Finance and Business Flashcards
Percent Occupancy
average daily census / number of beds
costs per patient day =
costs in month / total patient days in month
FTEs x 1.4 =
number of line staff positions if you want to know how many nursing assistant positions,, for example, you can have 7 days/week
Notes to Financial Statements
are included to explain the accountant’s interpretation or calculation of figures, or variation in the books due to a change in their organization, which may not be readily understood by those reviewing the financial statements
a credit in accounting refers to
the right side of the journal account
entity concept
a basic concept of accounting, under which the nursing facility is regarded as a whole, entirely separate from the affairs of the owners, managers, or other employees
the income statement
shows whether revenues were sufficient to cover expenses, whether the facility made or lost money during the time period
Average Daily Census (ADC) equals
total patient days / days in the month
appropriate rates for resident care services
must reflect their true full costs
role of the general journal
records transactions that do not properly fit into any of the other journals
liabilities
are the obligations of the facility
accelerated depreciation
this method attributes most of the depreciation expense to the first years of the asset’s life, thus enabling the facility to write it off more quickly, thereby gaining a tax advantage through earlier tax recognition of the investment
accrual accounting approach
under the accrual system of accounting, revenues are recorded when they are earned and expenses when they are incurred, regardless of the time the cash transactions take place
perpetual inventory system
recommended to maintain a precise count of inventory on hand, that is, an accurate count of supplies used and those remaining in the storeroom
Cash Receipts Journal
records all cash received for services provided; e.g. sales refreshment machines
Billings Journal
lists all bills send for services rendered
Accounts Payable Journal (purchase journal)
records all purchases made that will be paid within the next few months
Cash Disbursements Journal
records all payments made for services and supplies used for resident care and for all other operations of the facility
Payroll Journal
summarizes all payroll checks distributed during the pay period
General Journal
a record of non-repetitive entries
the basic accounting equation
Assets = (Liabilities + Owner’s Equity) + (Revenues - Expenses)
objective evidence concept
requires accounting records to be prepared with documentable records that are kept by the facility
the net operating margin
the proportion of revenues earned to the amount of expenses used to earn those revenues
to account for the effects of inflation or deflation on the price of inventory, the GAAP recognizes two types of inventory costing
last in, first out (LIFO); first in, first out (FIFO)
cash accounting approach
expenses are recorded when the cash is actually dispersed and revenues are counted when the money from, for example, resident services are received by the facility
accountant
uses the information compiled by the bookkeeper to generate reports on the financial standing of the facility. The bookkeepers and accountants record the financial transactions of the facility.
five main groups of the chart of accounts
assets, liabilities, capital, revenues, expenses, fund account
assets
things owned by the facility
liabilities
things owed by the facility; or it’s obligations
capital
money invested in the facility; also known as the facility’s net worth
revenues
earnings from operations or other sources
expenses
costs of salaries, supplies, etc. that have been used up; usually through the provision of services
fund account
any funds that have been established for restricted or unrestricted use
turnover rate in percent is =
(number of employees terminated X 100) / total number of full time employees
non-current assets
refers to assets that will not be liquidated within the year
Average Length of Stay
total patient days in the year / number of admissions in the year
depreciation
is an expense associated with the use of an asset, so depreciation is included as both an expense on the income statement and a contra asset (literally against an asset) on the balance sheet
quick ratio
Quick Ratio = (Cash + Accounts Receivable + Marketable Securities) / Current Liabilities
bookkeeper
primarily records the daily cash transactions of the facility, keeping track of all money going out or coming in
historic cost concept
another basic tenet of accounting and relates to the ongoing concern concept
hours per patient day =
number of hours worked / number of patients
straight line depreciation
Historical Cost / Useful Life = Annual Depreciation Expense
working capital available
Current Assets - Current Liabilities
categorization of fixed assets
land and improvements; buildings; fixed equipment; major moveable equipment; minor moveable equipment
current liabilities
are those obligations that must be met within the next 12 months; such as bills from suppliers of foodstuffs and medical or office supplies, and short term bank loans
the debt to equity ratio
a measure of the long-run liquidity of the facility or the ability of the facility to meet its long term debts
Medicare Part D
benefits the facility cash flow inasmuch as some drugs are covered for the first time under Medicare Part D which drugs were previously paid for out of the preset Medicare rate being paid to the facility
the journals
the first place that transactions are recorded; they are the books of original entry
cash handling procedures
all cash must be handled by at least two employees, both of whom are bonded
time period concept
also known as the accounting period, the time period is the interval covered by the financial reports, usually one year
capital accounts (or net worth)
are recorded below the liabilities. This section is also called Owner’s Equity, Shareholder’s Equity, Fund Balance, or Retained Earnings depending on the origin of the funds that make up this section
bookkeeping
a system of recording all revenues and expenses, and matching those revenues to expenses during the same time period
Statement of Changes in Financial Positions
also simply called the statement of changes, this financial report shows the major transactions that occurred over the period covered by the two balance sheets
salvage value
a capital asset may have some value at the end of its useful life
the chart of accounts
a list of every account in the facility
Debt / Equity =
Long term Debt / Total Equity
patient census report
drawn up by the bookkeeper (usually for the month) by compiling the information from the Patient Census Forms
ongoing concern concept
requires that the accounting reports for a facility be prepared in the same way from year to year, in order to compare accurately the reports between two or more different time periods
current assets
refers to those possessions of the facility that will be, or theoretically be, turned into cash within 12 months
the General Ledger is where
at the end of each month, when all adjusting entries have been made in the journal accounts, the financial information in all journals is posted (written or entered)
historical cost of the asset
the cost of acquiring the asset that is depreciated over several time periods
financial statements
are a summary of the nursing facility’s financial well-being within a time period
working capital available
Current assets minus current liabilities equals the working capital available. This can also be considered the funds available to the facility.
gross pay
calculated by multiplying hours worked by the hourly rate
the average payment period ratio
Average payment period = 365 x Accounts Payable / Supplies Expense
useful life of the asset
the number of years the item can be expected to be used by the facility
depreciation
to account for this loss of value to capital assets in the accrual system of accounting, the cost of the asset is spread over the time period that it is used
vertical analysis
converts each item on the income statement, balance sheet, or other financial report to a percentage of some total item on the same document
FTE (full time equivalent) =
total number of hours worked or budgeted / 40 (an FTE is a position that works only 5 days/week)
the balance sheet
records the financial position of the nursing facility at one point in time
average collection period ratio
Average Collection Period = 365 x Acc. Red. / Net Operating Revenues
a debit in accounting refers to
the left side of the journal account
closing the books
because revenues and expenses must be measured for finite periods of time, these accounts must be brought to a sum of zero so that they can be recorded over again for a new time period. Bringing the expense and revenue accounts to zero defines closing the books
variable costs
those that fluctuate directly and proportionately with changes in volume
the cash budget
is prepared on the cash basis of accounting, although it is based on the revenues and expenses from the operating budget
revenue centers
units of the facility, usually departments, that generate revenue usually through resident care. Revenue centers in the nursing facility will normally be nursing, possible physical therapy, occupational therapy, pharmacy, laboratory, and medical support.
the capital budget
a summarization of all anticipated capital (items with a life of more than 12 months) expenditures in the budget year
indirect costs
those that cannot be directly associated with a revenue-producing center, yet support the functions of the resident care centers
pro forma financial statements
the preliminary financial statements based on budgeted amounts
participatory method of budgeting
requires input from staff members on several levels of the organization
fixed costs
do not relate to changes in volume; the cost of the DON’s salary will not change with fluctuations in the number of residents
break even volume (in units) =
fixed cost / (rate - variable cost)
ex. fixed cost of $235 at rate of $75 with a variable cost of $13 would require a break even volume of 3.79 units
to calculate the variable cost per patient in the nursing department
(total costs - total fixed costs) / volume units = variable costs / units
ex. $1000 total cost with $600 fixed cost and 35 patients equals a vc per patient of $11.42
direct cards
those directly attributable to a revenue center or directly providing resident care
top-down approach to budgeting
the administrator (or corporate) alone prepares the annual budget with little or no guidance from department heads
five steps in the budgeting process
assessing the environment; programming; developing the operating budget; the cash budget; the capital budget
total variable costs
total variable costs (TVC) change with volume, variable costs per unit do not. If disposable syringes are $1 each, the cost per syringe per patient will be $1, whether 100 or 150 patients receive injections using syringes purchased at one cost in one batch.
semi-variable costs
do not fit neatly into either a variable or fixed category, as they vary disproportionately with volume
