Accounting in healthcare Essay.

Accounting in healthcare Essay.


Accounting is concerned with recording, assessment and reporting of financial transactions of an organization or business entity. It involves declaration of information regarding to assets, expenses, liabilities and business outcomes. Financing on the other hand means time, risk and money related with certain businesses. A major difference therefore is that finance works on accounting information to predict or make decisions about the future. Another major difference between accounting and financing is treatment of funds whereby the former uses accrual basis to determine expenses and income.Accounting in healthcare Essay.


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Revenues are recognized at the point of sale while expenses are recognized when they are incurred.  In finance, determination of funds is on the basis of cash flows whereby revenues are recognized upon receipt of cash and expenses are acknowledged when actual payments are made. Another difference between accounting and finance is in the aspect of their purposes.


Accounting aims to collect and present financial information. Accounting furnishes interpreted previous, present and future performance of a health organization. Financial directors are responsible for managing, decision making, controlling and strategizing organizations policies. In other words financing starts where accounting ends hence making difference between the two.Accounting in healthcare Essay.

2. What is the difference between financial accounting and managerial accounting?

Managerial accounting concerns with provision of information to mangers who are concerned with direct control of organizations operations. On the other hand, financial accounting provides information to creditors, stakeholders, and other individuals outside the organization. Secondly, managerial accounting provides necessary information for running affairs of the organization. In contrast, financial accounting provides information used by outsiders to judge the over all performance of the organization. Thirdly, in managerial accounting reports are made to individuals inside the organization for purpose of planning, motivating, controlling, directing and evaluation on performance.Accounting in healthcare Essay.

On the other hand, reports in financial accounting are relevant to individuals outside the entity such as tax authorities, lenders and regulators. Fourthly, managerial accounting emphasis on decisions affecting the future while in financial accounting emphasis is relate to financial consequences resulting from past activities. Fifth, in managerial accounting detailed reports about departments, customers, employees and products are prepared. In contrast, financial accounting calls for provision of summarized data necessary for the entire organization. Sixth, it is not important to follow Generally Accepted Accounting Principles (GAAP) in managerial accounting while it is mandatory to follow GAAP in financial accounting.

  1. Explain the relationship between financial risk and financial return.

An investment results to a return which is subject to certain level of risk which basically means that an investment with high risks has the highest returns. In other words, the larger the expected return, the higher the risks. Financial risk is uncertainty of return on any given investment. It is the risk of loss recognized from financing investments such as instruments or assets with a view of raising money. Financial risk and return are two related terms that results to a gain or loss from investments or securities. In this aspect, risk represents the money lost by an investor while return represents profit gained by an investor.

In the case an investor decides to invest in low risk securities the returns will be minimal. Return from an investment is measurable through real rate which reflects what an investor earns after considering certain expenses. In general every business is subjected to risk for better returns. Financial risk checks on how an organization’s finances are structured such as the use of corporate debt and stock issuance. In this aspect a financial risk is usually shifted to investors who invest in company’s securities or debt.

  1. Why the U.S. health care system is considered complex?

The US health care system is one of the most complex health care delivery entities in industrialized world. It has certain unique strengths and weaknesses that are associated with increased levels of medical service in addition to economic efficiency. The complexity of the health care system is associated with a number of factors which should be considered for purpose of reforms. One major factor that contributes to complexity of the health care system is odd mix which is a concept of different players in provision of health care services with contradictory goals.

The combination of different features such as labs, hospitals, physicians and other medical services results to its complexity. A second consideration is professional autonomy which is enforced by the Congress and employers. The Congress is concerned with transformation of the health care systems for provision of better services. The complexity of the health care system is in correspondence with customers needs such as rationalized care and cost-effective services.

The conflicts between countervailing powers through professional power makes the health system more complex. Awkward misalignment is a third factor that has contributed to complexity of the US health care policy. This is in relation to value, reality and regulations which are considered as the three main pillars of health care institutions.Accounting in healthcare Essay.

  1. Do health care organizations typically get paid based on their established charges? If not, explain how they do get paid.

The health care organizations are paid by the government on their established charges especially in advanced technologies, complicated treatments and hospitalization. The provision of health care services is to some extent deemed expensive for patients. The cost of health care therefore is shared by a combination of efforts from the patients, insurance providers, government and employers. Full time employees are covered by their employers through health insurance. This is achieved through monthly deductions made on employee’s salaries.

The involved parties in this scheme of medical benefits work in corroboration towards reduction of care costs. Payment of health care established on their charges is achieved by paying a fee for service or capitation. Many health care payment plans combine both capitation and fee for service. Each health care entity recognizes its own charge masters which are not made public. The most critical aspect of these charges is the wide variation of costs incurred in service provision. It is not understood on how the variations in medical provisions are made. The variations however, are considered to be a factor of bargaining power based on the financial status of an individual.

6. Why are charges not reported as revenue for health care organizations?

Health care organizations such as hospitals are non-profit making organizations whose motive is note to recognize revenues. Revenue for healthcare institution is the amount a patient has to pay for medical services provided. In correspondence to this definition, revenue is the net amount after deduction of charges through contractual adjustments. The payments made by patients are termed as charges which basically cater for medication services and acquisition of drugs.Accounting in healthcare Essay.

The ratio of patients charged to cost of charges varies among various institutional health care entities and services provided. This thus makes it difficult for such institutions to consider charges as revenue. In any other business with a purpose of profit maximization charges are used as basis for reporting revenue. The advantages associated with such charges in health care organizations thus are diminished by smaller number of services paid on this basis. Charges in health care are non-reliable uniform measures of amount received by patients. In this aspect charges can overstate payment shortfall thus making it hard to obtain concrete rate of payment.Accounting in healthcare Essay.