Assess the information presented in the medical group statement of revenues and expenses and calculate the operating margin for fiscal year 2006.
FINANCIAL ACCOUNTINGâ?"STATEMENT OF REVENUE AND EXPENSES
Statement of Revenue and Expenses for Group Practice for Year Ending June 30, 2006
Patient service revenue $9,345,600
Less: Contractuals $3,364,200
Total Net Service Revenue $5,981,400
Fringe benefits $670,268
Temporary labor $150,000
Office supplies $78,000
Mortgage payments $195,000
Minor equipment $47,500
Total Expenses $4,054,568
Net Income (profit/loss) Excess
Revenue Over Expenses $1,926,833 32.21%
Operating margin is computed by dividing net operating income into net revenues. Mortgage payments are payments of a liability; thus, they should not be deducted as operating expenses. (However, the interest related to the debt is deducted as an operating expense.) Therefore, we need to add $195,000 to the net income. Generally accepted accounting ...
This solution illustrates how to compute the adjusted net income and operating margin for a medical group.