Assignment: Institution Bad Debts

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Assignment: Institution Bad Debts

Assignment: Institution Bad Debts

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revenue include amounts deducted from total charges to account for contractual allow- ances and charity care.

Net patient services revenue is money generated by providing patient care minus the amount the organization will not collect as a result of discounting charges per contractual agreement and providing charity care. For financial reporting purposes, patient services revenue does not include provisions for charity care because charity care was never intended to result in cash flow. GAAP in 2010 required that organizations report the amount of char- ity care recorded at cost along with the method of determining cost and the organization’s


charity care policy in notes to the financial statements. (Bad debt is the accounting recog- nition of how much money the organization has billed but will not collect; the amount reported must be based on charges. Bad debt should not be confused with charity care. Bad debt expense reflects the amount for which the organization provided services with the expectation of payment. Charity care reflects services the organization provided with no expectation of payment.)

Net patient services revenue minus provisions for bad debt includes net patient service revenue minus the amount the organization will not collect as a result of bad debt. In 2012 GAAP moved bad debt from an operating expense to a deduction of revenue to account for the patient’s inability to pay deductibles for high-deductible health policies (which the organization knows at time of service). In 2016 the AICPA Revenue Recognition Task Force for Healthcare proposed, but did not require, new guidance for presenting bad debt. After recording revenue at the amount the organization expects to be paid, bad debt would then be recognized in two categories: classic bad debt (the organization believes the patient is able to pay, but the patient does not pay) would be recorded as a bad debt expense under operating expenses;

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