quiz 1 Flashcards
Financial Accounting
a formalized system designed to record the financial history of the health care organization, looks backward (financial statements)
Example sentence: The financial accounting department prepares the income statement and balance sheet.
Managerial Accounting
uses financial information that might be used for making improved decisions regarding the future, looks forward (budgets)
Example sentence: The managerial accounting team analyzes costs to determine the most cost-effective production method.
Financial management
Management of the finances of the organization to maximize the organization’s wealth and the achievement of its other goals.
Example sentence: The financial management team aims to increase profitability while maintaining financial stability.
Accounting
The provision of financial information.
Example sentence: The accounting department prepares financial reports for internal and external stakeholders.
Finance
Provision of analyses, concerning the acquisition and disposition of the organization’s resources.
Example sentence: The finance department evaluates investment opportunities to determine their potential return on investment.
Finance function
involves providing financial analyses to improve decisions that affect the wealth of the organization.
Example sentence: The finance function plays a crucial role in strategic decision-making within the organization.
Accounting graph includes:
Managerial and financial accounting
Finance graph includes:
Operational decision-making
Accumulating and communicating via-
the financial statements
Analyzing and decision-making-
occurs in finance
Liquidity
is a measure of the amount of resources an organization has that are cash, or are convertible to cash in the near-term, to meet the obligations the organization has that are coming due in the near-term.
Example sentence: High liquidity ensures that the organization can meet its short-term financial obligations.
An organization is liquid if
it has enough near-term resources to meet its near-term obligations as they become due for payment.
Solvency
is the same concept as viability, but from a long-term perspective, where long-term means more than 1 year.
Roots of liquidity crisis that put organizations out of business are
often buried in inadequate long-term solvency planning in earlier years.
So, a good strategy is maximization of your organization’s liquidity and solvency, right?
False, every dollar kept in liquid form, could have been invested by the organization in some longer term, higher yielding project or investment.
What is the trade off in the are of viability and profitability?
The more profitable the manager attempts to make the organization, by keeping it fully invested, the lower the liquidity and the greater the possibility of a liquidity crisis and even bankruptcy. The more liquid the organization is kept, the lower the profits.
What are the two basic goals of financial management?
profitability and viability
Can an organization be profitable, yet lack viability?
Yes
Can an organization be viable, yet fail to earn profit?
Yes
Not-for-Profit Healthcare Organizations
Maximization of profit may not be a goal, though some profit is necessary to ensure the financial well-being
For-Profit Healthcare Organizations
such maximizations are often tied in with the maximization of return on investments, return on equity, return on assets. or return on net assets
Viability
the ability to continue doing business each year, a trade-off always exists between viability and profitability. Greater liquidity results in more safety, but lower profits.
Profitability
earning an excess of revenue over expenses each year, A trade-off always exists between maximization of expected profits and the acceptable level of risk. Undertaking greater risk requires greater anticipated returns.
Increased risk =
Increased potential return
financial viability is often measured in terms of
liquidity and solvency
methods to increase inventory without being short on cash
for-profit organization= sell shares or possibly a loan
Example sentence: The for-profit organization decided to issue shares to raise funds for inventory expansion.
Not-for-Profit organization=
issue bonds
Why is it better to provide a measured amount of charity?
so that the provider can remain viable.
Gross Domestic Product (GDP)
The monetary value of all the finished goods and services produced within a country’s borders in a specific time period
The difference between a provider’s posted charge for service and the amount of payment agreed to by the provider and the third-party payer.
Contractual allowance
Why do patients pay different amounts?
healthcare providers negotiate different rates with different insurance companies
Primary goal of the Patient Protection and affordable care act
to extend health insurance coverage to uninsured Americans— estimated at the time at more than 47 million—and slow the growth of health care costs. The act also sought to improve health insurance coverage for individuals who have preexisting medical conditions, restricted insurers from charging differing premiums based on an individual’s health/age/sex, and required insurance plans to cover specific health care services.
healthier populations aka
young invincibles
Acountable Care Organizations (ACOs)
Cooperative groupings of health care providers. The providers making up an ACO are accountable for the cost of the medical care of their members, as well as for the quality of that care. If they save Medicare money, they share some of the savings.
Bundled Payments
A health care payment arrangement in which a group of physicians and a hospital make a bid to provide care for specific types of patients, such as coronary bypass patients, in exchange for a lump-sum amount that is less than would be paid, in total, on a fee-for-service basis for each individual element of care, such as the hospitalization and the separate payments to physicians
Consumer Price Index (CPI)
measures changes in the price level of a market basket of consumer goods and services purchased by households
What are the components of CPI measurements?
Apparel, transportation, education and communication, housing, food and beverages, medical care, recreation, and other goods and services.
Flaws in cpi measurements
Housing is not actual rents or mortgages paid, healthcare is of 17% GDP but only 8.8% of CPI, higher education costs are higher than 6.7%
Inflation
A general and progressive increase in prices
Health care reimbursement system
The complex system of patients and insurers that pay (reimburse) for care provided by the various health care
What is inflation?
A general and progressive increase in prices
Example sentence: The inflation rate this year is 3%.
What is cost-push inflation?
An increase in the general price level resulting from an increase in the cost of production.
Example sentence: Cost-push inflation can occur when there is a sudden increase in the price of raw materials.
What is demand inflation?
The increase in the number of people who want something whose supply can’t keep up
Example sentence: Demand inflation can lead to shortages of goods.
What is the logic of printing money?
Stimulates the economy to create more jobs
Example sentence: The government decided to print more money to boost economic growth.
What is a deductible?
A minimum out-of-pocket amount that the patient must reach in the insurance period before insurance coverage begins
Example sentence: I have to pay a $500 deductible before my insurance kicks in.
What is charity care?
The provision of services to medically indigent people
Example sentence: The hospital offers charity care to those who cannot afford medical treatment.
What is the organization’s financial position summarized by?
Assets, liabilities, net assets (AKA Equity)
Example sentence: The financial position of the company is strong.
What are tangible assets?
Shown in the financial statements
Example sentence: The company’s tangible assets include buildings and equipment.
What are intangible assets examples?
Organization culture, employee motivation, credit report/standing, market position, and reputation
Example sentence: Company reputation is considered an intangible asset.
What are examples of liabilities?
Medical supply vendors, bank loans, community bonds, taxes due (for-profits)
Example sentence: The company’s liabilities include outstanding bank loans.
What is the role of FASB?
Financial Accounting Standards Board, rule maker, sets gaaps standards
Example sentence: FASB ensures accounting standards are followed.
What is the Going Concern principle?
The assumption that the organization will exist in the foreseeable future, on going viability
Example sentence: The company’s financial statements are prepared based on the Going Concern principle.
What is the Monetary denominator?
All resources are assigned values in a currency, such as dollars
Example sentence: The monetary denominator for this organization is in US dollars.
Full Disclosure
Follows the conservative nature of accountancy practices, if no rule exists for action to be taken, it must be documented as a note to the financial statement
Follows the conservative nature of accountancy practices, if no rule exists for action to be taken, it must be documented as a note to the financial statement
IASB (International Accounting Standards Board) IFRS (International Financial Reporting Standards)
applies to all healthcare organizations with internal reach
applies to all healthcare organizations with internal reach
Monetary denominator
All resources are assigned values in a currency, such as dollars, to simplify communication of information regarding the organization’s resources and obligations
All resources are assigned values in a currency, such as dollars, to simplify communication of information regarding the organization’s resources and obligations
Owner’s Equity
The value of the firm to its owners, as determined by the accounting system. This is the residual amount left over, when liabilities are subtracted from assets
The value of the firm to its owners, as determined by the accounting system. This is the residual amount left over, when liabilities are subtracted from assets
Net assets
The residual amount left over, when liabilities are subtracted from assets
The residual amount left over, when liabilities are subtracted from assets
Fundamental equation of accounting
Assets = Liabilities + Net Assets
Assets = Liabilities + Net Assets
IFRS (International Financial Reporting Standards)
a set of accounting GAAP developed by the International Financial Accounting Board and widely used around the world
a set of accounting GAAP developed by the International Financial Accounting Board and widely used around the world
