Presentation on theme: "N. Roufaiel1 Healthcare Fund Accounting Funds Accounting Concept Funds Groups Characteristics of Fund Groups Revenue Recognition and Classifications Expenses."— Presentation transcript:
N. Roufaiel1 Healthcare Fund Accounting Funds Accounting Concept Funds Groups Characteristics of Fund Groups Revenue Recognition and Classifications Expenses Recognition and Classifications Financial Statements of Fund Entities. Journal Entries.
N. Roufaiel2 Healthcare Fund Accounting Fund Concepts –A fiscal & accounting entity with a self- balancing set of accounts, recording cash & other financial resources.. Liabilities.. residual equities balances and changes therein.. Funds are segregated for carrying on specific activities.. Following specific Regulations.. Restrictions.. Limitations.
N. Roufaiel3 Healthcare Fund Accounting: Governmental & Nonbusiness Organizations Governmental Funds: are those used to account for most general government functions. Funds are accounting segregation of financial resources and uses with their own assets, liabilities and the difference between them isFund Balance. It focuses on determination of financial position and changes therein, rather than income determination. The main operating statement is The Statement of Revenues, Expenditures, and Changes in Fund Balances..Includes General Funds, Special Revenue Funds, Capital Projects Funds, Debt Service Funds. Proprietary Funds: are used to account for those ongoing activities that are similar to those of a business entity. Net income and capital maintenance are measured. This Fund includes: Enterprise Funds and Internal Service Funds. Governmental non-for- profit hospitals follow Proprietary Funds. GAAP & GASB pronouncements. Fiduciary Funds: are used to account for assets held by the governmental unit in a trustee capacity or as an agent for individuals, private organizations, and other governmental units and funds. Custodial focus. Fund Category includes Trust Funds and Agency Funds.
N. Roufaiel4 Healthcare Fund Accounting Governmental Funds –General Funds: GF is the entity used to account for all unrestricted resources except those required to be accounted for in another fund. Revenues are recognized in the period in which they become susceptible to accrual. Expenditures are decreases in financial resources. Under modified accrual basis, expenditures are normally recorded when related liability is incurred.
N. Roufaiel5 Healthcare Fund Accounting Proprietary Funds: Non-for-profit Hospitals and Voluntary Health and Welfare Organizations follow this group of funds. Full accrual accounting procedures are applicable. It has revenues and expenses, not expenditures. Fixed assets acquired and long-term liabilities incurred by an EF are fund fixed assets and fund long-term liabilities. GASB codification permits the use of enterprise fund accounting for any service for which there is a significant potential for financing through user charges. The initial financing of an enterprise fund is that the governmental unit makes a capital contribution (transfer to general fund) or provide a long-term advance to the enterprise fund and future operations are expected to cover all costs, incliding depreciation on fixed assets so operations can continue without further capital contribution.
N. Roufaiel6 Healthcare Fund Accounting Required Financial Statements for EF: –Balance Sheet –Statement of Revenues and Expenses –Statement of Changes in Fund Balance (Retained Earnings Statement) –Statement of Cash Flows Enterprise Funds Do Not Pay property taxes or income taxes and does not have capital stock or paid-in capital and in place of owners equity is a Fund Equity Section. It may also include transfer from and to General Funds. Statement of Functional Expenses are required to be reported by Voluntary Health & Welfare Organizations.
N. Roufaiel7 Healthcare Fund Accounting Hospitals & Healthcare Organizations usually follow Proprietary Funds of Governmental Accounting and nonprofit organizations. In proprietary Funds, activities are accounted for as private sector profit- seeking business enterprise which uses accrual basis and calculate depreciation.
N. Roufaiel8 Healthcare Fund Accounting Characteristics of Nonbusiness Organizations: –Lack of Profit motive –Resources providers do not expect economic benefits –No ownership that can be sold –No performance indicators but measurement of inflows and outflows of Resources.. Services.. Efforts.. Accomplishments.. And stewardship. –Restrictions may be imposed on uses of resources –Dependence on legislative authority (if it is government)
N. Roufaiel9 Healthcare Fund Accounting Sources of Accounting for Hospitals & Healthcare Providers AICPA: American Institute of Certified Public Accountants Audits of Providers of Health Care Services, 1990): applies on investor-owned & nongovernmentally-owned not-for-profit healthcare entities and governmentally-owned that uses enterprise funds accounting. AHA: American Hospitals Association HFMA: Healthcare Financial Management Association FASB: Responsible for investor-owned and nongovernmentally owned not-for-profit healthcare entities GASB: Responsible for state and local governmentally owned healthcare entities.
N. Roufaiel10 Healthcare Fund Accounting Audits of all healthcare providers should follow GAAP except when such principles are not applicable: –Clinics, medical group practices, individual practices, ambulatory organizations, contiuing care retirement communities (LTC), health maintenance organizations and other prepaid healthcare plans, home health agencies, nursing homes, organizations over-sighting entities providing healthcare services, …
N. Roufaiel11 Healthcare Fund Accounting Characteristics of Accounting for Healthcare Entities: –Uses of accrual basis of accounting –Revenues classified by sources –Expenses classified by functions –Accounting separately for restricted and restricted funds –Restricted resources are deferred until spent –Raised fund is recorded net of expenses –Resources received are recorded as fund balance to be closed at the end of period –In hospitals, expenses are deducted directly from fund balance, if restricted, without using an expense account –Pledges are not enforceable. They are required to be recorded by hospitals –Donated services are not recorded. If recorded, an offset amount to be recognized as expenses
N. Roufaiel12 Healthcare Fund Accounting Balance Sheet Unrestricted GF Funds: –Current Assets –Other Assets –Current liabilities –Long-term Liabilities Restricted Funds: Specific Purpose Funds (Assets Liabilities and Fund Balance) Endowment Fund (Assets, Liabilities and Fund Balance) Plant Replacement & Expansion Fund (Assets, Liabilities and Fund Balance)
N. Roufaiel13 Healthcare Fund Accounting Funds Definition 1. General Funds: Accounts for unrestricted resources, assets with limited use, agency, property, plant and equipment, and related long-term debt. Board designated funds are included. Agency funds are accounted for under general funds but not included in the results of operations. It also includes accounting for debt proceeds if not restricted by the donors.
N. Roufaiel14 Healthcare Fund Accounting Funds Definition 2. Restricted Funds: – 2.A Temporary Restricted: Specific Purpose Funds: restricted by donors for specific operating purpose. Plant Replacement and Expansion Funds: donors and third party restricted use resources for replacement of P, P & E. Term Endowment Funds: restricted by donors for a period of time or until restrictions are satisfied. –2. B Permanently Restricted: Endowment or Pure Endowment Funds account for resources that are restricted indefinitely by endowment agreement, permanently restricted as to principal.
N. Roufaiel15 Healthcare Fund Accounting Statement of Revenues & Expenses of General Funds Patient Service Revenue: –Routine Care –Nursing –Delivery & Labor Room –Emergency Room –Recovery Rooms –Medical & Surgical Supplies –Laboratory-Clinical & Pathology –Radiation Therapy –Pharmacy –Anesthesiology –Physical Therapy –Respiratory therapy –Ambulance –Speech Therapy.
N. Roufaiel16 Healthcare Fund Accounting Statement of Revenues & Expenses of General Funds –Other Operating Revenues Research Grants (not recognized until spent) Tuition from Medical & Educational Workshops Miscellaneous: income from gift shop, donated medicine and supplies, parking rental,.. –Nonoperating Gains: Investment Income from unrestricted Unrestricted gifts and grants Unrestricted income from endowment Gains on sale of plant assts Rental from property not used in operations Donated services –Charity Care: Free services to qualified patients is excluded from both patients revenue and expenses. –Employees & contractual allowances are not expenses but revenue deductions.
N. Roufaiel17 Healthcare Fund Accounting: Journal Entries Sample Journal Entries: The following describes activities taken by Vassar Hospital non-for-profit Healthcare Organization: *Patient cash charges $1,800,000 *Allowances charges reduction by Medicare & insurance companies $500,000 and employees and their families courtesy discount $500,000 Expected Uncollectibles/Bad Debts $10,000
N. Roufaiel18 Healthcare Fund Accounting: Journal Entries GF Accounts receivable 1,800,000 Patient service revenue 1,800,000 Contractual allowances 500,000 Courtesy allowances 500,000 Accounts receivable 1,000,000 Provision for bad debts10,000 Allowances for uncollectibles10,000
N. Roufaiel19 Healthcare Fund Accounting: Journal Entries Funds donated for charity care, cafeteria income, parking income, tuition, workshops $30,000 –Cash 30,000 Other Revenue30,000 Revenues and Expenses are only accounted for in Funds Paid salaries –Salaries- Nursing $30,000 –Salaries- Professional services $10,000 –Salaries- Clerical services $15,000 –Salaries- Administrative services $50,000 Cash $105,000
N. Roufaiel20 Healthcare Fund Accounting: Journal Entries Income and gains from investments, unrestricted endowments, transfer of endowment principal to GF upon the occurance of an events are classified as nonoperating gains. Cash40,000 Nonoperating Gains:Endowment Income14,000 Nonoperating Gains:Unrestricted Gifts26,000 Purchase materials & supplies $100,000 cash and $50,000 on credit. Materials & Supplies Inventory150,000 Cash A/P 50,000
N. Roufaiel21 Healthcare Fund Accounting: Journal Entries Supplies used are $25,000 general services- $60,000 nursing services- $10,000 clerical services- General services 25,000 GF Nursing services 60,000 Clerical services 10,000 Materials & supplies inventory 95,000 Equipment original cost $13,000, Acumulated Depreciations $11,000, sold for $1,500 cash. Cash1,500 Nonoperating loss- Disposal of Equipment 500 A/D – Movable Equipment 11,000 Movable Equipment13,000
N. Roufaiel22 Healthcare Fund Accounting: Journal Entries Vassar Hospital recognizes depreciation on its equipment $70,000, building $40,000 GF Deprec. Exp.-equipment 70,000 Deprec. Exp-Bldg 40,000 A/D Equip. 70,000 A/D Bldg 40,000 Rented a building to the patients families $800,000 GF Cash or A/R 800,000 Nonoperating Gains 800,000
N. Roufaiel23 Healthcare Fund Accounting: Journal Entries
N. Roufaiel24 Healthcare Fund Accounting: Journal Entries Donated marketable securities $600,000 restricted as to income and principal to be used in purchasing of physical therapy equipment This should be accounted for in Plant, Replacement & Expansion funds until the restriction is satisfied; Marketable securities 600,000 Fund balance 600,000 Securities worth $400,000 were sold for $500,000 and the proceeds were used to buy the equipment Cash 500,000 Marketable securities 400,000 Fund Balance 100,000 Transfer to General Fund 500,000 To reclassify from restricted to unrestricted PR&E Transfer to General Funds500,000 Cash500,000 GF: Cash 500,000 Transfer from Plant Replacement & Expansion 500,000 Equipment 500,000 Cash 500,000
N. Roufaiel25 Voluntary Health & Welfare Organizations Use Audit Guide by AICPA. Objective of reporting:To disclose how entitys resources are acquired and used to accomplish the objectives of the organization. Donations are not recorded revenue but support or public support. Cash donation and pledges: pledges are recorded as deferred if they are restricted. Then recorded as support when used. Allowance for uncollectible is recorded Donated securities are recorded with the market value as support, unless restricted to be recorded in the appropriate restricted fund. Restricted income is recorded in restricted fund
N. Roufaiel26 Voluntary Health & Welfare Organizations Review and study the financial statements of Hospitals and Voluntary Health & Welfare Organizations (VHWO) handed-in class Review the reading materials on Healthcare and not-for Profit organizations (Handouts) You are expected to be able to prepare the financial statements and do simple entries and multiple choice regarding income and expenses recognition and funds types and classification..
N. Roufaiel27 Voluntary Health & Welfare Organizations The following are selected transactions for Neighborhood Assistance Fund (VHWO): 1.Received unrestricted cash contributions $4,000 2.Unconditional promises to give $6,000, expected uncollectibles 10% of pledges. Cash4,000 Unrestricted Contributions4,000 Pledges Receivables6,000 Unrestricted Support5,400 Provisions for Unclollectible Pledges 600 All pledges were collected cash Cash 5,400 Provision for Uncollectibles 600 Pledges Receivables6,000
N. Roufaiel28 Voluntary Health & Welfare Organizations When Temporarily Restricted Contribution is used, an entry is made to reclassify it to Unrestricted Assets. –Temp. Rest. Net Asst – Reclassification Out Unrestricted Net Asst – Reclassification In.