Deck 1: Introduction to Health Care Accounting and Financial Management

Question 1

Give three reasons why health care organizations need to generate and accumulate operating profits. Explain why profits might be preferred to other sources of resources (such as borrowing).

Answer 1

Health care organizations need to earn and accumulate profits to subsidize clients who may not be able to pay, to maintain an operating reserve to protect the organization from unexpected revenue or expense volatility, and to have resources available for potential investment and expansion opportunities. Borrowing may not always be available, or, when it is, may take too long to access.

Question 2

Distinguish between short-term and long-term liabilities. Provide an example of each.

Answer 2

Short-term liabilities are resources we owe some outside organization or entity that we will pay within one year; long-term will be paid in more than one year. A short-term liability could be accounts payable, note payable, wages payable, taxes payable, for example. Examples of long-term liabilities include bonds payable and mortgages payable.

Question 3

Health care managers should only be concerned about the organization's long-term financial health and prospects. Explain your choice.

Answer 3

False
Long-term fiscal health (solvency) is critical. However, managers need to be concerned about organizational liquidity as well. Without adequate liquidity, organizations cannot meet current obligations, which can also lead to insolvency.