Assignment: Liabilities & Net Assets

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Assignment: Liabilities & Net Assets

Assignment: Liabilities & Net Assets

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Decisions that may at first appear to be contrary to the information provided in the first two steps may make perfect sense based on pressures from internal and external constituents, including medical staff, employers, regulators, donors, and others. The example of a fictional facility, Bobcat Hospital, will be used to illustrate the financial analysis concepts in this chapter.

bAlAnce sHeet

The balance sheet shows the organization’s financial position at a specific point in time, typically at the end of an accounting period (see exhibit 3.1). The balance sheet presents the organization’s assets, liabilities, and net assets (or shareholders’ equity in for-profit orga- nizations) and its relationships, which are reflected in the following accounting equation:

Assets = Liabilities + Net Assets

Assets are economic resources that provide or are expected to provide benefit to the organization. Current assets are economic resources that have a life of less than one year (i.e., the organization expects to consume them within one year). Current assets are listed on the balance sheet in order of liquidity. Cash is money on hand and in the bank that the organization can access immediately. Temporary investments consist of money placed in securities with maturities up to one year, such as commodities and options. The category receivables, net—made up of patient accounts receivable, net of allowances for contractual allowances, charity care, and bad debt—represents money due to the organization from patients and third parties for services already provided. Inventory is the cost of food, fuel, drugs, and other supplies purchased by the hospital but not yet used or consumed. Prepaid expenses are expenditures made by the hospital for goods and services not yet consumed or used in hospital operations (sometimes referred to as deferred expenses), such as rent and insurance premiums.

Noncurrent assets are economic resources that have a life of one year or more (i.e., the organization expects to consume them over a span longer than one year). Plant and equipment, net consists of economic resources, such as land, buildings, and equipment, minus the amount that has been depreciated over the life of the buildings and equipment (which is called accumulated depreciation). Long-term investments are economic resources that the hospital owns, such as corporate bonds and government securities, and intends

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