Question 1

Health care organizations that are privately owned and operated to provide a return to investors follow GASB standards.

Accepted Answer

GASB (Governmental Accounting Standards Board) standards only apply to governmental entities and not to privately owned and operated health care organizations. Privately owned health care organizations adhere to different accounting standards, such as Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS), based on their ownership structure and legal requirements.

Question 2

According to The AICPA Health Care Guide,transfers among affiliated organizations should not be included in the determination of a performance indicator for a health care organization.

Accepted Answer

Transfers among affiliated organizations do not reflect the actual performance of the health care organization and can lead to a distorted performance indicator. Therefore, they should be excluded from the determination of performance indicators.

Question 3

The AICPA Health Care Guide prescribes a separate Statement of Operations and Statement of Changes in Net Assets rather than a Statement of Activities.

Accepted Answer

The AICPA Health Care Guide does prescribe a separate Statement of Operations and a Statement of Changes in Net Assets, rather than a Statement of Activities.

Question 4

Charity care is reported as both revenue and expense (bad debt)in the Statement of Operations.

Accepted Answer

Patient service revenue does not include charity care.

Question 5

Patient Service Revenue of hospitals is to be presented net of contractual adjustments in the Statement of Operations.

Accepted Answer

Patient service revenue, which represents the amount hospitals bill for services provided to patients, should be presented net of contractual adjustments in the Statement of Operations. Contractual adjustments are the difference between the billed amount and the amount the hospital has contractually agreed to accept as payment from third-party payers such as insurance companies and government programs like Medicare and Medicaid.

Question 6

Voluntary health and welfare organizations raise a significant amount or nearly all of their resources from contributions and grants,and are subject to the rules of the AICPA Not-for-Profit Guide.

Accepted Answer

Voluntary health and welfare organizations (VHWOs) do raise a significant amount or nearly all of their resources from contributions and grants, and they are subject to the rules of the AICPA Not-for-Profit Guide. Other sources of income for VHWOs can include fundraising events, membership fees, and investment income.

Question 7

For hospitals,contractual adjustments to 3^rd party payers,such as insurance companies,are recorded with a debit to Contractual Adjustment expense and a credit to Accounts Receivable.

Accepted Answer

Contractual Adjustment is a contra revenue account, not an expense.

Question 8

With respect to health care organizations,expenses must be reported using their natural classifications.

Accepted Answer

Expenses may be reported either by natural classification salaries, supplies, etc.) or functional classification professional care of patients, general services, etc.. Private sector not-for-profit health care entities must disclose expenses by functional classifications, if not provided in the Statement of Operations.

Question 9

The level of charity care is included in revenue and should be disclosed in the notes to financial statements.

Accepted Answer

The level of charity care is not included in revenue but rather recorded as a deduction from revenue. It should be disclosed in the notes to financial statements.

Question 10

Contractual adjustments from insurance companies are reported as expenses in the Statement of Operations.

Accepted Answer

Patient service revenues are to be reported in the operating statement net of the provision for uncollectible accounts and estimated contractual adjustments with Medicare, Medicaid or insurance companies.

Question 11

Differences between actual and estimated contractual adjustments are treated as changes in accounting estimates.

Accepted Answer

Differences between actual and estimated contractual adjustments are based on management's judgments and expectations, and therefore they are considered changes in accounting estimates. As such, they should be reflected in the current period's financial statements and should not be adjusted retroactively.

Question 12

The AICPA Audit and Accounting Guide:
 Health Care Organizations applies equally to private not-for-profit,governmentally owned,and investor-owned health care organizations.

Accepted Answer

The AICPA Audit and Accounting Guide applies to all types of health care organizations.

Question 13

Health care organizations that are privately owned and operated to provide a return to investors follow FASB standards excluding those standards specifically for not-for-profits.

Accepted Answer

Private health care organizations follow FASB standards, even though they may not qualify as not-for-profit organizations. However, they may not follow certain standards specific to not-for-profit organizations.

Question 14

According to The AICPA Health Care Guide,transfers among affiliated organizations should be included in the determination of a performance indicator for a health care organization.

Accepted Answer

Net income loss) is an example of a performance indicator. Transfers among affiliated organizations are not included in the calculation of a performance indicator.

Question 15

The cash flow statements of private health care organizations,both not-for-profit and for-profit,may use only the indirect method.

Accepted Answer

The Statement of Cash Flows for a not-for-profit hospital can be prepared using either the direct or indirect method. The direct method is required for a governmental health care organization.

Question 16

The AICPA Health Care Guide does not require a performance indicator in the financial statements of private sector not-for-profit health care providers.

Accepted Answer

The AICPA Health Care Guide requires a performance indicator commonly called net income or loss in the financial statements of private sector not-for-profit health care providers.

Question 17

For hospitals,contractual adjustments to 3^rd party payers,such as insurance companies,are recorded with a debit to Contractual Adjustments (a contra-revenue account)and a credit to an allowance for contractual adjustments.

Accepted Answer

This is the standard accounting practice for recording contractual adjustments in hospitals. The contra-revenue account of Contractual Adjustments is used to reduce the gross revenue to the net revenue, while the allowance for contractual adjustments serves as an estimation of the amount that the hospital is expected to write off for contractual adjustments.

Question 18

Private sector not-for-profit health care entities must disclose expenses by functional classifications,if not provided in the Statement of Operations.

Accepted Answer

Private sector not-for-profit health care entities are required to disclose their expenses by functional classifications such as salaries, occupancy costs, utilities, etc. This information may be provided either in the Statement of Operations or in the notes to the financial statements.

Question 19

Patient service revenue for a hospital does not include charges for charity care.

Accepted Answer

Patient service revenue refers to the payments received from patients or their insurance providers for the services provided by the hospital. Charity care, on the other hand, refers to free or discounted services provided to patients who are unable to pay for medical care. Therefore, revenue from charity care is not included in patient service revenue.

Question 20

Health care organizations that are privately owned and operated to provide a return to investors report the same net asset classifications as private not-for-profit health care organizations.

Accepted Answer

Net asset classification for an investor-owned health care enterprise uses paid in capital and retained earnings. A not-for-profit business-oriented organization uses Unrestricted Net Assets, Temporarily Restricted Net Assets and Permanently Restricted Net Assets.

Quiz 12: Accounting for Hospitals and Other Health Care Providers