Essentials of Accounting for
Governmental and
Not-for-Profit Organizations
Chapter 12
Accounting for Hospitals and
Other Health Care Providers
McGraw-Hill/Irwin
Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.
Overview of Chapter 12
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Who has standard setting authority?
What types of entities are included?
General reporting principles and
Illustrative transactions
Example Financial Statements
12-2
Ownership Types
Investor Owned:
Human Inc. stock is widely held and
the company is listed on the New
York Stock Exchange
Private Not-For-Profit:
The Hospital is owned by the
(Catholic) Archdiocese of Atlanta
Government Owned:
The NY City Health and Hospital
Corporation was created by the NY
state legislature
12-3
Ownership Types – Standard Setter
Investor Owned:
FASB – except standards specifically
for not-for-profits
Private Not-For-Profit:
FASB– particularly, standards for notfor-profits such as SFAS 116 & 117
Government Owned:
GASB
12-4
Standard Setting Authority
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GASB - Category A GAAP
 Authority over government related hospitals
FASB  Private not-for-profit hospitals
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Investor owned hospitals
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Major FASBs 93, 116,117, 124, 136, 164
Other FASBs
Additional guidance is provided by the AICPA Audit Guide for
Health Care Organizations.- This is level B GAAP for government
related, private not-for-profits, and business oriented
12-5
What Types of Organizations?
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Clinics
Medical groups
Individual practitioners
Emergency care
Laboratories
Surgery care centers
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Continuing care
HMOs
Home health agencies
Hospitals
Nursing homes
Rehabilitation centers
12-6
Contractual Adjustments
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Third-party payers
commonly receive
discounts for services.
The amount of these
discounts are estimated
and recorded at the time of
service
They are reported as
“contra-revenues”
12-7
Contractual Adjustments vs
Charity Care
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Contractual
Adjustment Entry:
Contractual Adjustment …. Dr
Patient Accounts Rec. ……Cr
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Charity care (no
expectation of
receiving payment)
No Journal entry
12-8
Hospital Financial Statements
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Balance Sheet,
Most use classified balance sheet – exception:
continuing care communities
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Statement of Operations,
Statement of Changes in Net Assets (or “Changes in
Equity” if investor owned)
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Statement of Cash Flows and Notes
12-9
Display Issues –
Statement of Operations
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Private not-for-profits and Government related
entities must provide a Performance Indicator.
This a measure of income which excludes:
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Equity transfers,
Restricted Contributions,
Contributions of LT assets,
Most unrealized gains and losses,
Restricted investment returns, and
Extraordinary items
12-10
Display Issues –
Statement of Operations, cont’d
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Patient service revenues are shown net of
contractual adjustments.
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Patient service revenue excludes charity care
(service provided where there is no
expectation of payment).
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The estimate of uncollectible accounts is
shown as an operating expense.
12-11
Display Issues –
Statement of Operations, cont’d
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Operating revenues are often classified as
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Net patient service revenues, premium (capitation) revenue, and
Other Revenue (parking lot, gift shop, cafeteria, and tuition).
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Unrestricted gifts may be treated as Operating or
Nonoperating depending on policy.
12-12
Display Issues – Balance Sheet
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FASB vs. GASB net asset accounts:
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FASB: unrestricted, temporarily restricted, and
permanently restricted net assets
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The term restricted used only for donor restrictions;
Assets whose use is limited is used to indicate board
or bond covenant restrictions.
GASB: unrestricted net assets(position), restricted
net assets(position), and net investment in capital
assets
12-13
Comparison of Financial Statements
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Two statements take the place of the Statement
of Activities:
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Statement of Operations:
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Similar for not-for-profits, Government, Business
Statement of Changes in Net Assets:
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not-for-profits must show details of net changes for
unrestricted, temporarily and permanently restricted
12-14
Comparison of Financial Statements
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Statement of Financial Position:
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Classified, similar for not-for-profit, Government, and
commercial businesses except for the equity section:
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not-for-profit: unrestricted, temporarily and permanently
restricted net assets
Government: unrestricted net assets(position), restricted net
assets(position), and net investment in capital assets
Business: Contributed Capital and Retained Earnings
Statement of Cash Flows:
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Business and not-for-profits use the FASB format (3
sections); Governments use the GASB format (4 sections)
12-15