Chapter 2
Performance Indicator
The FASB defines it as an intermediate level that reports the results of operations. Operations includes operating and nonoperating items. Required by FASB in not-for-profits on all of their statements of operations
3 categories of net assets
Unrestricted Temporarily restricted Permanently restricted
Are accrued expenses reflected in the balance sheet?
Yes, accrued expenses are liabilities and, therefore, are reflected in the balance sheet
Supplies/Inventory
small-dollar items that will be used up or fully consumed within one year or less.
Whereas the balance sheet is a snapshot of the organization, the statement of operations presents a _____ of revenues and expenses over a period of time
summary
Amortization
the allocation of the acquisition cost of debt to the period that it benefits
Current Liabilities
Financial obligations due within one year
What is in the body section of the main balance sheet for a not-for-profit HCO? (Exhibit 2.2, p.31)
Assets (current and noncurrent) = total assets Liabilities (current and noncurrent) = total liabilities Net Assets (unrestricted, temp restricted, permanently restricted) = total net assets Total liabilities and net assets
What is in the body section of the main balance sheet for an investor-owned HCO? (Exhibit 2.2 , p. 31)
Assets (current and noncurrent) = total assets Liabilities (current and noncurrent) = total liabilities Stockholders' equity (common stock and retained earnings) = total stockholders' equity Total liabilities and Stockholders' equity
Operating Income
a classification within the excess of revenues over expenses, which separates revenues earned through health care-related earnings (operating income) and other healthcare related activities (nonoperating income)
Depreciation
a measure of the extent to which a tangible asset has been used up or consumed
The statement of operations uses the ____ basis of accounting
accrual
Noncontrolling Interest
amount of a partially owned subsidiary entity that the parent does not own
Gross patient accounts receivable (GPAR)
amount owed to the HCO at full charges
Purpose of the Statement of Cash Flows
answers the question, where did the cash come from and where did it go?
Examples of Noncurrent Assets
assets limited as to use, PPE, goodwill, other assets
Net Assets (or Equity)
assets of an entity that remain after deducting its liabilities. In a business enterprise, it is the ownership interest.
Current Assets
assets that will be consumed within a year
What's on the balance sheet for not-for-profit entities?
assets, liabilities, and net assets
What's on the balance sheet for investor owned entities?
assets, liabilities, and stockholders' equity
Financial statements used by investor-owned entities
balance sheet, statement of income and comprehensive income, statement of changes in stockholder equity, statement of cash flows, notes to the financial statements
Financial statements used by not-for-profit entities
balance sheet, statement of operations, statement in changes of net assets, statement of cash flows, notes to financial statements
Examples of current assets (in order of liquidity)
cash and cash equivalents investments (short-term) assets limited as to use A/R Inventories, prepaid expenses
Components of the body of the Statement of Cash Flows
cash flows from operating expenses cash flows from investing activities cash flows from financing activities net increase(decrease) in cash and cash equivalents
what two things must be deducted from GPSR?
contractual allowances and charity care discounts
Examples of Current Liabilities
current portion of long-term debt A/P and accrued expenses Estimated third-party payor settlements
Charity Care Discounts
discounts from GPAR given to patients who cannot pay their bills and who meet the entity's charity care policy
Third-Party Payers
entities that pay on behalf of patients
Net Income
equivalent to excess of revenue over expenses for a not-for-profit entity
Accrued Expenses
expenses that arise in the normal course of business that have not yet been paid
Purpose of the Statement of Changes in Net Assets
explain why there was a change from one year to the next in the entire net asset section of the balance sheet.
Noncurrent Liabilities
financial obligations not due within one year
Liquidity
how quickly an asset can be turned into cash
Why are the financial notes critical?
information in the body of the statement is in summary form, and any additional key info must be presented in the notes
Examples of Cash equivalents
money market funds, certificates of deposits, and treasury securities with original maturities of 3 months or less
Are depreciation and amortization cash expenses?
no
Accounts Payable
obligations to pay suppliers who have sold the health care entity goods or services on credit
What does the balance sheet do?
reports the entity's assets, liabilities, and equity at a particular point in time, usually the last day of the accounting period
Noncurrent Assets
resources of the entity that will be used or consumed over periods longer than one year
Assets
the probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events. Represent resources that an entity owns. Recorded at their cost, unless donated.
Liabilities
the probable future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events. Can be debts or obligations
Accumulated Depreciation
the total amount of depreciation taken on an asset since it was put into use
Goodwill
what an entity is buying in an acquisition when it pays cash and assumes liabilities in excess of the fair value of the assets acquired