Due to the growing population in your city, the board of a Hospital System decided to open a hospital in your community. The name of the hospital is The New Hospital (NHA). After the first year of operations, the accounting department of NHA provides you with the following financial and accounting information:

The New Hospital provides services to patients during the year. It bills $500,000 in total patient services during the year and collects $375,000 of this amount before the fiscal year ends. It also collects $100,000 from the prior fiscal year for services. New Hospital also incurs $475,000 in expenses during the year. It paid out $400,000 of this amount before year-end and paid out $25,000 from expenses incurred from last year.

Using the information above, your CFO requires you to answer the following questions.

1. What is the net income for New Hospital on a cash basis?
2. What is the net income for New Hospital on an accrual basis?
3. Why are both (1) and (2) above different?
4. Which of the (1) and (2) should the company provide to NHA owners who are looking to raise additional capital for NHA?
5. Justify your answer in (4) above.