ACCOUNTING FOR HOSPITALS

Hospitals depend its large part on donations and grants which often come with
restrictions.
Fund accounting is required for hospitals > to maintain accountability over restricted
sources.
Use normal accrual accounting methods, including the classification of costs and
expenses rather than expenditures.
Will not record budgetary accounts or encumbrances on the books.

Type of Funds
1. General (Unrestricted) Fund account for all resources of the hospital which are not
subject to outside restrictions. They are used for day-to-day operations.

Board designated funds are unrestricted.

*Designation an internal process which can be altered at the discretion of the Board
of Trustees of the hospital.
*Restrictions externally imposed and not subject to alteration by the board.
Items in this category includes:
a. Assets whose use is limited included assets set aside by the governing board for
identified purpose.
b. Agency funds are included in General Funds as both an asset and a liability. They
are used to account for fees collected as an agent of physicians who have private
practice patients coming to hospital offices provided to the staff physicians.
c. Property and equipment used for general operations and the related liabilities.
Property, plant and equipment whose use is restricted are reported in donorrestricted fund.
2. Donor- restricted Funds accounts for temporarily restricted and permanently
restricted resources. This class is subdivided into:
a. Temporary Restricted Fund may be a specific purpose fund, a term endowment
fund, a plant replacement fund and expansion fund. An annuity and life income fund
may also be included.
Specific Purpose Fund is a restricted fund used by health care providers to
account for principal and income in accordance with donors specified
restrictions.
Endowment Fund is used by hospital to account for a trust where the
principal must be kept intact and the income be expanded for either current
operations or a specific purpose in accordance with grantors wishes. An
endowment may be in perpetuity, or it may be fixed term or until a specific
event occurs.

Plant Replacement Fund and Expansion Fund

b. Permanently Restricted Fund is also an endowment fund but differs from a term
endowment fund is that the principal must be maintained intact in perpetuity and only
the income may be used in accordance with the donors wishes.
Accounting for Revenues and Expenses
Revenues and Gains
1. Patient Service Revenue include room and board , nursing services, and other
professional services. Patient service revenues typically are recorded at established
(gross) rates as the services are provided but are reported net of amounts that are
considered deductions from revenues. The objective is to report the amount that the
hospital is entitled to collect as patient service revenues.
Charity care services provided free of charge to patient who qualify under a
hospitals charity care policy are excluded from both gross and net patient service
revenues.
According to AICPA Audit Guide and Accounting Guide , Health Care Organization;
charity care cases does not qualify for recognition as receivables or revenues in the
financial statements.
If further states that:
managements policy for providing charity care, as well as the level of
charity care provided, should be disclosed in the financial statements,.
Such disclosure generally is made in the notes to the financial statements
and is measured based on the providers rates, costs units of service, or
other statistical measure.
Allowsance accounts are used to reduced receivables for estimated deductions from
revenues, as well as estimated doubtful accounts. Deductions from revenue include:
a. Courtesy allowance discounts to doctors and employees.
b. Contractual adjustments discounts arranged with third-party payors
(PhilHealth for example) that frequently have agreement to reimburse
at less-that-established-rates.

2. Premium fees also known as subscriber fees or capitation fees, are revenues from
agreements which a hospital provides any necessary patient service ( perhaps from
a contractaully established list of services ) for a specific fee. The fee is usually a
specific fee per member per month. The fees are earned whether the standard
charges for services actually rendered are more or less than the amount of the fee-

i.e., without regard to services actually provided in the period. Therefore, they are
reported separately from patient service revenues. This is a growing portion of
hospital revenues in many hospitals.
3. Other Operating Revenues includes revenues from services to patients other than for
health care and revenues from sales and services provided for non-patients. This
classification might include tuition from schools operated by the hospital, rentals of
hospital space, charges for preparing and reproducing medical records room
charges for telephone calls and television, proceeds from cafeterias, gift shops,
snack bars, donated medicine, linen and office supplies, etc.
The control account nonoperating revenues records revenue not related directly to
an entitys principal operations. These items are primarily financial in nature and
include unrestricted and donor-restricted pledges,gifts or grants, unrestricted income
from endowment funds, maturing term endowment funds, income and pain from
investments, gains on sale or hospital property. Investments are reported at fair
value with both realized and unrealized gains included as part of non operating
revenue.
Note: The Other Operating Revenue and Nonoperating revenue can be lump as one
account and be called, as Other Revenue and Gains.
Classification of Operating Expenses
Operating expenses of hospitals are reported on an accrual basis and normally include
functional categories for nursing services (medical and surgical, intensive care, nurseries,
operating rooms), other professional services (laboratories, radiolody, anesthesiology,
pharmacy), general services (housekeeping, maintenance,laundry), fiscal services (accounting,
cashier,credits and collection,data processing), administrative services (personnel,
purchasing,insurance,governing board), interest, and depreciation provisions.
Although accounts are maintained for employee and contractual allowances, these items
are not expenses. As stated earlier, they are revenue deductions that are subtracted from
gross patient service revenues to arrive at net patient service revenue reported in the
statement of operations.
Provision for bad debts is an expense. The difference between charity care and bad debts
expense is that charity care result from the hospitals policy or providing health care to
individuals who meet certain financial criteria, whereas bad debts results from extension credit.
Health care services provided as charity care were never intended to provide cash flows.
ACCOUNTING FOR HEALTH CARE PROVIDERS

Asset of a health care provider comprise three distinct segments, such as: 1.) current assets, 2.)
assets whose use is limited, and 3.) property and equipment. Assets and liabilities are
sequenced by liquidity and are classified as current and noncurrent.
Revenues, expenses, gains, and losses increase or decrease the net assets of a health care
provider entity. Revenues and expenses may be operating if they are related to the principal
activity; consequently, revenues, expenses, gains, or losses may be non-operating if they are
from activities that are incidental or from events beyond the entitys control.
Financial Statements
The financial statements of a health care provider include a statement of activities, which
presents organization-wide totals for changes in unrestricted, temporarily restricted, and
permanently restricted net assets. In addition to the statement of activities, health care
organization provides a statement of financial position, and statement of cash flows.