ALF Financial Management and Budgeting 3 — Questions and Answers
Question 1: Which financial statement shows a facility's assets, liabilities, and owner's equity at a specific point in time?
- Income statement
- Budget variance report
- Balance sheet (Correct answer)
- Statement of cash flows
Correct answer: Balance sheet
The balance sheet is a snapshot of financial position at a single date, following the equation assets = liabilities + equity.
Question 2: An ALF administrator wants to know whether the facility can meet its short-term obligations. Which ratio is most useful?
- Current ratio (Correct answer)
- Return on assets
- Debt-to-equity ratio
- Payroll-to-revenue ratio
Correct answer: Current ratio
The current ratio compares current assets to current liabilities, measuring short-term liquidity.
Question 3: Under accrual accounting, when should a facility record revenue for care services provided in June but paid for in July?
- Split evenly between both months
- In whichever month benefits the budget
- In June, when the service was provided (Correct answer)
- In July, when payment was received
Correct answer: In June, when the service was provided
Accrual accounting recognizes revenue when it is earned, not when cash is received.
Question 4: A resident's family disputes a charge and refuses to pay a $2,000 balance the facility determines is uncollectible. How should this be recorded?
- As deferred revenue
- As a capital loss
- As a contractual allowance
- As a bad debt expense (Correct answer)
Correct answer: As a bad debt expense
Uncollectible resident accounts are written off as bad debt expense.
Question 5: Which strategy is most appropriate for an administrator facing a projected cash shortfall in the next 60 days?
- Reduce required staffing below state minimums
- Cancel the facility's liability insurance
- Stop paying payroll taxes temporarily
- Accelerate billing and collections while delaying non-essential purchases (Correct answer)
Correct answer: Accelerate billing and collections while delaying non-essential purchases
Speeding up cash inflows and deferring discretionary outflows manages a shortfall without violating legal obligations.
Question 6: What does the term 'per resident day' (PRD) cost measure in facility financial analysis?
- The state-mandated daily reimbursement cap
- Total annual cost divided by number of employees
- Average cost of operating the facility for one resident for one day (Correct answer)
- Daily revenue from the highest-paying resident
Correct answer: Average cost of operating the facility for one resident for one day
PRD divides costs by total resident days to allow comparison of efficiency across time periods and facilities.
Question 7: During budget preparation, an administrator projects census will rise from 85% to 90% occupancy. Which expense category should be adjusted upward as a direct result?
- Mortgage principal payments
- Building depreciation
- Property taxes
- Variable costs such as food and care supplies (Correct answer)
Correct answer: Variable costs such as food and care supplies
Variable costs rise with census, while property taxes, mortgage, and depreciation remain fixed.
ALF Financial Management and Budgeting 3
Which financial statement shows a facility's assets, liabilities, and owner's equity at a specific point in time?