Assignment: Nonoperating Revenue

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Assignment: Nonoperating Revenue

Assignment: Nonoperating Revenue

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Premium revenue is money generated from capitation arrangements that must be reported separately from patient services revenue because premium revenue is earned by agreeing to provide care, regardless of whether care is ever delivered. Other operating revenue is money generated from services other than health services to patients and enrollees. It may include revenue from rental equipment and office space, sales of supplies and pharmaceuti- cals, cafeteria and gift shop sales, and so on. Often the test for whether revenue is considered other operating revenue or nonoperating revenue is whether the revenue was generated in support of the organization’s mission statement. Why is it important to distinguish between operating and nonoperating revenue? Because for a not-for-profit hospital, income derived from operations is not taxed, but income from unrelated businesses, such as the gift shop, may be taxed as unrelated business income. Net assets released from restrictions used for operations, while not reflected in Bobcat Hospital’s statement of operations, consist of money previously restricted by donors that has become available for operations.

Expenses are the amounts of resources used by the organization. The category of operating expenses represents resources used on operations to generate revenue in support of the organization’s mission statement. These expenses can be listed by functional clas- sification (organizational division), such as nursing department and support department, which is useful for internal purposes, or by natural classification, under such categories as salaries, wages, and benefits or supplies, drugs, and purchased services, as is the case with Bobcat Hospital’s statement of operations, which is useful for external purposes.

The category depreciation and amortization reflects the expensing of long-term assets over time to show their declining value. Interest is the expense incurred with bor- rowed money. Other operating expenses are miscellaneous expenses that have not been reported elsewhere.

Operating income is the money earned from providing patient care services and includes the total revenue, gains, and other support minus the total operating expenses. Nonoperating income is the money earned from non–patient care services, such as invest- ment income, as shown on Bobcat Hospital’s statement of operations.

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