Part II: Record
Financial Operations
CHAPTER 5:
EXPENSES: (OUTFLOW)
Overview: The Distinction
Between Expense and Cost
Expenses are expired costs that have
been used up, or consumed, while
carrying on business.
Expense in the broadest sense
includes every expired (used
up) cost that is deductible
from revenue.
Overview: The Distinction
Between Expense and Cost
“Cost” is the amount of cash
expended* in consideration of
goods or services received (or to
be received).
* (or property transferred, services performed, or
liability incurred)
Overview: The Distinction
Between Expense and Cost
Costs can either be expired or unexpired.
Expired costs are used up in the
current period and are matched
against current revenues.
Unexpired costs are not yet used up
and will be matched against future
revenues.
Disbursements for Services
Disbursements for services represent
an expense stream (an outflow)
Disbursements for services can trigger
payment either:
when the expense is incurred; or
after the expense is incurred.
Disbursements for Services
Payment when the expense is incurred
does not require the expense to enter
the Accounts Payable account.
Payment after the expense is incurred
requires the expense to be recorded in
the Accounts Payable account. It is
then cleared from Accounts Payable
when payment is made.
Grouping Expenses for
Planning and Control
Grouping by Cost Center — One form
of responsibility center.
Grouping by Diagnoses and
Procedure — Beneficial because is
matched costs and common
classifications of revenues.
Study chapter examples.
Grouping Expenses for
Planning and Control
Grouping by Care Settings and
Service Lines
By care settings recognizes different sites
where service is delivered;
By service lines would be used for grouping
costs if revenues were divided by service
line.
Study chapter examples.
Grouping Expenses for
Planning and Control
Grouping by Programs
Distinguishes projects that
posses their own objectives,
funding, and indicators.
Study chapter examples.
Cost Reports As Influencers
Of Expense Formats
Since the mid-1960s Annual Cost
Reports are required by the Medicare
Program and the Medicaid Program.
Cost Reports As Influencers
Of Expense Formats
The arrangement of costs into “Cost
Centers” (on the cost report) has
strongly influenced the
arrangement of expense line items
in many health care information
systems.
Grouping Expenses by
Cost Center: Example
Cost centers are one method of grouping expenses. For example, a nursing home may
consider the Admitting Department as a cost center. In that case the expenses grouped
under the Admitting Department may include:
• Administrative and Clerical Salaries
• Admitting Supplies
• Dues
• Periodicals and Books
• Employee Education
• Purchased Maintenance
Grouping Expenses by
Cost Center: Practice
The Metropolis Health System groups expenses for the Intensive Care Unit into its own
cost center. Lab. and Laundry expenses are likewise grouped into their own cost centers.
Required:
1. Setup a worksheet with columns across the top for three cost centers: Intensive Care Unit;
Lab. And Laundry.
2. Indicate the appropriate cost center for each of the following expenses:
Drugs Requisitioned
Pathology Supplies
Detergents and Bleach
Nursing Salaries
Clerical Salaries
Uniforms (for Laundry Aides)
Repairs (parts for microscopes)
Intensive
Care Unit
X
Laboratory
Laundry
X
X
X
X
X
X
X
X
Grouping Expenses by
Cost Center:Assignment
The Metropolis Health System’s Rehabilitation and Wellness Center offers outpatient
therapy and return-to-work services plus cardiac and pulmonary rehabilitation to get
people back to a normal way of living. The Rehabilitation and Wellness Center expenses
Physical/Occupational
Cardiac
include the following:
Nursing Salaries
Physical Therapist Salaries
Occupational Therapist Salaries
Cardiac Rehab Salaries
Pulmonary Rehab Salaries
Patient Education Coordinator Salary
Nursing Supplies
Physical Therapist Supplies
Occupational Therapist Supplies
Cardiac Rehab Supplies
Pulmonary Rehab Supplies
Training Supplies
Clerical Office Supplies
Employee Education
Administrative/Clerical salaries
Therapy Rehab
Pulmonary
X
X
X
X
Training
Administrative
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X