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Healthcare Accounting

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The Solution provides a discussion of healthcare accounting.

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Healthcare Accounting:
There are five areas that are addressed by FASB relating to healthcare accounting. The first area is the presentation of financial statements. Since a large number of health organizations are in the non-profit category, these are organizations are likely to have differences in financial statements. There is lack of "shareholder's equity", and healthcare financial statements have contributions account that shows donations that have been received over time (1). The second area is segment reporting. Since, there are third party payers in the healthcare industry, the FASB felt that it was necessary to distinguish between the party who pays for services in a healthcare transaction and the party that is the customer. The insurance companies are not the customers. When a healthcare organization discloses its customers, it is not allowed to include any insurance company (See: FASB ASC 954-280-45-1). The third area is receivables accounting of a healthcare organization. Due to the fact that many payments received by healthcare organizations are for less than the provider's set rates, the provider is likely to overstate its receivable amounts. This practice will make the provider look more profitable than it actually is. The FAXB requires healthcare organizations to give a reasonable estimate of the amount that they are actually expecting to receive from third party payers in the same period as the services are given. The providers are later allowed to adjust these amounts when payment is recovered and they are able to provide a correct revenue account (See: Accounting Standards Update 2011-07). The fourth area is recognition of revenue. The recognition of revenue in a healthcare organization must also consider the existence of third party payers who introduced a large element of financial uncertainty (2). The providers cannot be sure how much they are going to receive for their services until they have received the payment. For this , the FASB has developed instructions for recognizing revenue (See: Accounting Standards Update 2012-04). The fifth area in which FASB has given guidance is the other expenses. The common third party payer is the insurance company. The insurance company must find ways of convincing prospective customers to buy insurance policies from them. These are reported separately from the standard marketing costs (See Accounting Standards Update 2010-24).

One of the key issues that healthcare organizations must consider is the accounting for revenues. The FASB has noted that the amount healthcare ...

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The response provides you a structured explanation of healthcare accounting. It also gives you the relevant references.

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