Cost accounting for healthcare organizations Essay
Understanding basic accounting principles is imperative to the health care manager role. Reading a balance sheet and recognizing the importance of cash flow are skills that are compulsory to this function. With this in mind, discuss the following:
- Discuss the most important headings in a balance sheet and what the summary numbers mean.
- Explain 4-5 reasons why cash flow is important to a health care organization.
Use 2 references to validate your response. Validation means that references have been used to prove your assertions and statements. Academic work is not what is thought to be true, but is what is researched to be true. Cost accounting for healthcare organizations Essay.
The Most Significant Titles in a Balance Sheet and What the Summary Indicate
As a manager of a healthcare facility, it is important to poses the knowledge of accounting and the basic accounting principles so as to effectively discharge the functions of a healthcare manager. The understanding of the balance sheet is imperative to ensure that the assets and liabilities of the healthcare organization are properly managed and maintained in good condition. This calls for the healthcare manager to properly read and comprehend a balance sheet and recognize the significance of cash flow.
The name of the organization details the type of entity the balance sheet refers to. The title heading illustrates the type of financial statement and its significance (Finkler & Ward, 2015). The date heading illustrates the financial period the statement refers to while the unit measure illustrates the currency which the values in the balance sheet have been valued. The asset heading shows the value of all what the health care organization own while the liabilities heading shows the amount the organization owes its creditors. The stockholder’s equity heading illustrates what capital was invested into the healthcare facility by the equity owners. Cost accounting for healthcare organizations Essay.
The significance of Cash Flow To a Health Care Organization.
Cash flow statement is a statement that revelers the source of revenue of a health care facilities and the nature of expenses the cash was used to offset. Being an important document for a healthcare facility, cash flow statement will help the healthcare managers identify the exact locations where money is spent in delivering services, thus channeling funds to the areas that need more services.
Also, the statements help the healthcare organizations to cost for health care services to justify their claim for reimbursements from payers and funders (Finkler, Ward & Calabrese, 2012). This way, the healthcare managers will identify the equipment needed and lease them depending on their demand Cost accounting for healthcare organizations Essay.
Cash flow statement also helps in accelerating the mode of cash collection to finance their operating activities. It helps the health care facilities set the correct bills to identify areas that consume a huge amount of funds but face delay in payments for the services provided (Finkler & Ward, 2015). As a result, the healthcare facilities will timely bill and collect all revenue due to the organization to ensure a steady flow of cash and income. It also enables the healthcare managers to effectively negotiate contracts so that only the procedures that are beneficial to the patient and cost-effective to the organization are ordered.
Cash flow statement also helps the managers of health care facilities to deploy and distribute their healthcare equipment in departments that generate high margin. This will prevent cases of organizations holding idle equipment that, thus increasing costs of maintenance, repair and holding or storage (Young, 2013). It is only through higher margins that a health care facility will be in a position to have a positive cash inflow to finance its daily operations and administrative expenses Cost accounting for healthcare organizations Essay.
Healthcare organization also need a cash flow statement to restructure the costs they incur in provisions of procedures that are very expensive. This allows the facilities to identify the best formula that can be used to apportion costs and claim reimbursements Finkler, Ward & Calabrese, 2012). It also allows the managers of the healthcare facilities to identify the best way of cost-sharing the expensive procedures so as to avoid locking out many patients out of the procedures. As a result, the healthcare facilities will avoid incurring losses after offering the expensive procedures since they will convince the suppliers to reduce the costs of supply.
Young, D. W. (2013). Management accounting in healthcare organizations. San Francisco, CA:
Finkler, S. A., Ward, D. M., & Calabrese, T. D. (2012). Accounting fundamentals for healthcare
management. Sudbury, Mass: Jones & Bartlett Learning.
Finkler, S. A., & Ward, D. M. (2015). Cost accounting for healthcare organizations: Concepts
and applications. Gaithersburg, Md: Aspen Publishers. Cost accounting for healthcare organizations Essay