Foundational Accounting Concepts

Although it is important to be familiar with foundational accounting concepts and to understand how they are calculated, it is equally important to recognize how the information from these calculations fits into the larger picture of daily actions in hospitals. Consider the simple task of taking patients their dinner trays. Think of all of the different costs that are involved. The dietitian must be paid, as well as the food handlers. The food has to be purchased as well as the trays and utensils. Trays must be delivered, picked up, and cleaned. A cost is incurred at each stage.  In this Discussion, you consider how the costs of the daily tasks performed by nurses are accounted for and impact cash flow.  

To prepare: •Review this week’s Learning Resources focusing on the difference between accrual accounting and cash accounting. Conduct additional research as needed until you are confident that you grasp the distinction between the two approaches. 

•Consider why you would select one approach over the other and the effect it would have on financial decision making. Determine how you could explain these concepts to someone not familiar with accounting. 

•Select a task you might perform daily, or an item that you might use daily in the workplace, and determine where the cost should appear on a balance sheet. 

•Reflect on the role of cash in the financial operations of an organization. How could cash flow issues impact your own organization (or one with which you are familiar)?  

 Post an explanation of the difference between accrual accounting and cash accounting, and when each might be used. Then, describe a task you might perform or an item you might use daily, and explain where the cost should appear on a balance sheet, and why. Finally, assess how cash flow issues could impact your own organization (or one with which you are familiar).

Required Readings  

Baker, J. J., Baker, R. W., & Dworkin, N. R.  (2018). Health care finance: Basic  tools for nonfinancial managers (5th ed.). Burlington, MA: Jones and  Bartlett Learning.  

•Chapter 4, “Assets, Liabilities, and Net Worth” (pp. 33-36)    In this chapter, you are introduced to the meaning of assets, liabilities, and net worth. You explore the relationship between the three and how they must be balanced if an organization is to be successful.     •Chapter 6, “Expenses (Outflows)” (pp. 47-54)    The focus of this chapter is expenses and how they differ from costs. It highlights how costs should be reported and how expenses can be grouped for more effective planning and control.     •Chapter 9, “Understanding Inventory and Depreciation Concepts” (pp. 81-93)    This chapter examines the relationship between inventory and the cost of goods. It demonstrates how to calculate inventory turnover and product depreciation.     •Chapter 11, “Reporting as a Tool” (pp. 119-125)    This chapter describes the basic financial reports and how they are used in financial decision making. The four key financial statements are the balance sheet, the statement of revenue, and expense, the statement of fund balance or net worth, and the statement of cash flows.      

Zelman, W., McCue, M., & Glick, N. (2009). Financial management of health care organizations: An introduction to fundamental tools, concepts, and applications (3rd ed.). Hoboken, NJ: Jossey-Bass.  Retrieved from the Walden Library databases. 

 •Chapter 2, “Health Care Financial Statements” (pp. 25–86)    This chapter describes the shared four basic financial statements of all organizations. The authors relate the basics to business-oriented and non-for-profit health organizations.     

•Chapter 3, “Principles and Practices of Health Care Accounting” (pp. 87–120)    This chapter explores the accounting practices and principles of health care. The authors detail the rules for recording transactions and the process of recording and developing financial statements.