Introduction The budgeting process is an attempt to establish a set of realistic standards for operating a health care organization. The budget is a set of specific objectives for the year ahead. The finance system provides the cost and revenue data and sometimes assists with other measures. Formulating a budget is the beginning of the process. Every budgeting system must contain provisions for preparing the budget and implementing a system. This system must include coordination, control, follow-up, and maintenance. An effective budget must be tailored to the organization’s specific needs. The budget must be comprehensible and attainable. There should be innovation and flexibility to meet unexpected occurrences. A health care organization’s budget provides a fully detailed description of expected financial transactions, by accounting period, for at least an entire year. The review of future expectations is useful in making smooth progress toward financial goals. The major parts of an annual budget address operational and financial planning needs. The operating budgets are made up of the following: · Expenditure or cost budgets anticipated by reporting period and responsibility center: Costs are often identified as fixed, semi-variable, or variable. Anticipated volumes of demand or output are incorporated into cost budgets. · Revenue budgets reflect the receipt of income from services rendered. Standard gross revenue accounting reports a profit increase to the responsibility center, creating an incentive for productive activity. · Income and expense budgets consist of expected net income and expenses incurred by the organization. · Financial budgets embrace the effects of the organization’s financial decisions. These plans include a budgeted balance sheet that shows the effects of planned operations and capital investments on assets, liabilities, and equities. The plans also include a cash budget that forecasts the flow of cash and other funds in the business. · Cash budget is for cash planning and control, presenting expected cash inflow and outflow for a designated time period. The cash budget helps management keep cash balances in a reasonable relationship to needs. You must know how much cash will flow in and out of the organization. You must also have an idea when these will take place. The cash budget is primarily used to spotlight periods of too little or too much cash rather than for continual control. · Capital budgets are lists of proposed capital expenditures and new or significantly revised programs, with the implications for the operating and cash budgets by period and responsibility center. The capital budgets include all anticipated expenditures for facilities and equipment and for sources of funds. Cost accounting is the process of determining the full and incremental costs of providing services and goods to patients and customers. To determine the full cost of providing a service, you must ensure that all costs are in.

1. Introduction
The budgeting process is an attempt to establish a set of
realistic standards for operating a health care organization. The
budget is a set of specific objectives for the year ahead. The
finance system provides the cost and revenue data and
sometimes assists with other measures.
Formulating a budget is the beginning of the process. Every
budgeting system must contain provisions for preparing the
budget and implementing a system. This system must include
coordination, control, follow-up, and maintenance. An effective
budget must be tailored to the organization’s specific needs.
The budget must be comprehensible and attainable. There
should be innovation and flexibility to meet unexpected
occurrences.
A health care organization’s budget provides a fully detailed
description of expected financial transactions, by accounting
period, for at least an entire year. The review of future
expectations is useful in making smooth progress toward
financial goals.
The major parts of an annual budget address operational and
financial planning needs. The operating budgets are made up of
the following:
· Expenditure or cost budgets anticipated by reporting period
and responsibility center: Costs are often identified as fixed,
semi-variable, or variable. Anticipated volumes of demand or
output are incorporated into cost budgets.
· Revenue budgets reflect the receipt of income from services
rendered. Standard gross revenue accounting reports a profit
increase to the responsibility center, creating an incentive for

2. productive activity.
· Income and expense budgets consist of expected net income
and expenses incurred by the organization.
· Financial budgets embrace the effects of the organization’s
financial decisions. These plans include a budgeted balance
sheet that shows the effects of planned operations and capital
investments on assets, liabilities, and equities. The plans also
include a cash budget that forecasts the flow of cash and other
funds in the business.
· Cash budget is for cash planning and control, presenting
expected cash inflow and outflow for a designated time period.
The cash budget helps management keep cash balances in a
reasonable relationship to needs. You must know how much
cash will flow in and out of the organization. You must also
have an idea when these will take place. The cash budget is
primarily used to spotlight periods of too little or too much cash
rather than for continual control.
· Capital budgets are lists of proposed capital expenditures and
new or significantly revised programs, with the implications for
the operating and cash budgets by period and responsibility
center. The capital budgets include all anticipated expenditures
for facilities and equipment and for sources of funds.
Cost accounting is the process of determining the full and
incremental costs of providing services and goods to patients
and customers. To determine the full cost of providing a
service, you must ensure that all costs are included. For
instance, a number of departments that do not provide direct
patient or customer services are essential to the institution’s
operation. The burden of these departments must be allocated to
the using departments. In reality, to make sound management
decisions, costs must be known at the procedure, patient, and
department levels.
Costs may be determined based on historical methods of
charging for services, such as patient days and procedures.
Finally, determine full and incremental costs within the

3. organization’s structure. You must know the cost of each
procedure and major product line, as it is essential to financial
stability. Without accurate cost information, health care
organizations are at financial risk when making decisions
concerning current operations and long-term plans. The cost of
providing services is one of many considerations. Accurate
costing, however, has been a major missing component of the
decision-making process.
In identifying direct and indirect costs, rely initially on the
hospital’s traditional distinction between revenue-producing and
nonrevenue-producing departments. Costs directly assigned to
revenue-producing departments are direct costs, and hospital
expenses recorded in nonrevenue-producing departments are
indirect costs.
Summary
Budgeting deals with expectation setting and achievement, the
basic engine for continuous improvement and competitive
operation, and rests on effective managerial accounting and
financial planning. After this week, you will identify various
types of budgets used in health care organizations. You will
have a better understanding of the budgeting process, from
creation to implementation. In addition, you will be able to
identify direct and indirect costs and their importance in health
care organizations.
*****MustCITE/ REFERENCE EACH QUESTION******
*****Word count must be 180 to 200 words********
*****Relate the material to health financial******
*****Textbook: Baker, J.J., & Baker, R.W. (2014). Health Care
Finance: Basic Tools for nonfinancial managers (4th ed.).
Sudbury, MA: Jones & Bartlett.*******
Question 1
Why is effective management of cost in a health care
organization important? What may you do as a health care

4. financial manager to evaluate and monitor cost?
Question 2
Chap 8- Do you or your supervisor have to deal with
depreciation expense? If so, please describe the circumstances.
Have you ever had to compute depreciation expense? If so
please describe the circumstances.
Question 3
What would you consider when reviewing a budget? Under what
conditions is a flexible budget more effective than a forecast
budget?
Question 4
The concept of forecast and flexible budgets can be difficult to
grasp initially. In my experience, when constructing a corporate
budget, whether you choose a forecast methodology or a
flexible methodology, you start with the same assumptions
about revenue, expenses, the future business environment, etc.
Initially, the two methodologies would develop the exact same
budget. The difference between them starts to appear as the
budget period goes on. A forecast budget will remain static
throughout the period, i.e. no changes will be made (Baker &
Baker, 2014). However, a flexible budget may change based on
the results of previous months (Baker & Baker, 2014). For
example, if your facility saw increased patients over the first
quarter of a year a flexible budget may have its expenses and
revenue adjusted for the remaining three quarters of the year. A
key principle to keep in mind is that a flexible budget can only
be updated after changes have occurred, e.g. you cannot "flex"
current funds to cover deficits in other departments. With this
as your foundation, in what circumstances might a flexible

5. budget be more effective?
Baker, J.J., & Baker, R.W. (2014). Health Care Finance: Basic
Tools for nonfinancial managers (4th ed.). Sudbury, MA: Jones
& Bartlett.
Question 5
Experience has taught me that forecast budgets are often more
effective in a broader set of circumstances than flexible
budgets. This is because a flexible budget is not exactly what its
name indicates. A flexible budget is a budget that can be
changed as the business environment changes and is only
effective in unpredictable environments (Baker & Baker, 2014).
This is because a flexible budget can only be updated after
changes in revenue and expense have occurred and only for the
future period, i.e. if you expenses increased last quarter you can
change the budget for the remaining quarters. A flexible budget
cannot be "flexed" to cover current or past changes.
Additionally, the work necessary to maintain a flexible budget
is significant - not only within the finance department. I was
once involved in a situation where a department head, based on
their current budget, was understaffed and finishing the
interview process - making offers to three good candidates.
Following an update to the flexible budget, the department head
was now overstaffed by four FTEs. This meant that the three
offers had to be withdrawn and that the department head had to
layoff four additional staff members. This sort of management
workload is common in flexible budget environments. With this
scenario in mind, do you think that a forecast budget is more
effective than a flexible budget? Why or why not?

6. Baker, J.J., & Baker, R.W. (2014). Health Care Finance: Basic
Tools for nonfinancial managers (4th ed.). Sudbury, MA: Jones
& Bartlett
Question 6
Chap 15- Do you believe your organization uses a flexible or a
static budget? Why do you think so? If you reviewed a budget at
your workplace, do you think the major increases and decreases
could be explained?
Question 7
If you were assigned to prepare a capital expenditure budget
request, what two
people would you most want to have on your team? Why? How
would you expect to
use them?
Question 8
The local school system asks you to submit a proposal to do
pre-employment physicals for 60 bus drivers. What financial or
accounting information do you need to submit the proposal?
What will you charge the school system?

7. PAGE