I’m working on a public health question and need the explanation and answer to help me learn.
Two methods of accounting are well-known in the field of health services; cash-based accounting and accrual-based accounting. The main difference is the timing of cash flow, and each method has advantages and disadvantages. Generally, those methods help evaluating the performance of business, ensure statuary compliance like liability, taxes, and pension, create budget and future projections, and they are the basis to formulate a financial statement (Weygandt et al., 2015).
Cash based accounting records revenues and expenses when the cash flows irrespective of the timing of actual transaction. It is suitable for small organizations rather than bigger ones as the capital is somewhat limited and cash flow is necessary to maintain operations. On the contrary, accrual accounting records the transaction in financial statements at its actual timing. This method of accounting helps an organization to obtain an accurate image of number of transactions that may happen in a given time frame, e.g. quarterly or fiscal year. However, balanced time-limited financials won’t accurately account for the revenues and accordingly, performance might be relatively vague. “Medical Practice Management Report” may be used to measure performance of a health practice statistics for evaluations against benchmarks (George Washington University’s Online Healthcare MBA, 2021).
Operational oversight is remarkably affected by the implemented accounting method. Accounting function is essential to maintain the stability of financial status and requirement within the institute while inflow and outflow must be in balance to sustain the operations. For example, as most small health businesses use cash-based accounting, the cash flow may be insufficient at some point if the payers are delayed, and the revenues in financial statement will be off compared to expenses. A wise course of action is prioritizing the due expenses or adjust the timing. In accrual method, statements reflect transactions rather than cash flow. Although this might not be impactful on day-by-day operations, it may be confusing to evaluate the actual inflow and outflow of certain procedure or employee.
1. Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2015). Accounting Principles. John Wiley & Sons.
2. George Washington University’s Online Healthcare MBA. (2021, December 14). Accounting in Health Care: What You Need to Know. George Washington University. https://healthcaremba.gwu.edu/blog/accounting-in-h…
this is was qoustion
There are a number of unique factors relating to the health services sector:
Compare the two types of accounting functions.
Describe how the accounting functions affect operational oversight.
How do these unique features affect the financial management of the sector?
Expert Solution Preview
When it comes to the healthcare sector, there are unique factors that influence the accounting functions and financial management. Two main types of accounting methods are cash-based accounting and accrual-based accounting, each with their own advantages and limitations. In this response, we will compare the two types of accounting functions, describe how they affect operational oversight, and discuss how these unique features affect the financial management of the sector.
1. Compare the two types of accounting functions.
Cash-based accounting records revenues and expenses only when cash is exchanged, regardless of the timing of the actual transaction. On the other hand, accrual-based accounting records transactions in financial statements at their actual timing. Accrual-based accounting provides a more accurate picture of the number of transactions that may occur in a given time frame. Cash-based accounting is more suitable for small organizations with limited capital and a need for cash flow to maintain operations. In contrast, accrual accounting is more suitable for larger organizations that can manage more complex financial transactions and require a more accurate financial picture.
2. Describe how the accounting functions affect operational oversight.
The type of accounting function used can significantly affect operational oversight. The accounting function is essential for maintaining the stability of the financial status and requirements within the organization. Inflow and outflow of cash must be balanced to sustain operations. In cash-based accounting, the cash flow may be insufficient at some point if the payers are delayed, resulting in inaccurate revenues in the financial statements compared to expenses. The organization may need to prioritize due expenses or adjust timing to maintain accurate financial records. In accrual-based accounting, the financial statements reflect transactions rather than cash flow, which can be confusing when evaluating the actual inflow and outflow of certain procedures or employees.
3. How do these unique features affect the financial management of the sector?
The unique factors of the healthcare sector, such as the need for extensive regulation and insurance requirements, significantly influence financial management. Accurate financial records are vital in this sector to ensure statutory compliance, maintain financial stability, and manage budgets and future projections. Inaccurate financial records could result in compliance issues and negative financial impact. The type of accounting function used will influence the financial picture and could impact decision-making processes. In some cases, the choice of accounting function depends on the size of the organization, limitations, and cash flow needs. However, both accounting functions have their limitations that the organization must consider to ensure accurate financial records.
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