Accounting Basics For Healthcare Management! Trivia Quiz

The statement is true because patient service revenues and related receivables do not include charges for charity care services. Charity care services are provided to patients who are unable to pay for their medical treatment, and these charges are not considered as revenue because they are not expected to be collected. Therefore, patient service revenues and related receivables only include charges for services provided to patients who are expected to pay for their care.

Contractual adjustments that occur when there is a difference between the gross charge for patient services and the amount paid by a third-party payer are reported as deductions from gross patient revenue in arriving at net patient revenue. This means that these adjustments are subtracted from the gross patient revenue to calculate the net patient revenue. This is done to accurately reflect the actual amount of revenue generated from patient services after accounting for the contractual adjustments.

The explanation for the answer "False" is that financial reporting standards for hospitals are not established by the FASB (Financial Accounting Standards Board). Instead, hospitals follow specific financial reporting standards that are set by the Governmental Accounting Standards Board (GASB) or the Healthcare Financial Management Association (HFMA). The FASB primarily sets accounting standards for private sector entities. Therefore, the statement that FASB establishes financial reporting standards for all hospitals is incorrect.

Charity services are provided free of charge to those in need, so there are no receivables or revenues to report for these services. Since no money is being collected or earned from charity services, they should not be included in the operating statement. Therefore, the correct answer is that receivables and revenues should not be reported for these services.

A business-type governmental health care organization would be required to prepare all of the above financial statements because each statement provides different information about the organization's financial performance and position. The statement of revenues, expenses, and changes in net position shows the organization's sources of revenue, expenses incurred, and changes in its net position over a specific period. The statement of net position provides a snapshot of the organization's assets, liabilities, and net position at a specific point in time. The statement of cash flows shows the organization's cash inflows and outflows during a specific period, providing information about its operating, investing, and financing activities.

Contractual adjustments are reported as reductions to receivables and revenue for medical services provided to insured patients. This means that when a healthcare provider has a contract with an insurance company, they agree to accept a lower payment than the original charge for the services provided. The difference between the original charge and the contracted amount is considered a contractual adjustment, which reduces the amount the provider expects to receive from the insurance company and also reduces the revenue recognized for those services.

Assets that are set aside under a bond covenant for future debt service payments are reported as assets limited as to use. This means that these assets are restricted and can only be used for a specific purpose, in this case, debt service payments. The organization cannot freely use these assets for any other purpose.

Donated medicines that would typically be purchased by a hospital should be recorded at fair market value and credited to Other Revenue. This is because the donated medicines are not part of the hospital's regular patient service revenue or nonoperating gains. Instead, they are considered as additional revenue from external sources, which is why they are credited to Other Revenue.

The Heart Research Institute would not be considered a health care organization according to FASB standards because it is primarily focused on research rather than providing direct patient care. Health care organizations typically involve the delivery of medical services to patients, which is not the main function of The Heart Research Institute.

Contractual adjustments refer to the reductions in revenue that occur due to negotiated contracts or agreements with third-party payers, such as insurance companies. These adjustments are made to the billed amount and result in a decrease in revenue. Since contra revenue accounts are used to offset or reduce regular revenue accounts, contractual adjustments are properly characterized as a contra revenue. This helps to accurately reflect the net revenue earned by the entity after accounting for these adjustments.

The AICPA Audit and Accounting Guide Health Care Entities is considered category b authoritative guidance. This means that it provides helpful guidance and is widely recognized and used in the industry. It can be used by all types of hospitals, including business-type government hospitals, not-for-profit hospitals, and for-profit hospitals. Therefore, the correct answer is "All of the above."

The fees received by a hospital for a "healthy heart" workshop offered to patients should be reported as "Other revenue" because it is not directly related to patient services or administrative services. This workshop is a separate activity that generates income for the hospital, but it is not considered a patient service or an administrative service. Therefore, it falls under the category of "Other revenue" in the hospital's financial reporting.

The statement of revenues, expenses, and changes in net assets is not a financial statement prepared by nongovernmental not-for-profit health care entities. This statement is typically used by for-profit entities to show the revenues, expenses, and changes in equity over a specific period of time. In contrast, nongovernmental not-for-profit health care entities typically prepare a statement of changes in net assets to show the changes in their net assets, which includes donations, grants, and other sources of funding.

The purpose of reporting a performance indicator is to assist in evaluating the efficiency and effectiveness of a health care organization's operating activities. This allows for a better understanding of how well the organization is performing and helps identify areas for improvement. Comparing the results of not-for-profit and for-profit organizations is not mentioned in the explanation.

Excess margin would be most useful for evaluating the financial profitability of a not-for-profit health care organization because it represents the amount of revenue that exceeds the expenses of the organization. This indicates how efficiently the organization is managing its resources and generating surplus funds, which can be reinvested in improving the quality of healthcare services or expanding the organization's reach. It provides a clear measure of financial profitability specific to not-for-profit healthcare organizations, unlike other ratios such as current ratio or debt-to-capitalization which may not accurately capture the financial performance of such organizations.

Charity service and bad debts in a public hospital that follows business-type accounting are reported differently. Charity service is disclosed in the notes to the financial statements, indicating that it is not directly deducted from revenue. On the other hand, bad debts are reported as a deduction from revenue, indicating that they directly impact the hospital's financial performance. This reporting difference highlights the distinction between services provided as a form of charity and debts that cannot be collected.

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The correct answer is "All health care organizations report acquisition of capital assets in the cash flows from investing activities section of the statement of cash flows." This statement is not correct because not all health care organizations report acquisition of capital assets in the cash flows from investing activities section. Some organizations may report it in the cash flows from financing activities section.