In this case study, Happy Hospital is a medium sized community hospital which is a 501(c)3 Corporation. ???To be tax-exempt under section 501(c)(3) of the Internal Revenue Code, an organization must be organized and operated exclusively for exempt purposes set forth in section 501(c)(3), and none of its earnings may inure to any private shareholder or individual. In addition, it may not be an action organization, i.e., it may not attempt to influence legislation as a substantial part of its activities and it may not participate in any campaign activity for or against political candidates.??? (IRS) At this time of year, the hospital is reviewing their financial statements for end of year. While in this process, they will compare with the year before to acknowledge the differences between the two years. When looking at the two statements, a sizeable amount of current assets were found. ???In fact, Happy Hospital is going into the current year with approximately $12.5 million in current assets compared to $4.3 million in current liabilities.??? (Case Study) The question the company now must ask themselves is how to use the current ratio of 2.9 to the company??™s advantage.
Budgets and performance reports in the decision-making process
Happy Hospital wants to enhance their current technologies and make the hospital a more organized and error free facility. The CEO, Mr. Harm O. Knee wants to automate medical records and create a more electronic environment. Of course with this opportunity to move forward in technology, you need to do the proper research on the equipment being purchased which the team has done. The budget for the current year along with the forecast of the next year needs to be reviewed. This forecast should include a performance budget, which fully integrates the annual performance plan. ???Using performance data in the budgetary process means integrating information about outcomes and impacts in decisions about the allocation of funds, where the goal is to use performance information to make more informed decisions about resource allocations.??? (Melkers) This should be a required research step during the budgetary process.
Ethics influence accounting decisions
“The purpose of ethics in business is to direct business men and women to abide by a code of conduct that facilitates, if not encourages, public confidence in their products and services.” (Smith, 2003) This is the foundation of the company, which is taught to someone. If a certain situation comes up for an individual to review, the code of ethics will be the resource to use for decision making. Everyone abides by these codes of ethics so each employee must know and understand each code.
Relevant accounting information to consider when making decisions
When equipment is purchased, the correct depreciation formula needs to be used. The wear and tear of the equipment is normal but the future outlook needs to be considered. Can the usage of the equipment be stretched out if the proper maintenance through contracts is used Can the equipment be retrofitted for extend life The point is, you want to receive all you can from the equipment to make the purchase worth it from the beginning. If not, the company will possibly be purchasing another unit for replacement, which will need to be forecasted out so proper budgeting will be set.
Another aspect in which the accounting reports help the managerial team when making decisions is to find areas in which improvement is needed. The cash on hand was available but was liquidation of the cash necessary at that time. The company needs to understand the current financial situation and all reports need to reflect the same ending information. According to the average payment period in accounts payable, the company needs to make sure the suppliers and the employees are paid on time. At the same time, accounts receivable must collect all outstanding payments. Attention is needed to these areas and throughout the reports, this could happen in time to make a difference with the budget and the next forecasting fiscal year.
Happy Hospital needs to be aware of the whole picture regarding the finances of the company. This begins with the code of ethics in which the company has established. The accounting department themselves need to make sure the accounts payable and receivable keep on top of their respective jobs to keep the proper monies flowing. This will make sure the reporting will be current and accurate. Happy Hospital should move forward in the technology era but the company should also be wise when making the decisions. Reviewing the reports is critical but make sure there is understanding of the past, present and future accounting transactions throughout the management team.
Finkler, S.A. & Ward, D. M. (2006). Accounting fundamentals for health care management. Case Study: Happy Hospital. Sudbury, MA: Jones and Bartlett. Chapter 17, page 163.
IRS (2009). Exemption Requirements – Section 501(c)(3) Organizations Retrieved from http://www.irs.gov/charities /charitable/article/0,,id=96099,00.html on December 13, 2009.
Melkers, Julia (1997). Using Performance Measurement to Improve Public and Non-Profit Programs – Incorporating Performance Measures Into The Budgeting Process. Ch. 10 page 187.
Smith, Dr. Katherine T. and Smith, Dr. L. Murphy (2003). Business and Accounting Ethics.