Financial Line Items Identification by Amrita Shenoy is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License, except where otherwise noted.
Financial Line Items Identification by Amrita Shenoy is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License, except where otherwise noted.
The content in this text was created to deepen student’s understanding of financial line items. This text was co-developed and co-created by the author Dr. Amrita Shenoy and the RLB Library at the University of Baltimore, and is designed to be used in conjunction with the textbook, Introduction to the financial management of healthcare organizations (7th ed.). Health Administration Press by Michael Norwicki. If you are using this supplement and book in a course, you can find the book at your library and request that it be placed on course reserve for your students.
The balance sheet shows the organization’s financial position at a specific point in time, typically at the end of the accounting period. It presents the organization’s assets, liabilities, and net assets (in a not-for-profit organization) or owner’s/stockholder’s equity (in a for-profit organization).
The Accounting Equation is as follows:
| Term | Definition | Section Info |
|---|---|---|
| Accounts Payable | Value of goods or services purchased that will be paid for at a later date | Included in current liabilities |
| Accrued Expense | Expense incurred in a period but not yet recorded, and no money has been paid | Included in current liabilities |
| Bad Debt | Uncollectible amounts from customer accounts | Included in current assets |
| Charity Care | Consists of money due to the organization by patients and third parties | Included in current assets |
| Common Stock | Corporation's primary class of stock issued, with each share representing a partial claim to ownership or a share of the company's business | Included in shareholder's equity |
| Current Asset | Asset that will be used or consumed in one year or less | Includes cash, temporary investments, net accounts receivables, net of contractual allowances, charity care, bad debt, inventory, and prepaid expenses |
| Current Liability | Debt or obligation due within one year | Includes accounts payable, noted payable, accrued expenses payable, deferred revenue, estimated third-party adjustments, and current portion of long-term debt |
| Current Portion of Long-Term Debt | Current amount of the organization's long-term debt | Included in current liabilities |
| Deferred Revenue | Money received but not yet earned by the organization | Included in current liabilities |
| Dividend | Portion of the net worth (equity) that is returned to owners of a corporation as a reward for their investment | Included in shareholder's equity |
| Estimated Third-Party Adjustments | Approximations of how much money the organization will be required to return to third-parties due to over-payments to the organizations | Included in current liabilities |
| Explanatory Notes | Last section of the Balance Sheet which includes specific notes on transactions that took place at the point of time of reporting | |
| Inventory | Value of products to be sold or items to be converted into sellable products | Included in current assets |
| Liability | Probable future sacrifice or economic benefits arising from present obligations or past transactions | Two types: current and long term |
| Long-Term Debt, Net of Current Portion | Debt that is due in more than one year minus the amount that is due in one year | Included in long-term liabilities |
| Long-Term Investment | Stocks, bonds, or other types of investments held for more than one operating cycle or one year, whichever is longer | Included in non-current assets |
| Long-Term Liability | Debt settled outside one year or one operating cycle, whichever is longer | Includes long-term debt and net of current portion |
| Net Accounts Receivable | Consists of money due to the organization by patients and third parties | Included in current assets |
| Net Assets | Difference between assets and liabilities in a not-for-profit organization which represents the owner's interest and other financial interests | |
| Net of Contractual Allowances | Consists of money due to the organization by patients and third parties | Included in current assets |
| Net Plant, Property, and Equipment | Land, buildings, and equipment minus the depreciation accumulated over time | Included in non-current assets |
| Noncurrent Asset | Asset that will be used or consumed over more than a year | Includes net plant, property, equipment, long-term investments, and other assets |
| Notes Payable | Value of amounts borrowed that will be paid in the future with interest | Included in current liabilities |
| Other Noncurrent Asset | Assets limited to use by contracts with outside parties and goodwill | Included in non-current assets |
| Permanently Restricted Net Assets | Includes donor-restricted net assets with restrictions that never expire, such as endowment funds | |
| Prepaid Expenses | Expenditures for goods and services not yet used or consumed, such as rent and insurance premiums | Included in current assets |
| Retained Earnings | Cumulative, undistributed net income or net loss for the business since its inception | Included in shareholder's equity |
| Stockholders' Equity | Owner or stockholders' investments in the business and earnings | Also called shareholder's equity, owner's equity, or retained earnings |
| Temporarily Restricted Net Assets | Includes donor-restricted net assets that the organization can use for the donor's specific purpose after meeting the donor's restriction, such as the passage of time or an action by the organization | |
| Temporary Investment | Investments that are expected to be sold within a year | Included in current assets |
| Unrestricted Net Assets | Includes net assets that have not been restricted by donors or granters, such as the excess of revenues to expenses from operations |
The Statement of Operations in a not-for-profit organization is also called the Income Statement in for-profit organizations. It summarizes the organization’s revenue, expenses, and the excess of revenues over expenses (also called income before taxes in a for-profit organization).
The relationship of the statement of operations to the balance sheet can be best explained by the following equation:
| Term | Definition | Section Info |
|---|---|---|
| Bad Debt Expense | The exact uncollectible amount from customer accounts | Included in revenues |
| Charity Care | Reflects services the organization provided with no expectation of payment | Included in revenues |
| Amortization | Allocation of the costs of intangible assets over their useful economic lives | Included in expenses |
| Depreciation | Process of allocating the costs of a tangible asset over the asset's economic life | Included in expenses |
| Expense | Cost associated with providing goods or services | |
| Gross Patient Services Revenue | Total amount of charges for patients utilizing the organization, regardless of the amount actually paid | Included in revenues |
| Interest | Expense incurred with borrowed money | Included in expenses |
| Net Income | When revenues and gains are greater than expenses and losses | |
| Net Patient Services Revenue | Money generated by providing patient care minus the amount the organization will not collect as a result of discounting charges per contractual agreement and providing charity care | Included in revenues |
| Non-Operating Income | Money earned from non-patient care services, such as investment income | |
| Operating Expenses | Daily operational costs not associated with the direct selling of products or services | Included in expenses |
| Operating Income | Money earned from providing patient care services and includes total revenue, gains, and other support minus the total operating expenses | |
| Other Operating Expenses | Miscellaneous expenses that have not been reported elsewhere | Included in expenses |
| Other Operating Revenue | Money generated from services other than services to patients and enrollees which includes money from rental equipment and office space, sales of supplies and pharmaceuticals, cafeteria and gift shop sales, etc. | Included in revenues |
| Premium Revenue | Money generated from Capitation arrangements that must be reported separately from patient services revenue because it is not dependent on care being delivered | Included in revenues |
| Revenue | Inflows or other enhancements of assets of an entity from its operations |
The Statement of Changes in Net Assets (called the Statement of Equity in a for-profit organization) shows the reasons why net assets changed from the beginning of the statement period to the end of the statement period. This statement is important in showing how the changes in the excess of revenues over expenses affect the net asset or equity position of the organization.
| Term | Definition | Section Info |
|---|---|---|
| Contributions for Charity Care | Represents money donated to the hospital for providing charity care | Included in temporarily restricted net assets |
| Contributions for Endowment Funds | Includes money received from donors with permanent restrictions on the principal and interest | Included in permanently restricted net assets |
| Increase (or Decrease) in Temporarily Restricted Net Assets | Presents the total changes in temporarily restricted net assets during the statement period | Included in temporarily restricted net assets |
| Net Assets Released from Restrictions | Includes money previously restricted by donors that has become available for use | Included in temporarily restricted net assets |
| Net Realized and Unrealized Gains on Investments | Reflects an increase on the value of investment (unrealized until sold) and an increase in cash (realized through dividends or interest) | Included in temporarily restricted net assets |
| Net Realized and Unrealized Gains on Investments | Represents and increase in the values of investments and an increase in cash | Included in permanently restricted net assets |
| Permanently Restricted Net Assets | Presents changes in permanently restricted net assets during the accounting period | Includes contributions for endowment funds and net realized and unrealized gains on investments |
| Temporarily Restricted Net Assets | Presents the changes in temporarily restricted net assets during the statement period | Includes contributions for charity care, net realized and unrealized gains on investments, net assets released from restrictions, and increase/decrease in temporarily restricted net assets |
| Total Changes in Net Assets | Difference between total net assets at the beginning of the year and the total net assets at the end of the year | |
| Unrestricted Net Assets | Includes net assets that have not been restricted by donors or granters, such as the excess of revenues to expenses from operations |
The Statement of Cash Flows shows the organization’s cash flow, i.e., the amount of cash receipts and where they come from, and the amount of cash disbursements and where they went during the statement period. The statement has classifications from three activities: cash flow from operating activities; cash flow from investing activities; and cash flow from financing activities.
| Term | Definition |
|---|---|
| Cash Flow from Operating Activities | Begins with a change in net assets and then includes changes in cash between statement periods for providing patient care services |
| Cash Flow from Investing Activities | Includes changes in cash between statement periods for investing in fixed assets, such as property and equipment and for selling fixed assets |
| Cash Flow from Financing Activities | Includes changes in cash between statement periods for financing activities such as debts, endowments, grants, and transfers |
| Net Increase/Decrease in Cash and Cash Equivalents | Computed by adding the net cash from operating, investing, and financing activities |
| Cash and Cash Equivalents | At the beginning of the year, corresponds to the cash/cash equivalents at the end of the previous year |
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