Healthcare Accounting Final Study Guide
Sum of Years Digits Depreciation
Takes the number of years of useful life of an asset, counts back to one, and adds the digits together. This method depreciates more in the first few years of an asset than the others. Ex: UL=3 HC=10,000 SV=2,000 1+2+3= 6 10,000-2,000= 8,000 8,000 x 3/6 = 4,000 (year 1) 8,000 x 2/6 = 2,666.66 (year 2) 8,000 x 1/6 = 1,333.33 (year 3) What's the book value for year 2? 10,000 - (4,000 + 2,666.66) = 3,333.34
Resources owned by the organization that have physical form.
Tangible assets
Fiscal Year
The 12 month time-frame an organization chooses based on seasonal influences.
Marketable securities are current assets.
True
Net Realizable Value is based on someone's subjective estimate of what the entity could be sold for.
True
No matter which depreciation schedule is used the journal entries for the initial purchase will remain the same.
True
Non-profits have to have CPA audited financial statements.
True
Non-profits need to disclosure how liquid their organization is.
True
Owners equity and net assets are the same thing in accounting terminology.
True
The SEC is concerned with correct arithmetic and consistent accounting practices.
True
The accounting equation must remain in balance
True
The statement of operations and the income statement are the same document?
True
The strength of historical cost valuation is that it is objective and verifiable.
True
Using the accrual method of accounting will require a Statement of Cash flows.
True
Whether for profit or not-for-profit, health organizations need profits.
True
Financial Accounting looks
backward
The historical cost of an item less the accumulated depreciation of the item is known as:
book value
A lump-sum amount that is less than would be paid in total on a fee-for-service basis is a:
bundled payment
Correct Externalities
cost benefits/affect a third party that didn't choose to participate
A system of accounting where each entity has its own set of financial records and statements.
fund accounting
Statements are prepared based on assumption of longevity. If that is not likely the case then it must be disclosed.
going concern
Liability Classification
refers to whether an account is current or long-term
Inventory is less liquid than receivables.
True
Financial statements are the responsibility of the auditor or CPA
False
Declining Balance Depreciation Formula
Historical cost / useful life of assets (More complicated than it looks)
If an individual would make a different decision based on the incorrect information resulting in an error.
Materiality
Asset Classification
Might be: income earned by an organization over the years that was not distributed
Imperfect information
One party is more informed than another in a transaction
Retained Earnings
Presents changes in equity of a period of time
What is the equation for profit?
Profit = Total Revenue - Total Expenses
There would be a journal entry for: 10/15/20X1 ordered supplies in the amount of $45,000.
False
What are 3 types of cash flows shown on the statement of cash flows?
Financing, investing, and operating
I want to use the future profits valuation to determine how much insurance coverage I should have on an entity
False
I want to use the future profits valuation to determine how much insurance coverage I should have on an entity.
False
Fixed Assets
property, plant, and equipment
If providers give away care (free or charity), they can include the amount they would have charged as revenue.
False
Most undetected fraud is "material" in accounting.
False
Net Assets (equity) is the cash an organization has to invest for its future.
False
Nominal accounts are zeroed out after the reporting year has ended.
False
Organizations must always have enough cash on hand to pay off stockholder's equity.
False
Presidential executive orders remain in full force forever.
False
The users of financial statements are
All of the choices are correct. (Suppliers, bankers, investors, and stockholders)
Internal control means the system is designed to catch and correct errors:
All the time
Nonmaleficence
"First, do no harm"
Given Liabilities of $185,000 and Equity of $205,000. What are the Assets:
$390,000
Giving an invoice with the terms: 2/12 net 30 for $2600. What would be the cost of missing the deadline? Otherwise known as the interest expense.
$52.00
Given Revenue of $75,000 and Profit of $15,000 what were Expenses over the given period?
$60,000
straight line depreciation formula
(Historical cost - salvage value) = total depreciation/ useful life
The "near-term", "short term", or "current" in accounting means ____________ or less.
12 months
Medicare was implemented in which year?
1966
There are how many methods to calculate the Statement of Cash Flows?
2
Given the terms: 5/15 net 30 what would be the discount from the vendor if paid immediately after receipt of invoice?
5 percent
A cooperative grouping of healthcare providers are known as:
ACO's or Accountable Care Organizations
The journal entry for: Patients were billed $25,000 for services rendered during the month. Would entail which two accounts?
Accounts receivable and routine services revenue
Refers to a period of less than one year:
All choices are correct ( near-term, short-term, and current)
Cash accounting would recognize a transaction when:
All choices are correct (Wages are paid, cash paid for supplies, cash received for services, and a loan is taken for new machinery)
Net Patient Services Revenue is what the organization is legally entitled to collect. Original charges are reduced by:
All choices are correct (Contractual allowance, discounts, and charity care)
The Sarbanes-Oxley Act:
All choices are correct (Requires disclosure of conflicts of interest, provides protection for whistleblowers, and requires periodic rotation of auditors.)
Contributed Capital
Amounts individual Ms have paid directly to the organization in stocks or bonds
The fundamental accounting equation is:
Assets = Liabilities + Equity
Which financial statement is a "snapshot" of the organizations financial health?
Balance sheet
Accounts receivable net is gross charges less what items?
Contractual allowance and bad debts
Consideration should be given to risks the organization faces.
Conservatism
Use of the same accounting method from period to period.
Consistency
The difference between a providers posted charge for service and the amount agreed to by the provider and third party payer is a:
Contractual allowance
This fee is usually due at the time of service in order to see a provider:
Copayment
The value of what was given up to acquire the item.
Cost
The "donut hole" was fixed in 2003 with the addition of Medicare Part ______.
D
The unit for which we wish to account. This can be a person, department, project, division or organization. It is defined as an:
Entity
GAAP requires the use of historical valuation for which types of assets.
Equipment, plant, and property.
Monopoly
Exclusive possession or control of the supply or trade in a commodity or service.
Stock and bonds that an entity invests in are valued on the balance sheet using which valuation method?
Fair value accounting
A "certified statement" means the documents reviewed are error free and correct.
False
A good strategy is to maximize an organizations liquidity and solvency.
False
A mortgage is considered a notes payable and is an expense account.
False
An auditor reviews all documents to determine accuracy.
False
Cash is increased by a credit and decreased by a debit.
False
Charges are the same as revenues in accounting.
False
Current assets and liabilities at the top of the balance sheet gives the reader a quick assessment of solvency.
False
Depreciation expense and accumulated depreciation are the same in types of accounts in accounting.
False
Depreciation is the same as money in the bank.
False
Equity is the amount of money I have in the bank (cash) after I account for my assets and liabilities.
False
Public Goods
For the benefit of the public
Managerial Accounting looks
Forward
Reports should disclose any information needed to ensure that they are fair representations
Full Disclosure
GAAP requires assets such as property, plant, and equipment to be based on what type of cost valuation method?
Historical cost
The _________ shows revenues and expenses over the entire accounting period.
Income statement
Balance Sheet
Indicates financial position of an organization at a specific point in time
This type of asset results in substantial valuation difficulties because it has no physical form.
Intangible assets
A ____________ combines account balances from the beginning of the reporting period as well as journal entries for that recording period.
Ledger
When using "mark-to-market" valuation which GAAP method is preferred?
Level 1
Obligations of the organization to outside creditors.
Liabilities
_________________ protects owners of a cooperation from being personally liable for the debts of the corporation.
Limited liability
The first item listed on healthcare financial statements and reflects the adjustments of charity care and contractual adjustments is know as:
Net Patient Services Revenue
Based on evidence that reasonable individuals would agree upon.
Objective evidence
Beneficence
Obligation to bring about good in all our actions.
Long-term Liabilities
Obligations due that will take over a year to repay
Unrestricted Net Assets
Profit generated from daily operations as well as unrestricted donations.
The two overriding goals of financial management are ____________ and ___________.
Profitability and Viability
Autonomy
Respect for decisions made by others concerning their own lives.
Viability is measured by ___________ and ___________.
Solvency and Liquidity
The ___________ shows where an organization generates its cash and uses it over the accounting period.
Statement of cash flows
What is the term for a claim that an outside investor has on an organization.
Stockholder's equity
The reason for government regulation is:
The market cannot allocate resources effectively.
Given the following journal entry: Employees were paid wages of $75,000 during the period. There would be a credit to wages and salaries expense account
True
All elements of a financial event are known as:
Transaction
Accrual accounting is much less open to manipulation of profits.
True
Accumulated depreciation is a contra-asset account.
True
All stock for an organization should at least be initially issued for the par value to reduce owner liability.
True
Delaying or accelerating payments will not impact expenses if using accrual based accounting.
True
Depreciation is a known "tax shelter" and is completely "legal."
True
Double entry means that it is not possible to change one side of the accounting equation without changing the other.
True
Fraud usually makes no difference or impact on an organization's Balance Sheet.
True
Higher risk ventures should bring higher returns.
True
Assets are presented on the Balance sheet in order of:
liquidity
Expenses should be recorded in the same period as the revenues they were responsible for generating.
matching
Income Statement
might be: Refers to the liquidity of the account
Justice
obligation to provide others what they are owed or deserved.
Insurance companies and government agencies that pay the majority of the cost of treating patients are known as:
third-party payers