HCAD 760 Midterm Exam Test Bank with 200+ Questions from Actual Past Exam and 100% Correc, Exams of Accounting

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HCAD 760 Midterm Exam Test Bank with 200+ Questions from Actual Past Exam and 100% Correct Answers Updated 2023-2024 1) policymaker or manager 2) type of healthcare organization --------- Correct Answer ---------- definition of healthcare finance depends on the context of: health care finance --------- Correct Answer ---------- the practice of finance, including both accounting & financial management, within health services (provider) organizations accounting --------- Correct Answer ---------- measurement, in financial (dollar) terms, of events that reflect the resources, operations, & financing of an organization; external reports, taxes financial management --------- Correct Answer ---------- theory, concepts, & tools necessary to help managers make better financial decisions; internal, improves organization's opportunities & efficiency No, both capture, measure, & use data, but with different purpose --------- Correct Answer ---------- accounting & financial mgmt independent? Financial accounting -------- Correct Answer --------- involves identifying, recording, and communicating the operational results and status of organization (as opposed to a subunit) statement -------- Correct Answer --------- A financial _____ conveys a business's financial accounting information 1. Income statement 2. Statement of changes in equity 3. Balance sheet 4. Statement of cash flows -------- Correct Answer --------- The four most important financial statements are... outsiders -------- Correct Answer --------- The requirement to provide financial accounting information is driven by the need of ________ to have reliable information regarding the financial status of an organization managers -------- Correct Answer --------- The information presented in financial statements is as important to _______ as it is to outsiders True -------- Correct Answer --------- (T/F) Financial accounting can reveal to managers an organizations performance in comparison to past performance (i.e. benchmarking). Financial accounting -------- Correct Answer --------- _____ ______ presents a consistent audited view of an organization's financial position and is easily compared to similar organizations True. Reports are in the form of a 990. -------- Correct Answer --------- (T/F) Not-for-profit organizations have to prepare financial statements. Explain. False. It should because it is important to have financial reporting that is accurate and based on reliable data -------- Correct Answer --------- (T/F) The preparation and presentation of financial accounting data should not be regulated Securities and Exchange Commission (SEC) -------- Correct Answer --------- A federal agency that has the legal authority to regulate the form and content of financial statements Financial Accounting Standards Board (FASB) Industry Committees of the American Institute of Certified Public Accountants (AICPA) Principles and Practices Board of the Healthcare Financial Management Association (HFMA) -------- Correct Answer --------- SEC relies on the following organizations for implementation: generally accepted accounting principles (GAAP) -------- Correct Answer --------- a set of guidelines for the preparation of financial accounting statements True, not used for internal use only. Typically used when preparing statements for "outside" financial parties. -------- Correct Answer --------- (T/F) GAAP applies only to financial accounting statements False, evolves with business practices. -------- Correct Answer --------- (T/F) GAAP remains static overtime. 10 -------- Correct Answer --------- How many GAAP concepts are there? Assumptions (4) Principles (4) Constraints (2) -------- Correct Answer --------- What are the three GAAP main categories? GAAP Assumptions -------- Correct Answer --------- Accounting entity Going concern Periodicity Monetary unit GAAP Principles -------- Correct Answer --------- Historical costs Revenue recognition Expense matching Statement of revenues and expenses -------- Correct Answer --------- The income statement is often called by other names: True -------- Correct Answer --------- (T/F) The income statement reports the results of operations over some period of time. Revenues Expenses Profit -------- Correct Answer --------- Income statements have three elements.... revenues -------- Correct Answer --------- under accrual accounting represent both cash received and payer obligations expenses -------- Correct Answer --------- the resource expenditures required to produce the revenues. Under accrual accounting both cash and noncash are recognized profit -------- Correct Answer --------- revenues - expenses = .... Operating profit (Operating income) Net profit (Net income) -------- Correct Answer --------- Two types of profit: True -------- Correct Answer --------- (T/F) Revenues are shown in several different formats depending on the type of provider. Patient service revenue -------- Correct Answer --------- Represents the amount based on payer contracts as opposed to the inflated chargemaster prices; includes only fee-for- service (FFS) revenue. Payments received per visit. Net patient service revenue -------- Correct Answer --------- reports the amount expected to be collected (after the provision for bad debts is deducted) Individual unable to meet HDHP after service provided Outstanding accounts receivable charges for over a year -------- Correct Answer --------- Example of provision for bad debts premium revenue -------- Correct Answer --------- Revenue of capitated patients office rentals cafeteria sales parking fees -------- Correct Answer --------- Examples of "other" revenue True, included as a footnote in financial statements -------- Correct Answer --------- (T/F) In reporting revenues, discounts and allowances are not reported. True, included as a footnote in financial statements -------- Correct Answer --------- (T/F) In reporting revenues, charity care is not reported. False -------- Correct Answer --------- (T/F) Charity care is considered bad debt. True, there is an uncollected portion that has not been paid yet from insurance OR some revenues reported in the previous year were collected this year -------- Correct Answer --------- (T/F) Because of accrual accounting, the net operating revenues reported do not represent the actual amount of cash collected in each year. Why or why not? net patient accounts receivable -------- Correct Answer --------- The uncollected revenue portion will appear on the balance sheet in an account titled .... expenses -------- Correct Answer --------- represent the resources used to create revenues—they are the costs of doing business True -------- Correct Answer --------- (T/F) Under accrual accounting, expenses do not necessarily reflect cash outlays Natural classification (such as salaries, supplies, research) Functional classification (such as inpatient services, outpatient services) -------- Correct Answer --------- Expenses may be categorizes by: Depends on the organization. Appropriateness depends on organizational complexity. -- ------ Correct Answer --------- Which expense classification system is "better"? labor costs -------- Correct Answer --------- Salaries and benefits expense represents ____ ____ salaries and benefits -------- Correct Answer --------- the largest expense category for health services organizations True -------- Correct Answer --------- (T/F) Only summary information is given of labor costs on the income statement, details are available internally from the managerial accounting system supplies -------- Correct Answer --------- expense that represents the cost of expendable (primarily medical) materials amount consumed -------- Correct Answer --------- The dollar amount shown represents the _____ _____, not the amount purchased True -------- Correct Answer --------- (T/F) Supply stocks are reported on the balance sheet insurance -------- Correct Answer --------- expense that represents the cost of commercial insurance purchased to protect the clinic against several risks, including property risks and liability risks depreciation -------- Correct Answer --------- expense that arises because of the expense matching principle—expenses must be matched to the revenues with which they are associated operating, long lived assets -------- Correct Answer --------- While ______ costs such as labor and supplies are assumed to produce current revenues and hence are immediately reported (expensed) on the income statement, the costs of ____-_____ _____ (buildings and equipment) are not reported on the income statement at the time the acquisition is made capitalized -------- Correct Answer --------- when an item/asset is recorded on the balance sheet as an asset of the business amortized -------- Correct Answer --------- when an item/asset is spread over the accounting life of the asset, which means the cost is shown (expensed) on the income statement in increments over time depreciation -------- Correct Answer --------- The amortization expense of buildings and equipment when listed on the income statement is called the straight line method -------- Correct Answer --------- depreciation is calculated by.... True, b/c of accrual accounting -------- Correct Answer --------- (T/F) Most expense items listed on the income statement only approximate actual cash expenditures. it's considered a noncash expense -------- Correct Answer --------- Depreciation has no associated cash expenditure, what does this mean? True -------- Correct Answer --------- (T/F) Interest expense reports the amount of interest paid (or obligated) on debt financing profitability -------- Correct Answer --------- is the single most important element of the income statement profitability -------- Correct Answer --------- Often what individuals that are assessing income are trying to understand Operating income Net income -------- Correct Answer --------- For healthcare providers, the income statement often reports two profitability measures: assets -------- Correct Answer --------- the resources that organization posses that help create economic benefit that can be used to produce a service and/or product. current assets -------- Correct Answer --------- highly liqiud assets with a duration of less than 12 months cash -------- Correct Answer --------- Actual cash in hand and commercial checking accounts, helps maintain current operations Cash equivalents -------- Correct Answer --------- Cash-like investments with maturities of three months or less. Short-term investments (also called marketable securities) -------- Correct Answer -------- - Highly liquid, typically low-risk, securities having a maturity of less than one year (but greater than three months) (ex. treasury bills) puts money to work, maximizes assets -------- Correct Answer --------- Why do businesses hold short-term investments? Net patient accounts receivable -------- Correct Answer --------- represents revenues owed to the business but not yet collected inventories net patients accounts recievable -------- Correct Answer --------- Examples of current assets include: Inventories -------- Correct Answer --------- represent the dollar amount of expendable supplies on hand (i.e. provider inventory is primarily medical staff) True -------- Correct Answer --------- (T/F) Only supplies actually consumed in treating patients are expensed on the income statement. Other current assets -------- Correct Answer --------- Providers with small inventory balances often report them in a catchall "____ ____ ____" account Cash and cash equivalents Short-term investments Net patient accounts receivable Inventories -------- Correct Answer --------- Current assets are listed in order of liquidity, or nearness to cash: True -------- Correct Answer --------- (T/F) Current assets are necessary to support operations, but they provide no (or little) explicit monetary return current assets are important to be able to meet current liabilities or short-term obligations in a timely manner -------- Correct Answer --------- Should businesses hold large amounts of current assets? liquidity -------- Correct Answer --------- Current assets are expected to be quickly converted to cash, they are important to an organization's _______ net working capital (NWC) -------- Correct Answer --------- A traditional measure of liquidity is .... Long-term investments -------- Correct Answer --------- Investments in securities (financial assets) as opposed to buildings and equipment (real assets) False, one year -------- Correct Answer --------- (T/F) Long-term investments have maturities greater than 180 days not-for-profit businesses. They oftentimes have endowments from big donors, and these funds have to be invested in the market to get a return -------- Correct Answer --------- Are long-term investments used more by not-for-profit businesses or investor-owned businesses? real; also called fixed assets -------- Correct Answer --------- Net property and equipment represents _____ assets Land, buildings, equipment -------- Correct Answer --------- Examples of real assets: typically greater than one year -------- Correct Answer --------- How long are real assets useful life? False, although only a net amount of real assets is reported on the face of the balance sheet, the notes section contains the gross/net breakdown -------- Correct Answer -------- - (T/F) The face of the balance sheet contains the gross/net breakdown of real assets. gross -------- Correct Answer --------- When purchased, fixed assets are posted on the balance sheet at their original (____) cost the amount of depreciation reported on the income statement -------- Correct Answer ---- ----- In fixed assets, each year the accumulated depreciation account is increased by ... annual depreciation expense -------- Correct Answer --------- Net property and equipment amount is reduced each year by the... Liabilities -------- Correct Answer --------- Claims against assets that are fixed financial obligations of the business liability -------- Correct Answer --------- Failure to meet ____ claims can result in bankruptcy and potential closure creditors -------- Correct Answer --------- Largest liability obligations are to _____, who furnish debt capital to businesses suppliers, employees, tax authorities, and vendors -------- Correct Answer --------- Other liability obligations are to .... short-term -------- Correct Answer --------- Notes payable are ____-____ debt obligations, typically bank loans current liabilities -------- Correct Answer --------- obligations that come to or must be paid within one year or within the accounting period notes payable, accounts payable and accrued expenses -------- Correct Answer --------- examples of current liabilities Maturities of less than one year Often takes the form of a line of credit Usually used to finance temporary (seasonal or cyclical) increases in current assets ----- --- Correct Answer --------- Note payable characteristics: accounts payable -------- Correct Answer --------- stems from buying goods (typically medical supplies) from vendors on credit called trade credit net 30. Here, the provider has 30 days to pay the invoice -------- Correct Answer --------- In accounts payable, vendors often have payment terms such as.... Explain. accounts payable -------- Correct Answer --------- The amount purchased, but not yet paid, is carried as an ____ ____ Accrued expenses (accruals) -------- Correct Answer --------- are payment obligations of the business, primarily: Salaries to employees, taxes to government authorities, and interest payments to debt suppliers accrual -------- Correct Answer --------- Wages earned during the last week of December but not paid until the first week of January would appear on the December 31 balance sheet as an ... Long-term debt -------- Correct Answer --------- debt financing with maturities greater than one year commercial banks -------- Correct Answer --------- Smaller businesses often obtain long- term credit from ____ ____. Such debt is called a term loan 4) sells goods or services to create revenue --------- Correct Answer ---------- characteristics of business: max shareholder return --------- Correct Answer ---------- goals of business (for profit) max community or mission benefit --------- Correct Answer ---------- goals of pure charity primary role of finance --------- Correct Answer ---------- to plan for, acquire, & utilize resources to maximize the efficiency (& hence value) of the enterprise 1) planning & budgeting 2) financial reporting 3) capital investment decisions 4) financing decisions 5) working capital management 6) contract management 7) financial risk management --------- Correct Answer ---------- finance activities Generally Accepted Accounting Principles --------- Correct Answer ---------- GAAP 1) Cost minimization 2) Cash sufficiency 3) Capital access 4) Control of financial resources --------- Correct Answer ---------- Four C's (summarize finance activities) CFO (VP-Finance) Comptroller Tresurer --------- Correct Answer ---------- finance dept usually organized as follows: comptroller --------- Correct Answer ---------- handles budgeting & reporting & payables & receivables mgmt treasurer --------- Correct Answer ---------- handles acquisition & employment of capital, debt mgmt, & financial risk mgmt segregation of duties --------- Correct Answer ---------- __________________________ decreases possibility of stealing hospital (inpatient) ambulatory (outpatient) long-term care integrated delivery systems --------- Correct Answer ---------- health service settings financial concerns medicaid medicare indigent care & bad debt losses --------- Correct Answer ---------- Mgmt challenges - ACHE American College of Healthcare Executives --------- Correct Answer ---------- ACHE Healthcare Financial Mgmt Organization --------- Correct Answer ---------- HFMA balancing financial & quality issues revenue cycle improvement access to capital (financing) --------- Correct Answer ---------- Mgmt challenges - HFMA 1) proprietorship (sole proprietorship) 2) partnership 3) corporation (HCA, Tenet) --------- Correct Answer ---------- 3 major categories of business organization (legal forms of businesses) ease of formation subject to few regulations no corporate income taxes --------- Correct Answer ---------- Advantages to proprietorships & partnerships limited life difficult to transfer owndership unlimited liability difficult to raise capital --------- Correct Answer ---------- Disadvantages to proprietorships & partnerships unlimited life easy transfer of ownership limited liability ease of raising capital --------- Correct Answer ---------- Advantages of corporations cost of formation & reporting double (or triple) taxation --------- Correct Answer ---------- disadvantages of corporations limited liability partnership (LLP) limited liability company (LLC) professional corporation (PC) / professional associated (PA) --------- Correct Answer ----- ----- hybrid forms of organization limited liability partnership (LLP) --------- Correct Answer ---------- partners share general business liability; partners are liable only for their own malpractice actions limited liability company (LLC) --------- Correct Answer ---------- members taxed like partners; liability like stockholders professional corporation (PC) / professional association (PA) --------- Correct Answer ---- ------ owners have benefits of incorporation; still liable for malpractice; often used by individual clinicians investor-owned (for-profit) business; not-for-profit corporations --------- Correct Answer -- -------- in most industries, the only form of ownership is ___________; but healthcare, particularly hospitals, are organized as _________________. for-profit --------- Correct Answer ---------- investor owned corporations aka investor owned corporations --------- Correct Answer ---------- investors become owners by purchasing shares of common stock 1) right of control 2) claim on residual earnings (dividends) & residual liquidation proceeds 3) expect a return on their investment in the form of dividends &/or capital gains --------- Correct Answer ---------- stockholders have: capital gains --------- Correct Answer ---------- appreciation of share price 1) property taxes 2) income taxes 3) sales taxes --------- Correct Answer ---------- investor-owned corporations must pay (triple taxation): 1) tax-exempt 2) 501(c)(3) 2) 501(c)(4) --------- Correct Answer ---------- if business meets stringent set of requirements, it can qualify as not-for-profit also called (3) mission statement --------- Correct Answer ---------- primary goal of not-for-profit corporations is given by a ____________________ not-for-profit --------- Correct Answer ---------- no shareholders; exempt from property, income, & sales tax shareholder wealth (stock price) maximization --------- Correct Answer ---------- primary goal of investor-owned corporations stakeholders --------- Correct Answer ---------- all businesses have _________________ employees, vendors --------- Correct Answer ---------- examples of stockholders