Essentials of Accounting for Governmental and

Not-for-Profit Organizations

Chapter 12

Accounting for Hospitals and Other Health Care Providers

McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.

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Overview of Chapter 12

Who has standard setting authority? What types of entities are included? General reporting principles and

Illustrative transactions Example Financial Statements

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Ownership Types

 Investor Owned: Human Inc. stock is widely held and the company is listed on the New York Stock Exchange

Private Not-For-Profit:

The Hospital is owned by the (Catholic) Archdiocese of Atlanta

Government Owned: The NY City Health and Hospital Corporation was created by the NY state legislature

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Ownership Types – Standard Setter

 Investor Owned:

FASB – except standards specifically for not-for-profits

Private Not-For-Profit:

FASB– particularly, standards for not-for-profits such as SFAS 116 & 117

Government Owned:

GASB

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Standard Setting Authority GASB - Category A GAAP

Authority over government related hospitals FASB -

Private not-for-profit hospitals Major FASBs 93, 116,117, 124, 136, 164

Investor owned hospitals Other FASBs

Additional guidance is provided by the AICPA Audit Guide for Health Care Organizations.- This is level B GAAP for government related, private not-for-profits, and business oriented

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What Types of Organizations? Clinics Medical groups Individual practitioners Emergency care Laboratories Surgery care centers

Continuing care HMOs Home health agencies Hospitals Nursing homes Rehabilitation centers

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Contractual Adjustments Third-party payers

commonly receive discounts for services.

The amount of these discounts are estimated and recorded at the time of service

They are reported as “contra-revenues”

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Contractual Adjustments vs Charity Care Contractual

Adjustment Entry:

Contractual Adjustment …. Dr

Patient Accounts Rec. ……Cr

Charity care (no expectation of receiving payment)

No Journal entry

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Hospital Financial Statements Balance Sheet,

Most use classified balance sheet – exception: continuing care communities

Statement of Operations, Statement of Changes in Net Assets (or “Changes in

Equity” if investor owned)

Statement of Cash Flows and Notes

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Display Issues – Statement of Operations

Private not-for-profits and Government related entities must provide a Performance Indicator.

This a measure of income which excludes: Equity transfers, Restricted Contributions, Contributions of LT assets, Most unrealized gains and losses, Restricted investment returns, and Extraordinary items

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Display Issues – Statement of Operations, cont’d

Patient service revenues are shown net of contractual adjustments.

Patient service revenue excludes charity care (service provided where there is no expectation of payment).

The estimate of uncollectible accounts is shown as an operating expense.

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Display Issues – Statement of Operations, cont’d

Operating revenues are often classified as Net patient service revenues, premium (capitation) revenue, and

Other Revenue (parking lot, gift shop, cafeteria, and tuition). Unrestricted gifts may be treated as Operating or

Nonoperating depending on policy.

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Display Issues – Balance Sheet

FASB vs. GASB net asset accounts: FASB: unrestricted, temporarily restricted, and

permanently restricted net assets The term restricted used only for donor restrictions; Assets whose use is limited is used to indicate board

or bond covenant restrictions.

GASB: unrestricted net assets(position), restricted net assets(position), and net investment in capital assets

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Comparison of Financial Statements

Two statements take the place of the Statement of Activities: Statement of Operations:

Similar for not-for-profits, Government, Business Statement of Changes in Net Assets:

not-for-profits must show details of net changes for unrestricted, temporarily and permanently restricted

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Comparison of Financial Statements

Statement of Financial Position: Classified, similar for not-for-profit, Government, and

commercial businesses except for the equity section: not-for-profit: unrestricted, temporarily and permanently

restricted net assets Government: unrestricted net assets(position), restricted net

assets(position), and net investment in capital assets Business: Contributed Capital and Retained Earnings

Statement of Cash Flows: Business and not-for-profits use the FASB format (3

sections); Governments use the GASB format (4 sections)