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Essentials of Accounting for Governmental and Not-for-Profit Organizations

Essentials of Accounting for Governmental and Not-for-Profit Organizations. Chapter 12: Accounting for Hospitals and Other Care Providers. Overview of Chapter 12. Who has standard setting authority? What types of entities are included? General reporting principles Illustrative transactions

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Essentials of Accounting for Governmental and Not-for-Profit Organizations

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  1. Essentials of Accounting for Governmental and Not-for-Profit Organizations Chapter 12: Accounting for Hospitals and Other Care Providers

  2. Overview of Chapter 12 • Who has standard setting authority? • What types of entities are included? • General reporting principles • Illustrative transactions • Example Financial Statements

  3. Standard setting authority • GASB - Category A GAAP • Authority over government related hospitals • FASB - Category A GAAP • Private nonprofit hospitals • Major FASBs 93, 116,117, 124 • Business oriented hospitals • Other FASBs • AICPA Audit Guide for Health Care Orgs.-Level B GAAP for government related, private NFPs, and business oriented

  4. Hospital accounting principles • Financial Statements: • Balance Sheet, Stmt of Operations, Stmt of Changes in Equity, Stmt of Cash Flows and Notes • Private NFPs and Government related entities must provide a Performance Indicator such as Operating Income which excludes • Equity transfers, Restricted Contributions, Contributions of LT assets, Most unrealized gains and losses, Restricted investment returns, Extraordinary items • Most must use classified balance sheet • Patient service revenues shown net of contractual adjustments; separate out capitation agreement revenues

  5. Hospital principles cont’d • Patient service revenue excludes charity care • Operating revenues often classified as • Net patient service revenues, premium (capitation) revenue, and Other Revenue (parking lot, gift shop, cafeteria, and tuition). • Unrestricted gifts may be treated as Operating or Nonoperating depending on policy. • Expenses may be by object of expenditure or function, but notes must show functions. Minimum functions: health care and general/admin.

  6. Hospital principles cont’d • The term restricted used only for donor restrictions; Assets whose use is limited is used to indicate board or bond covenant restrictions. • FASB vs. GASB equity categories • FASB: unrestricted, temporarily restricted, permanently restricted • GASB: unrestricted, restricted, capital assets net of related debt

  7. Example hospital entries • #1 & 2: Cash and accrual of patient service revenue; contra revenue account for contractual adjustments • #2a&b: Writing off prior bad debts against allowance and establishing this year’s bad debt expense as part of General Services Expense • #3: Collection of capitation agreement and other revenues • #4: Nonoperating revenues from investments and gifts

  8. Example hospital entries • #5: Income from assets whose use was limited • #6: Recording supplies and accrued expenses • #7a & b: Allocation of various expenses including depreciation to functional areas and reclassification from temporarily restricted to unrestricted • #8a&b: Collections of previously accrued pledges and reclassification from temporarily restricted to unrestricted • #9: Purchase of long-term assets; release of restriction • #10: Recording cash collections and pledges that are temporarily or permanently restricted

  9. Example hospital entries • #11: Collection of prior pledges; write-off of those uncollectible • #12: Payments on long-term term; reclassification of next year’s payments to short term • #13-16: Investments entries -- income, sales, purchase, year end market value adjustments • #17-20: Closing entries: unrestricted (designated separate), temporarily and permanently restricted

  10. Comparison of Financial Statements • Statement of Operations: • Similar for NFP, Government, Business • Statement of Changes in Net Assets: • NFP must show details of net changes for unrestricted, temporarily and permanently restricted

  11. Comparison of Financial Statements • Statement of Financial Position: • Classified, similar for NFP, Government, Business except for equity section • NFP: unrestricted, temporarily and permanently restricted • Government: unrestricted, restricted, invested in capital assets net of debt • Business: Contributed Capital and Retained Earnings • Statement of Cash Flows: • Bus and NFP, 3 sections; Governmental, 4 sections

  12. Slides prepared by • Dr. Louella Moore • Arkansas State University

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