Term
| Interim Financial Statements |
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Definition
| Financial statements prepared during the course of a hospital's fiscal year |
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Term
| Why are interim financial statements prepared? |
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Definition
| they are essential to the effective management of hospitals. Important managerial decisions are made during the course of a fiscal year that requires the kinds of information provided by monthly statements of operations and balance sheets. |
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Term
| If a hospital prepares interim financial statements, how often must adjusting entries be made? How often must closing entries be made? |
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Definition
| Adjusting entries are made for each interim period (every month, for example). Closing entries are made only once a year, on the last day of the fiscal year. |
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Term
| What is your understanding of the term responsibility accounting? |
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Definition
| the revenue and expense accounts are classified in a manner that permits revenues to be recorded according to centers responsible for generating them and expenses according to the centers responsible for their incurrence. Each is charged only for those expenses that can be directly associated with the activities of that center. |
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Term
| What is a responsibility center? Give an example. |
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Definition
| Each organizational unit of the hospital is a responsibility center, performing an activity or function, and headed by and individual responsible for attaining its mission. ex: housekeeping dept. |
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Term
| Distinguish between an expense center and a revenue center. Give an example of each. |
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Definition
| Every center is an expense center because they all incur expenses. For example the radiology and housekeeping departments are expense centers. Centers that generate revenues through the provision of patient services for which a specific charge is made are referred to as revenue centers. Radiology is an example of a revenue center. |
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Term
| What are unassigned expenses? Give four examples |
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Definition
| They are general in nature and, in the regular accounting routine, are not charged or assigned to specific departmental expense centers. The reason for this is that, for the most part, these expenses are not controllable by the individual department managers and supervisors. Ex: Depreciation, employee benefits, some types of insurance and interest. |
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Term
| Why do you think the American Hospital Association publishes a chart of accounts for hospitals manual? |
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Definition
| The AHA publishes a chart of accounts in an effort to promote uniformity among hospitals in the manner in which similar transactions are recorded and reported so that financial information between hospitals may be comparable. Also to improve accounting practices among hospitals. |
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Term
| The AHA chart of accounts manual contains an account numbered 1031. Explain briefly what each digit of this account number means. |
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Definition
| First digit "1" signifies asset account, Second digit "0" signifies a General fund account, Third Digit"3" signifies a Recievables account, and Fourth Digit "1" signifies an Inpatient account. |
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Term
| In connection with revenue accounts in the 4000 series, chart of accounts provides for the use of a fifth digit. For what purpose is this fifth digit employed? |
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Definition
| The fifth digit is employed to classify these patient service revenues by type of patient. |
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Term
| In the chart of accounts, the first digit of expense account numbers may be 6, Briefly explain the meaning of this initial digit. |
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Definition
| Digit "6" signifies Nursing Service Expenses |
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Term
| In Connection with expense accounts in the 6000 series, the chart of accounts provides for the use of fifth and sometimes sixth digits. For what purpose are these fifth and sixth digits employed? |
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Definition
| The fifth and sixth digits are employed to be used as indicators for the natural classification of expenses in each organizational unit of the hospital. |
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Term
| In the chart of accounts, the first digit of revenue account number is 4. Briefly explain the meaning of the other initial digits. |
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Definition
| The first digit of revenue account number is 4, the second digit indicates the fund, the third fourth and fifth digits provide a classification of revenue by specific organizational units. |
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Term
| In the account number system set forth in the chart of accounts, how can you distinguish between a liability account number and a hospital net assets account number? |
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Definition
| The liability accounts are numbered 2000 through 2500; the net assets account is numbered 30100. |
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Term
| What are the advantages of maintaining several special journals rather than a single general journal? |
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Definition
| The multi-journal system overcomes the inefficiency of the single journal procedure, and provides the detailed information required for hospital receivables and payables. |
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Term
| Distinguish between the general ledger and a subsidiary ledger. Name three types of subsidiary ledgers. |
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Definition
| the general ledger contains an account for each account in the hospital's chart of accounts. The general ledger accounts are posted only once a month. The subsidiary ledgers support the control accounts in the general ledger by providing detailed info. The subsidiary ledgers are posted daily. Ex: accounts receivable ledger, accounts payable ledger, and the payroll ledger. |
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Term
| What is the purpose of having sundry debits and credits columns in a special journal? Describe the posting procedure for the amounts entered in these columns. |
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Definition
| The purpose of having the sundry debits and credits columns in a special journal is to provide a space for recording entries to accounts for which a special column has not been included in the journal. Entries in the sundry column must be individually posted, but entries in these columns will not be frequent or numerous. |
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Term
| State two advantages of maintaining control accounts in the general ledger of a hospital. |
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Definition
| Two advantages of maintaining control accounts in the general ledger are to reduce the size of the general ledger and to promote accuracy and facilitate the balancing of the books when errors occur. |
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Term
| How would you determine that a special journal balances? |
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Definition
| One would cross foot the column totals to ascertain that the total of debit columns equals the total of credit columns. |
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Term
| "Whenever a debit posting is made to a general ledger control account, one or more credit postings of the same aggregate total must be posted to the related subsidiary ledger." Do you agree? |
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Definition
| No. Whenever a debit posting is made to a general ledger control account, one or more debit postings of the same aggregate total must be posted to the related subsidiary ledger. |
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Term
| Why must transactions be posted the subsidiary ledgers more frequently than to the general ledger? |
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Definition
| Transactions must be posted to the subsidiary ledger on a daily basis because the subsidiary ledgers provide information that is required and used daily. |
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Term
| Describe briefly the posting procedure for the revenue journals and the cash receipts journal. |
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Definition
| At the end of the month the journal columns are footed, and the totals are posted to the gen. ledger. Daily postings of the charges to patients are made to the accounts receivable subsidiary ledger. Daily postings are also made to the accounts receivable ledger to give individual patients credit for the payments received from them or on their behalf from their third party sponsors. |
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Term
| An in patient charge ticket for $60 was correctly recorded in the inpatient revenue journal, but the patient's account in the accounts receivable subsidiary was incorrectly debited $6. How will this error be discovered? |
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Definition
| At the end of the month when the accounts receivable control account in the general ledger is found to be in excess of the subsidiary ledger balance. |
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Term
| Describe the posting procedure for the payroll journal, voucher register, and the cash disbursement journal. |
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Definition
| 1.All postings from the payroll journal are made on a monthly basis. 2. At the end of the month the voucher register column totals are posted to the gen ledger accounts. Daily postings are made to the accounts payable subsidiary ledger to maintain a daily record of the amounts due to individual hospital creditors. 3. Monthly postings are made to the gen. ledger of the column totals in the cash disbursements journal. Daily debit postings are made to the accounts payable sub ledger. |
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Term
| Hartful Hospital provides outpatient services on a cash basis. In such cases would it be appropriate to bypass the out patient revenue journal and record the transaction directly in the cash receipts journal only to debit cash and credit outpatient revenue? Explain |
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Definition
| No. While this may be a satisfactory method, it does not allow for the extra measure of control provided by using the outpatient revenue journal. |
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Term
| What is the purpose or the checkmark column in the inpatient revenue journal? |
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Definition
| it is used to indicate whether or not the patient accounts in the accounts receivable subs. ledger have been posted for the individual charges making up the total charge to the gen. ledger accounts receivable control account. |
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Term
| Describe briefly the use of the imprest account, cash-payroll checking account (10120). |
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Definition
| When the payroll checks are cashed by employees, the payroll checking account automatically clears to zero or imprest balance maintained in the account. This procedure removes a large volume of paychecks from general checking and simplifies reconciliation of the payroll checking account. |
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Term
| State the basic objective of accounting for services rendered to inpatients and outpatients. |
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Definition
| To make a prompt and accurate record, on the accrual basis and at the hospital's established rates, of all services rendered, regardless of the amounts (if any)the hospital expects to collect for those services. |
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Term
| Describe briefly how the amounts to be charged to outpatients for services rendered to them generally are determined. |
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Definition
| In much the same way as for inpatient. A charge ticket is originated--either at a centralized outpatient reception desk or in the professional depts providing the outpatient services. In some cases, the outpatient charge tickets are summarized by personnel of the service-rendering dept in daily service logs. |
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Term
| How often should postings be made from the inpatient and outpatient revenue journals? Explain your answer. |
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Definition
| Daily postings must be made to the accounts receivable subsidiary ledger to maintain a current, day-by-day balance in each patient's account. |
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Term
| How often should postings be made from the cash receipts journal? Explain |
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Definition
| The postings of entries from the cash receipts journal is the same as for the revenue journals. Daily postings are made to the patients' ledger, monthly postings of column totals are made to the general ledger. |
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Term
| Give four reasons why employee compensation generally composes more than 50 percent of the total op expense in hospitals. |
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Definition
| 1. Largely a personal-service, labor-intensive business that generally requires 5 employees per patient. 2. Must employ many highly skilled specialists and professionals who command high salaries. 3.The nature and importance of healthcare services is such that high-quality, adequately paid personnel should be employed. 4. Competition from industrial and commercial businesses for such personnel has led to an increased general level of compensation. |
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Term
| What is the FICA tax rate? What is the maximum annual amount of FICA tax that is paid by an employee? |
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Definition
| The 2002 FICA tax rate is 6.2% on the first $80,400. The maximum annual amount of FICA tax that is paid by and employee is $4,984.80. |
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Term
| Other than taxes, list five types of withholding deductions that often are made from hospital employee's paychecks. |
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Definition
| 1.Government savings bonds or other employee savings plan. 2.Premiums for health, accident, hospital, and life insurance. 3.Union membership dues. 4.Employee retirement plans. 5.Employee contributions to the community chest, United Fund, or other charities. |
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Term
| Describe briefly the general procedures followed in computing the gross payroll in a hospital for a given pay period. |
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Definition
| On the basis of time cards, time report, and other source documents that have been collected from the various departments, the payroll clerk is able to compute the gross pay of each employee for the pay period involved. |
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Term
| How should hospital accountants record donated services? |
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Definition
| Donated services such as these should properly be recorded at fair market value only when (1) the donor and hospital have the equivalent of an employer-employee relationship and (2) there is an objective basis for determining the amounts that might otherwise have been paid for such services. |
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Term
| Briefly describe the basic features of a good internal control system for a hospital payroll. |
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Definition
| 1. Employee responsible for the compilation of payrols should neither sign nor distribute payroll checks. 2.mechanical check signer should be strictly controlled. 3. distribution of payroll checks should be centralized and procedures should be employed that ensure thae employees receiving checks are properly identified. 4. method of distributing checks and person should be changed occasionally. 5.Unclaimed checks should be investigated and retained by a person independent from the payroll functions. |
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Term
| As part of the regular accounting routine, should unemployment taxes and the hospital's share of FICA taxes be charged to departmental cost center accounts? Explain your answer. |
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Definition
| No. These taxes are not directly controllable by department heads and supervisors. |
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Term
| Explain briefly how state workmen's compensation laws affect the hospital's payroll accounting. |
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Definition
| State workmen's compensation laws that provide various benefits to disabled workers. In some cases, a tax is imposed on the employer, but more often the state laws establish standard benefits and allow hospitals to provide for such benefits through the purchase of appropriate insurance form a commercial insurance company. |
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Term
| Describe briefly how the operation of an imprest payroll checking account. What are the advantages of such a system? |
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Definition
| When payroll is determined, a check is drawn against the gen. checking account. This check is deposited in the payroll check account, but no entry is made in the payroll check account to record the deposit. The individual payroll checks were drawn on the payroll check account, but no entry was made to that account for those checks. When the payroll checks are cashed the payroll check account automatically clears to the zero or imprest balance maintained in the account. This procedure removes a large volume of paychecks from general checking and simplifies reconciliation of the payroll checking account. |
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Term
| What is the purpose of a purchase requisition? Who prepares it? How many copies are usually made? To whom are the copies sent, and why? |
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Definition
| 1.The purpose is to provide a means by which dept heads can make known to the purchasing dept that certain goods or services should be purchased. 2.The form is generally executed by a dept head or inventory storekeeper. 3. A copy is sent to the purchasing dept to inform that dept of the items to be purchased; a duplicate copy is retained in a file as evidence that the request was made. |
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Term
| Describe briefly the purchasing function in hospitals. |
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Definition
| Procurement of supplies and services is a function of major importance in hospitals. The purchasing responsibility consists basically of acquiring required supplies and services of the appropriate quality, in the proper quantities, at the times needed and at reasonable costs. |
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Term
| Describe briefly the receiving function in hospitals. |
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Definition
| On receipt of purchased supplies from vendors, the hospital's receiving dept manager has the responsibility for counting, weighing, or otherwise measuring the quantities of goods received. |
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Term
| What documents generally are included in a voucher package? |
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Definition
| The documents included in a voucher package are the purchase order, the receiving report, and the voucher-check form. |
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Term
| Describe the voucher system as a means of internal control over cash disbursements by hospitals. |
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Definition
| The voucher system works as a means of internal control over cash disbursements because it requires three procedures to be completed (the requisition, ordering, and receiving of the goods or services) before payment will be made. |
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Term
| How often should postings be made from (a) the voucher register and (b) the cash disbursements journal? Explain why the frequency is needed. |
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Definition
| Daily postings should be made from these journals to the accounts payable subsidiary ledger; monthly postings should be made of column totals to the general ledger accounts. |
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Term
| Distinguish between unrestricted and restricted resources. |
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Definition
| Restricted resources may be restricted by donors to specific uses and purposes such as construction of new hospital buildings, purchase of new equipment, or the financing of hospital charity work, research, and educational activities. such resources are not available for any purpose other than that specified by the donor. 2. All other resources of the hospital are unrestricted resources . These resources are not restricted in any way by donors or other external parties. |
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Term
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Definition
| Fund accounting may be defined as a system of accounting in which the resources of a hospital are segregated in the accounting records in to self-balancing sets of accounts, called funds, for the purpose of carrying on specific activities or attaining particular objectives in accordance with legal and other restrictions. |
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Term
| Why is fund accounting a useful system of accounting for many hospitals? |
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Definition
| because of the legal and moral obligation on the part of the hospital to comply fully with donors' restrictions and stipulations. there is also an administrative or managerial need to maintain in the accounting records a careful distinction between unrestricted and restricted resources. |
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Term
| Why is fund accounting a useful system of accounting for many hospitals? |
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Definition
| because of the legal and moral obligation on the part of the hospital to comply fully with donors' restrictions and stipulations. there is also an administrative or managerial need to maintain in the accounting records a careful distinction between unrestricted and restricted resources. |
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Term
| What is a "board-designated" Fund? Explain why the resources of this kind are not classified as restricted resources. |
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Definition
| A "board-designated fund" is a group of accounts containing assets which, although unrestricted by external donors, have been designated or earmarked by the governing board for particular uses or purposes. Such funds are not to be classified as restricted resource because, if necessary the board has the power to eliminate or change its designations for such assets. |
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Term
| When should resources be transferred from the specific purpose funds to the unrestricted fund? |
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Definition
| Once recorded as specific purpose funds, these resources remain restricted funds until such time as the specified purposes are completed by appropriate activity in the unrestricted fund. As expenditures are made for the donor specified purposes by the unrestricted fund, periodic transfers of the previously restricted resources are made to the unrestricted fund from the appropriate specific purpose fund. |
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Term
| When should resources be transferred from the plant replacement and expansion funds to the unrestricted fund of the hospital? |
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Definition
| Until the equipment is purchased using the resources of the unrestricted fund, the money remains in the plant replacement and expansion fund. When the equipment is purchased by the unrestricted fund, the money is transferred to the unrestricted fund. |
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Term
| When, if ever, should resources be transferred from the unrestricted fund to the plant replacement and expansion funds? |
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Definition
| When third party payers restrict reimbursements for depreciation to the purchase of plant assets. In unusual cases, when the replacement and expansion fund borrows money from the unrestricted. |
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Term
| When, if ever, should resources be transferred from the endowment funds to the unrestricted? |
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Definition
| When term endowments expire, when endowment fund investment income is unrestricted by donors, or when money is borrowed (where legal) from the endowment fund by the unrestricted. |
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Term
| If investments held in a restricted fund are sold at a gain, in what fund should the gain be recorded? |
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Definition
| The general rule is that gains on investments of restricted funds are recorded only in the restricted funds. |
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Term
| In what fund should unrestricted investment income earned on endowment fund investments be recorded? |
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Definition
| Directly recorded in a fund other than the endowment fund. Gains and losses on endowment fund investments, however, generally are recorded in the endowment fund on the theory that gains and losses follow the endowment fund principal rather than the endowment fund income. |
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Term
| In the context of "fund accounting," what does the word fund mean? |
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Definition
| Funds are self balancing set of accounts for the purpose of carrying on specific activities or attaining particular objectives in accordance with legal and other restrictions. |
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Term
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Definition
| Quick assets consist of cash and those other assets (temp investments and accts receivables) that can be quickly and directly converted into cash. |
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Term
| Define cash. Are postage stamps, postdated checks, and employee IOUs properly included in "cash"? If not, how should such items be classified in the balance sheet? |
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Definition
| Cash may be defined as consisting of actual money and other immediately available resources or credit instruments generally accepted as media of exchange and used as money equivalents. Postage stamps are supplies, not cash. Postdated checks and IOUS are properly treated as receivables. |
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Term
| For what reasons are bank reconciliations prepared? By whom should bank reconciliations be prepared? |
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Definition
| 1. they aid in the prevention and detection of fraud, discovery of errors in accounting records, and the determination of the accuracy of the bank statement. 2.supervised by the hospitals controller and should be performed by someone who does not handle cash or cash records. |
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Term
| Explain how you would determine the appropriate imprest amount with which to establish a petty cash fund? |
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Definition
| It can be determined be a study of petty cash disbursements over a period of time. An amount should be established which is neither excessive nor inadequate. |
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Term
| Briefly describe the imprest system for operating a petty cash fund and state the principal advantages of the imprest system from the standpoint of internal control. |
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Definition
| Imprest funds are established in a fixed amount that is replenished periodically to ensure that the fund does not run out of money. The fixed amount ensures that in the event of theft only the fixed amount is lost. |
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Term
| Briefly describe the imprest system for operating a petty cash fund and state the principal advantages of the imprest system from the standpoint of internal control. |
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Definition
| Imprest funds are established in a fixed amount that is replenished periodically to ensure that the fund does not run out of money. The fixed amount ensures that in the event of theft only the fixed amount is lost. |
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Term
| Indicate some of the major requirements for a good system of internal control over hospital inventories. |
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Definition
| 1.Responsibilities for inventory should be assigned carefully. 2. # of inventory locations should be minimized. 3. Inventory locations should be kept clean, lighted, and locked. 4. Access should be limited to authorized individuals. 5. inventory should be released only on presentation of inv. requisitions. 6, Par levels should be devised to ensure that inventory levels are adequate. |
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Term
| Indicate the reasons that a considerable amount of importance should be assigned to inventory accounting and management in a hospital. |
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Definition
| The annual usage of supplies is a significant cost element. As much as 15 percent of total op expense may be represented by the cost of supplies. And inventory is highly susceptible to theft. It also should be recognized that the cost of maintaining inventory is substantial. |
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Term
| Define current liabilities. Give 6 examples of accounts that are reported in the current liability section. |
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Definition
| Cur. Liabilities are obligations that mature and normally will be paid within approximately one year from the balance sheet date. Ex: Notes payable, accounts payable, current maturities of long-term debt, accrued liabilities for expenses and other items and deferred revenues. |
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Term
| What are the financial consequences of a continued failure to take advantage of cash discount opportunities in the payment of accounts payable? |
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Definition
| If the discount opportunity is missed, no recognition is given to the discount lost in the accounting records. A continued failure to take advantage of cash discounts will result in charges and patient bills being higher than they should be. |
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Term
| What are some of the major features of a satisfactory system of internal control over hospital liabilities? |
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Definition
| The key to effective internal control over liabilities lies in (1) an appropriate authorization of purchase, borrowing, payroll, or other transactions giving rise to liabilities, and (2) an accurate determination of the amounts in which such liabilities are recorded. |
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Term
| Distinguish between land and land improvements. |
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Definition
| The land account includes the cost of earth surface owned by the hospital and used in the ordinary course of hospital operations. Land improvements consist of the cost of on-site water and sewer systems, fencing and walls. shrubbery and trees, and paving of roadways and parking lots. |
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Term
| Describe briefly the proper accounting procedure for minor equipment? |
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Definition
| As a matter of expedience, many accounting systems provide that only the cost of the original supply of minor equipment should be charged to this asset account. This original cost generally is depreciated over a short period (perhaps 3 years), with all additional purchases charged to expense at acquisition. |
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Term
| What are the advantages of maintaining a detailed subsidiary ledger for plant assets? |
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Definition
| Such records support the periodic depreciation charges, and the balance sheet asset valuations provide the basis for insurance coverage and claims, permit the accurate recording of asset retirements and disposals, and assist in securing effective internal controls over the plant asset investments. |
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Term
| "Depreciation expense is a measure of the decline in the value of plant assets during an accounting period." Do you agree? Explain. |
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Definition
| Yes. Depreciation expense is a measure of the "wearing out" process of plant assets. |
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Term
| Distinguish briefly between the group depreciation method and the composite rate depreciation method. |
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Definition
Group- A number of similar plant assets are depreciated as a single unit.
Composite- a number of dissimilar assets may be depreciated as a single unit. |
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