Chap012 - Chapter 12 - Accounting for Hospitals and Other...

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Chapter 12 - Accounting for Hospitals and Other Health Care Providers C HAPTER 12 Accounting for Hospitals and Other Health Care Providers 12-1. A . C HARITY C ARE : C HARITY CARE OCCURS WHEN A HOSPITAL OR OTHER HEALTH CARE ORGANIZATION PROVIDES CARE TO INDIVIDUALS WHERE THERE IS NO EXPECTATION OF COLLECTION . S ERVICE CHARGES FOR CHARITY CARE ARE NOT RECORDED AS REVENUE . T HE EXPENSES ASSOCIATED WITH THE CARE ARE INCLUDED IN OPERATING EXPENSES . B . B AD D EBT : T HE CURRENT PERIOD PROVISION FOR UNCOLLECTIBLE ACCOUTNS ( I . E . B AD DEBT EXPENSE ) REPRESENTS A COST OF EXTENDING CREDIT . I T IS CLASSIFIED AS AN OPERATING EXPENSE IN THE S TATEMENT OF O PERATIONS . c. C ONTRACTUAL A DJUSTMENTS : C ONTRACTUAL ADJUSTMENTS ARISE WHEN THIRD PARTY PAYORS ( INSURANCE COMPANIES , M EDICARE , OR M EDICAID ) PAY A HEALTH CARE ORGANIZATION LESS THAN THE CUSTOMARY AND NORMAL CHARGE FOR SERVICES PROVIDED TO A PATIENT COVERED BY THE INSURANCE OR GOVERNMENT PROGRAM . C ONTRACTUAL ADJUSTMENTS ARE ESTIMATED AT THE TIME OF THE SERVICE AND ARE REPORTED AS A CONTRA - REVENUE IN DETERMINING N ET P ATIENT S ERVICE R EVENUE IN THE S TATEMENT OF O PERATIONS . 12-2. ( A ) W HEN PROPERTY , PLANT AND EQUIPMENT IS ACQUIRED USING UNRESTRICTED RESOURCES , THE PROPERTY , PLANT AND EQUIPMENT COULD BE RECORDED AS FIXED ASSETS IN EITHER THE UNRESTRICTED OR THE TEMPORARILY RESTRICTED CLASS . I F IT IS RECORDED IN THE TEMPORARILY RESTRICTED CLASS , IT WILL BE NECESSARY TO RECLASSIFY NET ASSETS TO THE TEMPORARILY RESTRICTED NET ASSETS IN THE AMOUNT OF ACQUISITION COST . ( B ) W HEN PROPERTY , PLANT AND EQUIPMENT IS ACQUIRED USING TEMPORARILY RESTRICTED RESOURCES , THE HEALTHCARE ENTITY COULD RECLASSIFY THE ENTIRE ACQUISITION PRICE AND RECORD THE PROPERTY , PLANT AND EQUIPMENT AS UNRESTRICTED NET ASSETS AND DEPRECIATE . T HE UNDEPRECIATED COST WOULD BE INCLUDED IN THE BALANCE OF UNRESTRICTED NET ASSETS . A LTERNATIVELY , THE ENTITY COULD RECORD THE PROPERTY , PLANT AND EQUIPMENT AS TEMPORARILY RESTRICTED AND RECLASSIFY NET ASSETS IN ACCORDANCE WITH THE DEPRECIATION SCHEDULE AND CHARGE DEPRECIATION AS AN UNRESTRICTED EXPENSE . I N THIS CASE , THE UNDEPRECIATED COST WOULD BE INCLUDED IN THE TEMPORARILY RESTRICTED NET ASSET BALANCE . 12-1
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Chapter 12 - Accounting for Hospitals and Other Health Care Providers 12-3. OPERATING REVENUES OPERATING EXPENSES OTHER INCOME Increase Decrease Increase Decrease Increase Decrease 1 2 3 X 4 X 5 6 X 7 X 8 X 9 X X 10 X* X* X* Either answer is correct depending on the organization’s policy and past practice. 12-4. A. Nongovernmental not-for-profit health care entities have category (A) GAAP defined by the FASB, which has passed several standards that apply specifically to not-for-profit organizations, such as Statements 116, 117, 124, and 136. Category (B) GAAP is contained in the AICPA Health Care Guide. These sources provide that three classes of net assets be used: Permanently Restricted, Temporarily Restricted, and Unrestricted. Certain rules have been passed for contributions, including the requirement that only
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Chap012 - Chapter 12 - Accounting for Hospitals and Other...

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