Questions and Answers of Fundamental Accounting

What is a third-party payment system? How does this payment system affect the financial management of health care organizations?
What is a contractual allowance?
Why are some charges not reported as revenue for health care organizations?
What were the major changes contained in the Patient Protection and Affordable Care Act of 2010?
What are the two most crucial aspects of this accounting entity concept?
Define the following:a. Assetb. Liabilityc. Net asset
What are some specific examples of assets and liabilities?
Why do not-for-profit organizations use a fund accounting system?
Why are Generally Accepted Accounting Principles (GAAP)needed?
Explain the following Generally Accepted Accounting Principles (GAAP):a. Going concernb. Conservatismc. Matchingd. Coste. Objective evidencef. Materiality g. Consistency h. Full disclosure The
For the following examples, state what the correct value is and what accounting concept justifies your answer:a. NYU Health bought a magnetic resonance imaging (MRI)machine worth $1,500,000, but
Why is the balance sheet considered a point-in-time statement?
What is a fiscal year? Why might an organization choose a fiscal year that differs from a calendar year?
How are paid-in capital and retained earnings different in forprofit health care organizations?
What can a financial statement user learn from analyzing the operating statement? Will this provide all the information necessary to understand the organization’s cash position?
What are the key differences between cash and accrual accounting?
What are pros and cons of cash accounting? Of accrual accounting?
A medical practice bills $10,000 worth of patient visits in the month of May, but only collects $5,000 of this amount before the month ends. In addition, the practice collects $3,000 from prior
Williams Medical Center (WMC) is a not-for-profit health care organization that begins operations in 2024. In its first year of operations, WMC earned $200,000 of revenues for services rendered. Of
Why is the GAAP concept of objective measurement paramount in understanding asset valuation?
Describe mark-to-market asset valuation.
Discuss how financial assets are classified by levels in the notes to the financial statements.
Distinguish between net realizable value and replacement cost.
What are the advantages and disadvantages to measuring asset values based on expected future profits?
What are the strengths and weaknesses of using the historical cost approach for valuation of assets? How have GAAP changed over time for financial assets such as stocks and bonds?
How does a health care provider indicate the obligation to provide care under a managed care contract that has been paid in advance?
Suppose a health care organization buys supplies from a vendor but has not yet paid for the supplies. The vendor will give a 5% discount to the health care organization if it pays the invoice within
In a publicly traded organization, why might a company have a market value that differs from the owners’ equity on the balance sheet?
Describe the basic accounting equation. How does the double-entry accounting system work?
What is the accounting journal?
How are explicit price concessions accounted for when recording revenues?
Create a journal entry and a T-account entry for each of the following transactions:a. $30,000 worth of supplies purchased with cashb. $10,000 worth of supplies used to provide clients with goods
Create journal entries for each of the following transactions:a. $15,000 worth of supplies is purchased on account.b. Equipment is depreciated by $7,000.c. $10,000 worth of supplies is used in
Create journal entries for the following transactions:a. Health Care Organization (HCO) bought inventory and paid $23,000 in cash.b. HCO bought inventory on account for $34,000.c. In January 2023,
How do ledger and journal entries interact with one another?
Explain how the ledger provides the information needed to prepare the balance sheet.
Distinguish between a temporary and a permanent account.
Explain how the ledger provides the information needed to prepare the operating statement.
What are the three categories used within the statement of cash flows? Why are these categories important for understanding an organization’s cash situation?
Differentiate between the direct and the indirect methods for preparing and presenting the statement of cash flows.
Explain why health care organizations need both an operating statement and a cash flow statement.
What is the purpose of an audit performed by a CPA?
Do audits signify to financial statement users that no fraud and embezzlement occurred at the organization?
How does sampling financial transactions help an auditor identify accounting errors?
How do the auditor management letter and opinion letter differ from each other?
What is the opinion letter? What are the different opinions that can be rendered?
What are the primary reasons for audit failures and the financial scandals that sometimes accompany them?
Describe government efforts to reduce audit failures.
Which GAAP require the use of depreciation for assets that have useful lives beyond 1 year? Explain why this is the case.
What is the difference between depreciation and amortization?
Explain the four steps in the depreciation process.
The York City Hospital has just acquired new equipment. The equipment cost $4,250,000, and the organization spent $135,000 on upgrading the physical plant the new equipment will be located in. The
A new medical practice purchases computer equipment that cost $15,000, to be used for medical billing. In addition, the practice purchases billing software that cost $5,000. Both the computer
The New Hospital has raised money for a new oncology wing. The hospital has also acquired medical diagnostic equipment that cost $500,000. In addition, the hospital paid $15,000 to ship the equipment
For-profit organizations can use different methods for reporting depreciation to owners and to the government (for tax purposes). What is the practical effect of this allowance?The following question
Brooklyn Orthopedic Clinic is expanding its operations and purchases an MRI machine. The acquisition cost of the machine is $2,000,000. The costs to ship, install, and commission the machine total
What is a periodic inventory system? What is a perpetual inventory system? Why might an organization choose one over the other?
How do accountants keep track of the number of units sold if they are using the periodic inventory method?
What are the four basic cost flow methods for inventory valuation? What are the implications for financial reporting?
Assume your organization has the following inventory changes during the year:Beginning Inventory 15 units valued at 10,000eachFebruarypurchases13unitsat10,000eachFebruarypurchases13unitsat11,500 each
Brooklyn Orthopedic Clinic maintains and sells an inventory of drugs for its patients. The following represents the activity for the past year, assuming no inventory at the beginning of the
The Brooklyn Clinic maintains and sells inventories of medical supplies for its patients. The following represents the activity for the past fiscal year:Beginning inventory of 100 medical supplies at
Why should interested parties thoroughly review an organization’s financial statements?
Why are financial statements usually presented with more than 1 year of data?
Assets are listed in order of liquidity. What does that mean?
What does accounts receivable, net mean?
For a for-profit corporation, what are the main categories of owners’ equity?
For a not-for-profit organization, what are the two classes of net assets?
Why might the excess of revenues over expenses be of particular interest to a financial statement user, rather than the increase in net assets without donor restrictions?
What does the statement of cash flows tell us that looking at the change in cash on the balance sheet does not?
Should each of the sections of the cash flow statement show an increase in cash for a healthy organization?
Why are the notes important for understanding an organization’s financial statement?
What types of policies are typically disclosed in the first note that accompanies financial statements? Give several specific examples.
What are some types of additional disclosure you might see in the notes?
If an organization is being sued, what, if anything, must be disclosed in the notes?
Why are ratios used to analyze the financial statements of organizations?
When common size ratios are prepared, each asset is compared to ___________ and each expense is compared to _______________. How do common size ratios help compare organizations?
How do you evaluate a ratio for a specific year?
Why might too much liquidity be a problem for an organization? Why might too little be a problem?
Discuss when and why different profitability ratios might be used.
Using Table 14. 1 and Table 14. 2 from the text, calculate the current ratio, days cash on hand, days in accounts receivable, total asset turnover, interest coverage, long-term debt to net assets,
Using the following financial statements, answer the following questions:a. Common size the balance sheet for Queens Orthopedic Clinic (QOC).b. Prepare a ratio analysis showing the following types of
What are the three steps in investment analysis?
True or False: Investment analysis is concerned with revenues and expenses. (Explain your answer.)
Suppose that two projects each cost $12,000. The first project returns $4,000 per year for 6 years. The second project returns $6,000 per year for 2 years. Which has the better payback period? Are
How much will $6,000 invested at 5% simple interest be worth in 3 years? What will it be worth if the interest rate is 7%?
How much will $5,000 invested at 3% interest be worth in 4 years if it is compounded annually? Quarterly? How much if the interest rate is 6%?
Suppose you were offered $10,000 every year at the same point in time for 10 years and you could earn a 5% interest rate every year. How much would these cash flows be worth today? What if the cash
The Ward County Hospital Center (WCHC) wants to buy a new mobile primary care van to use in screening residents in an underserved local neighborhood. The van will last 5 years and costs $68,000. WCHC
Suppose the Williams Health Clinic (WHC) receives a multiyear pledge from a donor. The donor stipulates that she will donate $50,000 at the beginning of each year for 5 years. WHC expects that it can
Return to question 9. Suppose at the end of year 5, WHC decides it would like to use the accumulated money from the multiyear donation for various capital projects that the organization has. Assuming
Community Health Center (CHC) is considering spending $50,000 on a blood analyzer. The annual cash profits from the machine will be $7,000 for each of the 7 years of its useful life. The board of
Why can the IRR method lead to suboptimal decision making by organizations?
Working capital techniques focus specifically on what aspects of an organization’s finances?
What specific tasks does a manager undertake when handling working capital issues?
What are the three primary reasons an organization holds cash or cash equivalents?
What is the accounts receivable cycle? Why is this task especially important for health care organizations?
What is the goal of the EOQ? How does it differ from JIT inventory?
Suppose your department uses medical supplies in the provision of services. The supplies cost $7 per box and the department uses 5,000 boxes per year. Storage and financing costs are estimated at $50
What are the steps in managing the revenue cycle?

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