Final Flashcards
Accounting
concerns the measurement, in financial terms, of events that reflect the resources, operations, and financing of an organization.
Financial Management
provides the theory, concepts, and tools necessary to help managers make better financial decisions.
Role of Finance
is to plan for, acquire, and utilize resources to maximize the efficiency and value of the organization.
Finance activities include:
Planning and budgeting Financial reporting Capital investment decisions Financing decisions Working capital management Contract management Financial risk management
Organizations of Health Services
Hospital (inpatient) care
Ambulatory (outpatient) care
Long-term care
Integrated systems
There are four major categories of business organization
Proprietorship (sole proprietorship)
Partnership
Corporation
Hybrid forms
Advantages of Proprietorship
Ease of formation
Subject to few regulations
No corporate income taxes
Disadvantages of Proprietorship
Limited life
Difficult to transfer ownership
Unlimited liability
Difficult to raise capital
Advantages of Corporations
Unlimited life
Easy transfer of ownership
Limited liability
Ease of raising capital
Disadvantages of Corporations
Cost of formation and reporting
Double (or triple) taxation for investor-owned corporations
Hybrid Forms of Organization (4 types)
Limited Partnership
Limited Liability Partnership
Limited Liability Company
Professional Corporation
Limited Partnership
General partners have control
Limited partners are liable only for their initial contribution
Not commonly used by healthcare providers
Limited Liability Partnership
Partners share general business liability
But, partners are liable only for their own malpractice actions
Limited Liability Company
Members are taxed like partners
Liability like stockholders
Professional Corporation
Owners have benefits of incorporation
However, still liable for malpractice
Often used by individual clinicians
2 Forms of Ownership
Investor-owned (for-profit)
Not-for-profit
The primary goal of Investor-owened businesses is?
shareholder wealth (stock price) maximization.
The primary goal of not-for-profit businesses is?
generally given by a mission statement, often in terms of service to the community.
Taxes influence:
Financing decisions
The operating cash flows available to an investor-owned business
The ability to raise contribution capital
Types of taxes:
Federal versus state versus local
Personal versus corporate
Ordinary income versus capital gains
Not-for-profit corporations have two additional tax benefits:
Can issue tax-exempt (municipal) bonds
Can receive tax-exempt contributions
Reimbursement Methods
FFS (Fee-for-service)
Capitation
Financial accounting
identifying, recording, and communicating the operational results and status of an organization (as opposed to a subunit).
Three most important financial statements
Income statement
Balance sheet
Statement of cash flows
Securities and Exchange Commission (SEC)
has the legal authority to regulate the form and content of financial statements.
The SEC relies on
Financial Accounting Standards Board (FASB)
Industry Committees of the American Institute of Certified Public Accountants (AICPA)
Principles and Practices Board of the Healthcare Financial Management Association (HFMA)
What are generally accepted accounting principles (GAAP)?
The conventions that have evolved from the pronouncements and rulings of the implementing organizations constitute a widely accepted set of guidelines for the preparation of financial statements.
Cash accounting
recognizes an event when a cash transaction takes place.
Simple and easy
Mimics tax statements
Accrual accounting
recognizes an event when an obligation is created.
More complicated
Provides a better picture of the true economic status of a business
Is required by GAAP
matching principle
Revenues must be matched with the accounting period in which they are earned.
Expenses must be matched with the revenues to which they are related.
a chart of accounts is used to?
assign numeric identifiers to individual accounts.
other names for an income statement
Statement of operations
Statement of activities
Income Statement contains
Revenues
Expenses
Net Income
What are Expenses?
represent the resources used to create revenues–they are the costs of doing business. Like revenues, expenses do not necessarily reflect cash outlays.
Insurance expense
represents the cost of commercial insurance purchased to protect the clinic against several risks, including: Property risks such as fire and weather and liability risks such as managerial malfeasance and medical liability
Depreciation expense
arises because of the matching principle–expenses must be matched to the revenues with which they are associated.
In not-for-profit businesses, net income typically is called?
(three names)
Revenues over expenses
Excess of revenues over expenses
Change in net assets
In financial statement analysis
values may be combined to form ratios that have easily interpretable economic meaning.
What is in a balance sheet
Accounting identity
Assets
Liabilities and equity
Current assets include:
Cash and other assets that are expected to be converted into cash within the next year: Marketable securities, Net patient accounts receivable, Inventories
Marketable securities (MS) are?
short-term investments in highly liquid, typically low-risk, securities: One example is Treasury bills (T-bills), MS are reported at cost, but their current market value is given in the footnotes.
Net patient accounts receivable
represents revenues owed to the business but not yet collected.
Long-term investments
investments in securities (financial assets) as opposed to buildings and equipment (real assets) that have maturities greater than one year.
fixed assets (property and equipment)
represent real assets (as opposed to financial assets) having useful lives greater than one year.
Gross fixed assets
reports the historical cost of property and equipment.
Net fixed assets
reflect an adjustment for accumulated depreciation.
What are liabilities?
represent claims against assets that are fixed by contract.
What art current liabilities?
are those obligations that come due (must be paid) within one year (accounting period). Include: notes payable, accounts payable, accrued expenses
What are notes payable?
short-term debt obligations, typically bank loans.
What are accounts payable?
stems from buying goods (typically medical supplies) from vendors on credit called trade credit.
What are accrued expenses (accruals)?
are payment obligations of the business, primarily: salaries to employees, taxes to government authorities, interest payments to debt suppliers
What are incurred but not reported (IBNR) expenses?
an important current liability account for providers with a high percentage of capitated revenues. Such as payment being received before service is provided.
What is long-term debt?
it represents debt financing with maturities greater than one year.
What is equity?
represents the non-liability claims against a business’s assets.
What is the statement of cash flows?
it combines both income statement and balance sheet data to create an income statement-like report that focuses on cash flows.
What is a financial performance analysis?
assesses a business’s financial condition: Does it have the financial capacity to meet its mission.
Financial statement analysis :
focuses on the information in a business’s financial statements with the goal of assessing financial condition.
Operating indicator analysis :
focuses on operating data with the goal of explaining financial performance.
MVA and EVA:
analysis focuses on assessing managerial performance.
What is profitability?
Is the business generating sufficient profits?
What is liquidity?
Can the business meet its cash obligations?
What is debt management?
Is the business using the right mix of debt and equity?
What is asset management?
Does the business have the right amount of assets for its volume?
What is profit analysis?
is a technique used to assess the effects of alternative volume assumptions on costs and profits
What is the contribution margin?
the difference between per visit (unit) revenue and the variable cost rate.
If reimbursement is capitation then the provider’s financial risk is minimized if ________.
Costs are fixed
If reimbursement is fee-for-service then the provider’s financial risk is minimized if ________.
costs are variable
Direct costs are:
costs unique and exclusive to a sub-unit.
Indirect or overhead costs are:
costs associated with shared resources used by the entire organization.
What is the overhead amount of cash to be allocated?
the cost pool
What is the basis on which the cost pool will be allocated?
the cost driver
Budget types:
Statistics budget
Revenue budget
Expense budget
Operating budget
________ are detailed plans, often expressed in dollar terms, that specify how resources will be used over some period of time.
budgets
The _________ _________ combines volume data from the statistics budget with detailed resource utilization data to forecast expenses.
the expense budget
What is an FTE
the number of full-time equivalents
What is par value of a bond?
Stated face value of the bond.
What is the coupon rate of a bond?
Stated interest rate on the bond.
What is the Maturity date of a bond?
Date when the par value will be repaid to investors.
_________ ___________ is the analysis of potential additions to a business’s fixed assets.
Capital budgeting
Operating leases are:
Short-term, cancelable, and maintenance is usually included.
Financial leases are:
long-term, non cancelable, maintenance is usually not included.
