Financial Management in Healthcare

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Investor-owned health care sectors and major non-profit making institutions deal with day-to-day budgeting. Hence, it is important to develop comprehensive financial statements. The most basic ones include the balance sheet, statement of changes in net assets, statement of operations, and statement of cash flows (Zhang et al. 175)

The balance sheet gives a general outlook of a business (Zhang et al 176). By defining the monetary value of assets, liabilities, and the investor’s capital, a balance sheet enables an organization to understand its current operations. Balance sheets are prepared at the end of an accounting period (Rauscher, Simone and Wheeler 330). The assets minus the liabilities give the net worth of the organization. The asset side indicates both the current and non-current assets. Liabilities side indicates both current and non-current liabilities. The net worth too, appears on the liabilities side (Fischer, Mary and Marsh 439).

The statement of operations is a summary of revenues and expenses that occur in an accounting period. Preparation of the statement of operations adheres to the accrual accounting procedures (Rauscher, Simone and Wheeler 335). This statement represents the entity earned and the gains in a project. In addition, it stipulates the sources of revenue that an organization used during an accounting period (Fischer, Mary and Marsh 440). The main components for a healthcare statement include premium revenue, provision for bad debt, the net assets released from restriction, service revenue, depreciation, expenses, operation income, unrestricted gains, revenue and support and the title, date, and nature of statement (Hughes 280).

The statement of changes in net assets is also an important statement in financial reporting for healthcare centers (Paskert and James 53). It uses some of the information computed in the operations statement. The statement further focuses on the beginning net assets, permanent restricted assets, unrestricted net assets, and temporary net assets.

The last one is the statement of cash flows. As the name suggests, the statement outlines how cash flows move in and out of the business (Krishnan and Yetman 1027). Covering the same period as the operations statement, this statement can borrow information from the statements already discussed. Accrual based accounting is used in preparation of the statement (Paskert and James 54). The main visible components include cash flows from operating activities, investing activities, financing activities, and an indication of the cash at both the start and end of the year (Krishnan and Yetman 1027). Figures 1.0 and 1.1 show the balance sheet and statement of cash flows for Ray Hospital.

Ray Hospital

Balance Sheet as at September 30, 20X1

ASSETS

AMOUNT IN USD

LIABILITIES+ NET ASSETS

AMOUNT IN USD

Current Assets
Cash
Net accounts receivable
Inventory
Total current Assets
Gross plant, property, and equipment
(less accumulated depreciation)
Net plant, property, and equipment

8,000,000
15,500,000
3,000,000
26,500,000
70,000,000(5,000,000)

65,000,000

Current liabilities
Accounts payable
Accrued expensesTotal Current liabilities
Long-term debt
Total Liabilities

Net Assets:
Total net assets

7,000,000
6,000,00013,000,000
45,000,000
58,000,000

33,500,000

Total Assets

91,500,000

Total liabilities and net Assets

91,500,000

Figure 1.0 Balance sheet for Ray Hospital as at September 30 20×1

Statement of Cash Flows as at June 30, 20X1

Particulars

20X1

Cash flows from operating activities
Cash flows from investing activities:
Purchase of fixed equipment
Cash flows from financing activities:
Transfer to parent corporation
Principal payment on notes payable
Proceeds from sale of fixed equipment
Principal payment on bonds payable
Net increase (decrease) in cash and cash equivalent
Beginning of cash balance

3,900,000

(5,300,000)

(40,000)
(6,500)
2,290,000
( 780,000)
63,500
6,500,000

Cash and cash equivalent at the end of the year

6,563,500

Figure 1.1 Statement of Cash Flows for Ray Hospital as at June 30 20×1

References

Fischer, Mary and Treba Marsh. “Two Accounting Standard Setters: Divergence Continues for Nonprofit Organizations.” Journal of Public Budgeting, Accounting & Financial Management 24.3 (2012): 429-465. Print.

Hughes Joseph. “A New Cost Efficiency Measure for Not-for-Profit Firms: Evidence of a Link between Inefficiency and Large Endowments.” Atlantic Economic Journal 41.3 (2013): 279-300. Print.

Krishnan and Michelle Yetman. “Institutional Drivers of Reporting Decisions in Nonprofit Hospitals.” Journal of Accounting Research 49.4 (2011): 1001-1039. Print.

Paskert and James P. “Financial Transparency and Physicians: The Physician Leader’s Guide to Sharing Numbers.” Physician Executive 40.1 (2014): 52-56. Print.

Rausher Singh, Simone and John Wheeler. “Hospital Financial Management: What is the Link between Revenue Cycle Management, Profitability, and Not-for-Profit Hospitals’ Ability to Grow Equity?” Journal of Healthcare Management 57.5 (2012): 325-339. Print.

Zhang, Lu, Zhang and Jiang. “Insider Ownership, Subsidiary Cash Holdings, and Economic Consequences: Evidence from Listed Chinese Companies.” Emerging Markets Finance & Trade 51.1 (2015): 174-195. Print.

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Financial Management in Healthcare

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