Table of Contents

Chapter 1 - Overview of the Health Care Industry. 1

Types of Health Care Organizations. 2

North American Industry Classification System Codes. 2

Applicable Accounting. 3

Financial Reporting Requirements. 4

The Structure of this Book. 4

Chapter 2 - The System of Accounting. 7

Financial Accounting Basics. 7

Accounting Frameworks. 9

Accounting Principles. 9

The Accounting Cycle. 11

Accounting Transactions. 11

Types of Transaction Cycles. 12

Source Documents. 12

Double Entry Accounting. 13

The Accounting Equation. 14

Journal Entries. 16

The Accruals Concept 17

The Chart of Accounts. 18

Major Journal Entries. 20

The Ledger Concept 21

Posting to the General Ledger. 22

General Ledger Overview.. 23

The Trial Balance. 24

The Trial Balance Format 24

The Extended Trial Balance. 26

Accrual Basis of Accounting. 27

Cash Basis of Accounting. 28

The Financial Statements. 29

The Income Statement 29

The Balance Sheet 30

The Statement of Cash Flows. 31

Chapter 3 - Not-for-Profit Accounting and Reporting. 36

The Accounting Equation. 36

Net Assets. 37

Net Assets without Donor Restrictions. 37

Net Assets with Donor Restrictions. 37

Net Assets Summary. 37

Types of Revenue. 38

Promises to Give. 39

Exchange Value. 39

The Allowance for Uncollectible Pledges. 40

Overview of Government Grants. 40

Grant Accounting. 40

Income from Government Grants. 42

Required Not-for-Profit Financial Statements. 43

Statement of Financial Position. 43

Statement of Activities. 45

Statement of Cash Flows. 47

Chapter 4 - Governmental Accounting and Reporting. 50

Fund Accounting Systems. 50

Basis of Accounting and Measurement Focus. 50

Fund Contents. 51

Budgetary Reporting. 51

Interfund Activity. 52

Asset Transfers. 52

Presentation Issues. 52

Reporting Net Position. 53

Required Enterprise Fund Financial Statements. 53

Statement of Net Position. 54

Statement of Revenues, Expenses, and Changes in Fund Net Position. 56

Statement of Cash Flows. 57

Cash Flows from Operating Activities. 57

Cash Flows from Noncapital Financing Activities. 58

Cash Flows from Capital and Related Financing Activities. 59

Cash Flows from Investing Activities. 60

Chapter 5 - Cash and Receivable Accounting. 63

Check Receipts. 63

Check Receipt Improvements. 64

The Bank Lockbox. 64

Remote Deposit Capture. 65

Cash Receipts. 65

Credit Card Receipts. 66

The Bank Reconciliation. 67

The Not Sufficient Funds Concept 69

Bank Reconciliation Problems. 69

The Daily Bank Reconciliation. 69

Billings. 70

Third-Party Payor Payment Methods. 70

Valuation of Receivables. 70

Calculating and Recording Bad Debts. 71

Direct Write-Off Method. 71

Allowance for Doubtful Accounts. 72

Estimation of Bad Debts. 72

Contractual Adjustments. 72

Chapter 6 - Inventory Accounting. 75

The Periodic Inventory System.. 75

The Perpetual Inventory System.. 77

The Physical Inventory Count 78

Inventory Cost Layering Overview.. 80

The First in, First Out Method. 81

The Last in, First Out Method. 82

The Weighted Average Method. 84

Estimating Ending Inventory. 85

Chapter 7 - Investments. 88

Contributed Investments. 88

Gains and Losses on Purchased Investments. 88

Subsequent Measurement of Investments. 89

Gains and Losses on Investment 89

Accounting for Investments - Dividend and Interest Income. 89

Stock Dividends and Stock Splits. 90

The Equity Method of Accounting. 91

Chapter 8 - Fixed Asset Accounting. 95

What are Fixed Assets?. 95

Types of Fixed Assets. 96

Accounting for Fixed Assets. 98

The Capitalization Limit 99

The Base Unit 99

The Initial Measurement of a Fixed Asset 100

The Purpose of Depreciation. 101

Depreciation Concepts. 101

Accelerated Depreciation. 102

Sum-of-the-Years’ Digits Method. 102

Double-Declining Balance Method. 103

Straight-Line Method. 104

The Depreciation of Land. 105

The Depreciation of Land Improvements. 105

Depreciation Accounting Entries. 105

Accumulated Depreciation. 106

Asset Impairment 107

Asset Derecognition. 108

Abandoned Assets. 109

Asset Disposal Accounting. 110

Chapter 9 - Asset Retirement and Environmental Remediation Obligations. 113

Overview of Asset Retirement Obligations. 113

The Initial Measurement of an Asset Retirement Obligation. 114

Subsequent Measurement of an Asset Retirement Obligation. 115

Settlement of an Asset Retirement Obligation. 116

Overview of Environmental Obligations. 118

Measurement of Environmental Obligations. 119

Recoveries Related to Environmental Obligations. 120

Chapter 10 - Current Liabilities. 123

Current Liabilities. 123

Prepaid Health Care Services. 124

Bonus and Risk Retention Plans. 124

Accounting for Accounts Payable. 124

Common Accounts Payable Journal Entries. 124

Aged Accounts Payable Report 125

Early Payment Discounts. 126

Accounting for Accrued Liabilities. 127

Deferred Compensation Arrangements. 128

Deferred Revenues. 128

Commitments. 129

Contingencies. 133

Stop-Loss Insurance Arrangements. 134

Medical Malpractice Claims. 134

Guarantees. 134

Presentation Issues. 135

Disclosures. 135

Chapter 11 - Debt Liabilities. 137

Basic Debt Accounting. 137

The Amortization Schedule. 139

Reconciling the Debt Account 139

Debt Modifications and Extinguishments. 140

Bond Overview.. 141

Municipal Bond Financing. 142

Bond Premiums and Discounts. 143

Chapter 12 - Revenue Recognition. 148

Steps in Revenue Recognition. 148

Step One: Link Contract to Customer. 148

Step Two: Note Performance Obligations. 150

Step Three: Determine Prices. 151

Variable Consideration. 151

Possibility of Reversal 152

Time Value of Money. 154

Step Four: Allocate Prices to Obligations. 155

Allocation of Price Discounts. 157

Subsequent Price Changes. 158

Step Five: Recognize Revenue. 158

Measurement of Progress Completion. 159

Output Methods. 160

Input Methods. 160

Change in Estimate. 161

Progress Measurement 161

Consistency. 161

Entitlement to Payment 162

The Health Care Revenue Environment 163

Charity Care. 164

Naming Opportunities. 164

Patient Payments. 165

Use Fees. 165

Presentation. 165

Disclosures. 165

Chapter 13 - Payroll Accounting. 168

Gross Pay Calculations. 168

Hourly Rate Plan. 168

Overtime. 169

Types of Payroll Taxes. 170

Social Security Tax. 170

Medicare Tax. 171

Unemployment Taxes. 171

Income Tax Withholdings. 172

Benefits and Other Deductions. 174

Net Pay. 175

Remitting Payroll Taxes. 175

Types of Tax Deposit Schedules. 176

Monthly Deposit Schedule. 176

Semiweekly Deposit Schedule. 177

Federal Unemployment Deposit Schedule. 178

Remittance Method. 178

The Form 941 Quarterly Federal Tax Return. 178

State Tax Remittances. 179

Payments to Employees. 179

The Payroll Register. 180

Form W-2. 182

Payroll Journal Entries. 183

Types of Payroll Journal Entries. 184

Primary Payroll Journal Entry. 184

Accrued Wages. 185

Manual Paycheck Entry. 186

Employee Advances. 187

Accrued Vacation Pay. 187

Tax Deposits. 188

Chapter 14 - Split-Interest Agreements. 191

Split-Interest Agreements. 191

Types of Split-Interest Agreements. 191

Accounting for Split-Interest Agreements. 192

Initial Measurement 193

Ongoing Measurement 194

Termination. 194

Classification of Net Assets. 195

Chapter 15 - Affiliated Organizations. 197

Affiliated Organizations. 197

Special Purpose Entities. 198

Noncontrolling Interests. 199

Related Parties. 199

Chapter 16 - Special Accounting Topics. 202

Advertising Expenses. 202

Agency Funds. 202

Nonreciprocal Transfers. 202

Prepaid Expenses. 202

Prepaid Health Services. 202

Related Fundraising Entities. 203

Sale and Leaseback Transactions. 203

General Presentation Issues. 203

Presentation Issues Specific to Not-for-Profit, Business-Oriented Entities. 203

Disclosures. 204

Answers to Chapter Questions. 207

Glossary. 229

Index. 234