Chapter 12
Accounting for Hospitals and Other Health Care Providers

This chapter examines unique features of not-for-profit private
health-care organizations and briefly discusses requirements for
governmental health-care entities.
Not-for-profit, business-oriented health care organizations
are those that raise essentially all revenues from health-care
services provided, e.g., individual practitioners, clinics,
hospitals, etc.

FASB sets the standards for for-profit and not-for-profit entities,
while GASB sets the accounting standards for governmental
entities.
If it is a private sector organization, is it commercial or notfor-profit? If it is a not-for-profit, then FASB’s standards
for not-for-profit apply.
Is health-care organization governmentally related or not?
If it is, then GASB indicates that it is a proprietary activity
and enterprise fund accounting applies.
We are going to look at accounting and financial reporting
by health care entities organized either as governmental or
as not-for-profit with a business orientation.

Health Care Guide Requirements:
F/Ss should include a Balance Sheet, a Statement of
Operations, a Statement of Changes in Net Assets, a
Statement of Cash Flows, and Notes.
Must provide a performance indicator, e.g.,
Operating Income, as well as all other changes in
unrestricted net assets for the period. Show below
the line:
1
Transactions with the owners, other than in
exchange for services.
Transfers among affiliated organizations.
Receipt of temporarily or permanently
restricted contributions.
Items identified by FASB standards as elements
of other comprehensive income (e.g., foreign
currency translations adjustments).
Items requiring separate display (e.g.,
extraordinary items or discontinued operations)
Unrealized gains and losses on investments
other than those classified as trading securities.
Note disclosure is to indicate the methods of revenue
recognition (e.g., net patient revenues) and description of
the types and amounts of contractual adjustments.
Management policies for providing charity care and
the level of charity care provided should be disclosed
in the notes.
Operating revenue is often classified as net patient
revenue, premium revenue, and other revenue.
Unrestricted gifts and investment income for current
unrestricted purposes may be reported as either operating
or nonoperating revenue, depending on the policies of the
entity. In this class our policy is to classify them as
non-operating items that would go below the line on the
income statement.
Expenses may be reported by their natural or functional
classifications, but must use functional classifications if not
provided in Statement of Operations.
2
“Assets whose use is limited” is an unrestricted balance
sheet category used to show limitations on use of assets due
to bond covenant restrictions and governing board plans for
future use.
Illustrative transactions for a private not-for-profit hospital :
Unrestricted Net Asset class:
1. Provide patient services:
Cash
Patient A/R
Patient Service Revenue
71, 650
11,006
Contractual Adjustments
Patient A/R
10,000
10,000
82,656
2. To write off bad accounts receivable as they are estimated to be
uncollectible under the allowance method and to estimate bad debt
expense for current receivables in #1:
Allow. For Bad Debt
Patient A/R
1,300
General Services (or Bad Debt Expense)
Allow for Uncollectibles
1,500
1,300
1,500
3. Receive premium revenues and other revenues:
Cash
Premium Revenue
Other Revenue
25,460
20,000
5,460
3
4. Record nonoperating income:
Cash
1,856
Nonoperating income-Unrestricted gifts
822
Nonoperating income-Income from
Investments of Endowment Funds
750
Nonoperating income-Investment income
284
5. Investment income for assets whose use is limited:
Cash-Assets Whose Use is Limited
120
Nonoperating Income-Assets Whose
Use is Limited for Capital Improvements
-Investment Income
120
6. Purchase of supplies and pay off accrued payables and expenses:
Supplies
Accts. Payable
Accrued Expenses
Cash
500
800
900
2,200
7. Additional expenses were incurred:
Professional Care of Patients
General Services
Admin. Services
Accumulated Depr
Supplies
Accts. Payable
Accrued Expenses
Cash
75, 656
14,105
15,245
4,800
400
900
1,000
97,906
Reclass. from Temp. Restricted-Program
3,500
Reclass. to Unrestricted Net Assets-Program
3,500
4
8. To reclassify cash from temporary restricted to unrestricted (time):
Cash
Contributions Receivable
4,200
4,200
Reclass. from Temp. Restricted-Time
4,200
Reclass. to Unrestricted Net Assets-Time
4,200
9. Reclassify temporary restricted cash to pay for equipment in
accordance with restrictions:
PP&E
Cash
5,200
5,200
Reclass from Temp. Restricted-Plant
1,200
Reclass. to Unrestricted Net Assets-Plant
1,200
10. To record receipt of temporarily and permanently restricted
contributions.
Cash
5,600
Contributions Receivable
7,700
Revenues-Temp. Restricted-Contributions
Revenues-Perm. Restricted-Contributions
12,500
800
11. To record receipt of endowment pledges and to write some off.
Cash
Allow. for Uncollectible Contributions
Contributions Receivable
800
300
1,100
12. The current portion of long-term debt was paid and an addition
amount reclassified as current.
Long-term Debt-Current Installment
Cash
1,000
1,000
5
Long-term Debt-Noncurrent
1,000
Long-term Debt-Current Installment
1,000
13. To record investment income restricted as to purpose.
Cash
200
Investment Income-Temp. Restricted
200
14. Some investments were sold at a gain.
Cash
4,100
Investments-Other
Net Realized/Unrealized Gains on
Investments-Temp. Restricted
4,000
100
15. To purchase investments during the year, including $120 set aside
for capital improvement from earlier transaction.
Investments-Assets Whose Use is Limited
Investments-Other
Cash-Assets Whose Use is Limited
Cash
120
6,480
120
6,480
16. To adjust investments to fair value at year end.
Investment-Other
100
Net Realized/Unrealized Losses on Investments
--Perm. Restricted
550
Net Realized/Unrealized Gains on Investments
--Temp. Restricted
650
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17. Make closing entries:
Patient Service Revenue
Premium Revenue
Other Revenue
Nonoperating income-Unrestricted gifts
Nonoperating income-Income from Investment
Of Endowment Funds
Nonoperating income-Investment income
Reclass-Time
Reclass-Program
Reclass-Plant
Contractual adjustments
Professional Care of Patients
General Services
Admin. Services
Net Assets-Undesignated
Nonoperating Income-Assets whose use is
Limited for capital improvementsBoard designated
Net Assets-Board designated
82,656
20,000
5,460
822
750
284
4,200
3,500
1,200
10,000
75,656
15,605
15,245
2,366
120
120
18. Closing entry made for temporarily restricted net assets:
Contributions - Temp Restr
Net Realized/Unrealized Gain/Loss
On Investments-Temp Rest
Investment Income-Temp. Restricted
Reclass-Time
Reclass-Program
Reclass-Plant
Net Assets - Temp Restr
12,500
750
200
4,200
3,500
1,200
4,550
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19. Closing entry made for permanently restricted assets:
Contributions-Perm. Restricted
Net Realized/Unrealized Gain/Loss
On Investments-Perm Restr
Net Assets- Perm Restr

800
550
250
Financial Statements for Private Sector NFP Health Care Entities
Statement of Operations—Ill. 12-3
Statement of Changes in Net Assets—Ill. 12-4
Statement of Financial Position—Ill. 12-5
Statement of Cash Flow—Ill. 12-6

Financial Reporting for Governmental Health Care Entities
Follow accounting standards established by GASB and
AICPA Health Care Guide (Category B GAAP). If engaged
in business-type activities will prepare three financial
statements.
Statement of Net Position, Ill. 6-3
Statement of Revenues, Expenses, and Changes in Net
Position, Ill. 6-4
Statement of Cash Flows, Ill. 6-5

Financial Reporting for Commercial (For-Profit) Health Care
Entities
Follow accounting standards established by FASB
(Category A GAAP) and the AICPA Health Care Guide
(Category B GAAP). However, FASB’s pronouncements
related to NFPs do not apply to them.
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