Good day, seeking someone to do my Financial concept of Health Care assignment

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Good day, seeking someone to do my Financial concept of Health Care assignment

Good day, seeking someone to do my Financial concept of Health Care assignment
Notes – Chapter 10 Overview Review a Balance Sheet and understand its components Review a statement of revenue and expense and understand Its components Understand the basic concept of cash flows Know what a subsidiary report is Reporting Because this is not a pure accounting course, the purpose of our discussions is to get a clearer understanding of the concepts of each accounting report and not the precise understanding of accounting entries. By now, you should’ve taken Accounting 101, where you would’ve covered more detailed aspects of accounting entries. Cash Basis of Accounting vs Accrual Basis In the cash basis of accounting, the transaction does not enter the books until cash is either received or paid out. In accrual accounting, revenue is recorded when it is earned, not when payment is received. Expenses are recorded when they are incurred and not when they are paid. There are four basic financial statements, Balance Sheet, Statement of Revenue and Expenses (Income Statement), Statement of Fund Balance or Net Worth and the Statement of Cash Flows. Balance Sheet The Balance Sheet records what an organization owns, what it owes to outside vendors or employees and what the organization is worth. As previously discussed, if the organization is a not for profit, the term fund balance is used in lieu of net worth. The balance sheet balances meaning what the organization owns less what they owe equals what it is worth. The Balance Sheet is stated at a specific point in time. It is a snapshot of the figures at a specific point in time. Depending upon the organization, the Balance Sheet will be for a one year period and will show a comparison to the previous year. This allows the manager to see how the organizations business has changed over time. The Balance Sheet will reflect current (short term) assets, long term assets, current liabilities, long term liabilities and Property and equipment. These reports being reviewed are for internal purposes and therefore do not follow GAAP (Generally Accepted Accounting Principles) practices. Statement of Revenue and Expenses The basic formula for the report is: Operating Revenue – Operating Expenses = Operating Income This report, unlike the Balance Sheet, reflects a period of time and not a snapshot. Therefore, a report maybe for the period January 1, 2018 through March 31, 2018 covering a period of three months. If revenue exceeds expenses then there is a positive result (Gain) and if expenses exceed revenue (Loss), then there is a negative result. Statement of Changes in Fund Balance/Net Worth The excess of revenue over expense flows back into equity or fund balance through the statement of fund balance. A simple example of this report is as follows: Beginning Fund Balance 1/1/18 $298,000 Excess of Revenue over Expenses 115,000 Interest Income 5,000 $418,000 The beginning balance has been brought forward from previous years. The excess of revenue over expenses and Interest Income flows from the Statement of Revenue and Expenses. If there was a loss from operations, fund balance would have decreased. All three reports, Balance Sheet, Statement of Revenues and Expense and Statement of Fund Balance are all interlocked and flow throughout. Statement of Cash Flows In order to understand why the statement of cash flows is necessary, we need to revisit the concept of accrual accounting. When cash is not received, the other side of the entry is accounts receivable. When expenses are not paid, the other side of the entry is accounts payable. These accounts are on the balance sheet but have not yet been turned into cash. Recognition of depreciation is treated differently as it is a “paper expense” and not a cash event. The Statement of Cash Flows takes the accrual basis of accounting and turns it into the cash basis through a series of reconciling adjustments. REVIEW Page 112 Subsidiary Reports Subsidiary reports back up the statements. These reports reflect more detail such as for Operating Revenue, a subsidiary report will detail all of separate revenue accounts, i.e. Medicaid, Medicare, Private, Commercial Insurance etc. On the expense side, the subsidiary report will detail all the departmental expenses.
Good day, seeking someone to do my Financial concept of Health Care assignment
Notes – Chapter 11 Overview Understand four types of liquidity ratios Understand two types of solvency ratios Understand two types of profitability ratios Successfully compute ratios Financial and Operating Ratios as Performance Measures Ratios are measures that are widely adopted in the healthcare financial management. One of the most important reasons that financial ratios are used is for credit analysis. Banking institutions will use ratios to determine if an organization can borrow money. As an individual, you would be subject to the same performance measures if you were borrowing money to pay a mortgage or some other type of debt. Ratio analysis should be conducted as a comparative analysis. Just looking at one ratio standing alone does not give any meaning to the ratio. Ratios should be compared to other periods in order to determine business trends and to make informed business decisions. When differences between periods is identified, reasons should be sought for those differences. Financial ratios can be compared period to period or more importantly, amongst other organizations within the same region. Liquidity, Solvency and Profitability There are eight basic ratios used in health care. Liquidity Ratios Current Ratio Quick Ratio Days Cash on Hand Days Receivables Solvency Ratios Debt Service Coverage Ratio Liabilities to Fund Balance Profitability Ratios Operating Margin Return on Total Assets Liquidity Ratios Liquidity ratios reflect the ability an organization has to meet its current obligations. LR measure short term sufficiency. They measure the ability an organization has to be liquid or to have sufficient cash. Current Ratio Current ratio equals current assets divided by current liabilities. Current Assets / Current Liabilities $120,000 / $60,000 = 2 to 1 This ratio is a measure of short term debt paying ability. The organization has twice as much cash to pay its debts. As you can see, the result is a ratio , not a dollar amount. Quick Ratio Quick ratio equals cash plus short term investments plus net receivables divided by current liabilities. Cash & Cash Equivalents + Net Receivables/Current Liabilities $65,000 / $60,000 = 1.08 to 1 The standard by which quick ratio is measured is usually 1 to 1 so this ratio is a little better than the standard. Days Cash on Hand Days Cash on Hand equals unrestricted cash and investments divided by cash operating expenses divided by 365 days. An example is: Unrestricted Cash & Cash Equivalents / Cash Operating Expenses / Days in Period $330,000 / $11,000 = 30 days There is no standard measure to compare this to as all organizations can function differently with their cash on hand. This ratio indicates that in relation to the amount of daily operating expense, the organization has 30 days’ worth of operating expenses in cash on hand. Days Receivables Days Receivable computation is net receivables divided by net credit revenues / 365. Net Receivables / Net Credit Revenue /Days in Period $720,000 /$12,000 = 60 days This number represents the number of days in receivables. The older a receivable is, the harder it is to collect. This, therefore is a measure of worth and performance. This example indicates that the organization has 60 days’ worth of credit revenue tied up in net receivables. This is a common measure of billing and collection performance. This is an easily comparable measure as there are numerous regional and national figures to compare to. Solvency Ratios Reflects the organizations ability to pay the annual interest and principal obligations on its long term debt. Measures the organizations ability to be solvent, to have sufficient resources to meet its long term obligations. Debt Service Coverage Ratio The change in unrestricted net assets (net income) plus interest, depreciation and amortization divided by maximum annual debt service. Change in Unrestricted Net Assets(Net Income) + Interest, Depreciation & Amortization Maximum Annual Debt Service $250,000 / $100,000 = 2.5 This ratio is used in credit analysis and each lending institution has its own particular criteria for lending agreements. Liabilities to Fund Balance (or Debt to Net Worth) Represented as total liabilities divided by unrestricted net assets (fund balance or net worth) or total debt divided by tangible net worth. Total Liabilities / Unrestricted Fund Balances $2,000,000 / $2,250,000 = .80 This is an indicator of debt load. The higher the number the more debt an organization has. Profitability Ratios Reflect the ability of the organization to operate with an excess of operating revenue over operating expense. Operating Margin The Operating Margin is generally expressed as a percentage, is represented as operating income (loss) divided by total operating revenues. Operating Income (Loss) / Total Operating Revenues $250,000 / $5,000,000 = 5.0% This ratio is used for managerial purposes and also for credit analysis. There are many outside comparisons available. The higher the percentage the better. Return on Total Assets The return on total assets is represented as earnings before interest and taxes (EBIT) divided by total assets. EBIT / Total Assets $400,000 / $4,000,000 – 10%

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