. www.study-aids.co.uk (c) 2014
  58. 58. Change in value of restricted investments (729) Investments – Restricted for Plant Replacement & Expansion Nonoperating Gains – Restricted Investment Income 600 600 As with the interest earnings in the previous entry, the change in fair value is also restricted for plant replacement and expansion. www.study-aids.co.uk (c) 2014
  59. 59. Sold investments (729) Cash – Restricted for Specific Programs Cash Investments – Restricted for Specific Programs Nonoperating Gains – Unrestricted Investment Income 165,000 5,000 165,000 5,000 Investments cost $165,000 and were sold for $170,000. Gains are available for unrestricted use. www.study-aids.co.uk (c) 2014
  60. 60. Allowable costs under Federal grant (729) Deferred Grant Revenues Revenues – Federal Grant 200,000 Cash Cash – Restricted for Specific Programs 200,000 200,000 200,000 Since allowable costs were included in previously recorded expenses, grant revenues have been earned. Grant revenues had been recorded as deferred when grant was received. Cash is reclassified since earlier expenses had been paid from unrestricted cash. www.study-aids.co.uk (c) 2014
  61. 61. Equipment purchase Equipment Cash – Restricted for Plant Replacement & Expansion www.study-aids.co.uk (c) 2014 18,000 18,000
  62. 62. Investment earnings (729) Cash – Restricted for Specific Programs Nonoperating Gains – Restricted Investment Income www.study-aids.co.uk (c) 2014 25,000 25,000
  63. 63. Government Hospital Financial Statements Balance Sheet  Statement of Revenues, Expenses, and Changes in Net Assets  Statement of Cash Flows  www.study-aids.co.uk (c) 2014 1 2 3
  64. 64. Balance Sheet  May use either of two formats:  Balance Sheet – used in this example  Net Assets used in earlier examples  Classified presentation more common in Balance Sheet format, but may be used in Net Asset format as well www.study-aids.co.uk (c) 2014
  65. 65. Operating Statement    Same format used for C&Us and Enterprise Funds – no optional formats for this statement Revenues reported at net Other points  Distinguishing different revenue sources  Distinguishing between revenues & gains  Distinction between expenses & losses www.study-aids.co.uk (c) 2014
  66. 66. Statement of Cash Flows Use of the direct method required  No distinction made between unrestricted and restricted cash flows  www.study-aids.co.uk (c) 2014
  67. 67. Nongovernment NFP Hospital Reporting   Must follow FASB requirements Similarities with government reporting found with  Patient service revenues  Charity services  Deductions from revenues, except for bad debts  Premium fee revenues  Other revenues  Most expenses  Assets limited as to use  Assets restricted for noncurrent purposes, such as endowment or plant purposes www.study-aids.co.uk (c) 2014
  68. 68. Key Reporting Differences      Use of net asset classifications from FASB #117 Use of Statement of Operations and separate Statement of Changes in Net Assets Reporting changes in net asset classifications Reporting net assets released from restrictions Differences in SCF www.study-aids.co.uk (c) 2014
  69. 69. Nongovernment NFP Hospital Financial Statements Balance Sheet  Statement of Operations  Statement of Changes in Net Assets  Statement of Cash Flows – example shown in textbook is direct method; most NFP hospitals use the indirect method, so it is shown here  www.study-aids.co.uk (c) 2014 A B C D

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