Healthcare Accounting Financial Reporting & Analysis Flashcards

ASU 2014-09 (ASC 606) changed healthcare revenue recognition primarily by requiring hospitals to:

Answer: Estimate the transaction price including variable consideration at contract inception

ASC 606 requires healthcare entities to estimate variable consideration (including contractual adjustments and implicit price concessions) at contract inception to determine the transaction price.

Which of the following is classified as a non-operating revenue item on a hospital's income statement?

Answer: Investment income on an endowment fund

Investment income on endowment funds is a non-operating revenue item because it arises from financial activities rather than the hospital's core healthcare delivery operations.

In a hospital's statement of cash flows using the indirect method, depreciation is added back to net income because:

Answer: It is a non-cash expense that reduced net income but did not use cash

Depreciation is a non-cash expense; it reduces net income on the income statement but involves no cash outflow, so it must be added back under the indirect method.

A hospital reports $50M in gross patient revenue, $20M in contractual adjustments, and $2M in charity care. Net patient service revenue is:

Answer: $28M

Net patient service revenue equals gross charges minus contractual adjustments minus charity care: $50M - $20M - $2M = $28M.

The 'cushion ratio' in healthcare financial analysis measures:

Answer: Unrestricted cash and investments relative to annual debt service

The cushion ratio equals unrestricted cash, investments, and board-designated funds divided by maximum annual debt service, indicating how many times liquid assets cover debt obligations.

Under FASB ASC 958-605, donor-restricted contributions received by a not-for-profit hospital are initially recorded as:

Answer: Revenue with donor restrictions

Under ASC 958-605, donor-restricted contributions are recognized as revenue with donor restrictions when received, not held as liabilities.

Which metric best evaluates a healthcare organization's liquidity position for short-term obligations?

Answer: Days cash on hand

Days cash on hand measures how many days of operating expenses can be covered by unrestricted cash and equivalents, directly assessing short-term liquidity.