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3.1a what is a stakeholder? b. What stakeholders are most interested in the financial condition of a healthcare provider? c.

What is the goal of financial accounting? 3.1a. Stake holders are those that have financial interest of the business and are concerned with its economic status and financial condition; hence, making predominant use of the financial accounting information. b. The stakeholders most concerned with the financial condition of a health care provider are the investors, managers, staff physicians, employees, suppliers, creditors, patients, and the community. c. The goal of financial accounting is to provide information to stakeholders majorly the investors, managers and board of trustees in order for them to make financial decisions 3.2 a. The Generally Accepted Accounting Principles (GAAP) are a combination of authoritative standards and generally accepted ways of reporting and recording financial accounting information. b.The purpose of Generally Accepted Accounting Principles (GAAP) is to put in place standard guide lines to guide the preparation and presentation of financial statements in order to ensure financial reporting is transparent and consistent across different organizations. c. The organizations involved in establishing GAAP are United States Securities and Exchange Commission (SEC), Financial Accounting Standards Board (FASB), American Institute of Certified Public Accountant (AICPA), and Government Accounting Standards Board (GASB). 3.3 Accounting entity: This defines the specific areas of business financial activity to be included in the financial statements; hence, the accounting entity establishes boundaries to indicate the business area that is being reported. Going concern: This is the assumption that accounting entity will operate as a going concern and therefore have an indefinite lifecycle. In order words, assets should be evaluated based on their contribution to an ongoing business as opposed to their current fair market value. Accounting Period: This is the length of time over which organizations manager or investors want to evaluate operational and financial results. Monetary Units: This provides the general basis by which economic events are measured. In the United States, the monetary unit is the dollar; hence, all economic event are measured or expressed in dollar terms. Historical costs: This principle requires organizations to report the values of most assets based on acquisition costs rather than fair market value. Revenue recognition: The revenue recognition principle requires revenue to be recognized in the period in which they were realizable (the price was known) and earned (service was provided). Cost Matching: This principle requires that an organizations expense be matched as much as possible to the revenues to which they are related. Hence, after the revenues have been allocated to a particular

accounting period all expenses associated with producing those revenues should be matched to the same period. Full disclosure: Financial statements must contain a complete picture of economic events of the business. The full disclosure principle ensures financial statements include as much information as possible in order to ensure they are no omission and the information is not misleading. Objectivity: The information reported in financial statements must to as much as possible be based on the objective and verifiable data. Thus, financial statements must be supported by documentation such as invoices and contracts. Materiality: This ensures financial statements are manageable by reporting separately information that are important to the financial and operational status of an organization. Consistency: This involves the application of standard guidelines to a single accounting entity over time Conservatism: This is the principle of not overstating the business financial condition. 3.4 Difference between cash and accrual accounting. Cash accounting: Economic events are recognized and put into financial statements when the financial transaction occurs. Cash accounting records the actual flow of money into and out of a business. There are two advantages to cash accounting: first, it is simple and easy to understand. No complex accounting rules are required for preparation of financial statements. Secondly, cash accounting is closely aligned to tax purposes and it is easy to translate cash accounting statements into tax filing data. Because of these advantages, 80 percent of all medically practices, especially small ones make use of cash accounting. However, cash accounting has disadvantages, primarily due to the fact it that in its pure form it does not present information on revenues owed to a business by payers or the business existing payment obligations. Accrual Accounting: economic events that create financial transaction, rather than the transaction itself, provides the basis for the accounting entry. When applied to revenues, the accrual concept implies that revenue earned does not necessarily correspond to the receipt of cash. Earned revenues is recognized in financial statements when service has been provided that creates payment obligation on the part of the payer, rather than, when the payment was actually received. If payment is made by patient, the revenue is received in form of cash at the time the service was rendered and the revenue is recorded at the same time regardless of whether cash or accrual accounting is used. However, in most cases, the bulk of payment is not received until later. If the revenue for a service rendered is received in cash within the same accounting period, the revenue is reported as cash: however, if the revenue is recorded in one accounting period and payment does not occur until the next period, the revenue reported has not been collected.

3.5 Format of Income statement - If an income statement contain two or three years of data, the most recent year is presented first - The title section tells us that the income statements are set up annually

- The balance sheet reports the business financial position at a single in time while the income statement contains operational results over a specified period of time. - Revenues: This represents both cash received and the unpaid obligation of payers for services provided during each year presented. - Expenses: This can be classified as operating or capital. Operating expenses consist of salaries, supplies, insurance, and other cost directly related to providing services. Capital cost are the cost associated with the buildings and equipment used by the organization, such as depreciation, lease, and interest expenses.

The organizations profitability is determined by subtracting expenses from revenues on the income statement. 3.6a Difference between gross revenue and net revenues. - Gross revenue: This represents the total amount generated from services or goods purchased by the patient or client at the listed or standard price. The gross price for services is usually found in the charge description master file which also contains the charge code Net revenue: This represents the residual from the gross revenues after the discount have been deducted from the total. The difference between charge master prices and actual reimbursement amounts are incorporated before the revenue are recorded in the net patient service revenue line. Charity care services are also not reflected on the net revenue. 3.6b. The difference between patient service revenue and other revenue