Rerecall: Financial Accounting Focuses On Communicating ✓ Solved

Rerecall That Financial Accounting Focuses On Communicating Organizat

Recall that financial accounting focuses on communicating organizational-level data in the business’s financial statements aimed at external users, while managerial accounting focuses on creating comprehensive departmental plans and forecasts to be used internally by managers. To perform a meaningful analysis of the three most common financial statements (income statements, balance sheets, and cash flow statements), health care managers must use financial ratios. Financial ratios are used to determine an organization’s profitability, asset management, and liquidity. They can also inform budgeting decisions and be used for comparative purposes (for example, to compare an organization’s current results to historical results or to the results of peer organizations).

For each scenario, consider how you would proceed if you were the healthcare manager of the organization. Be sure to include the following details to justify your thinking: Do you agree with reasoning and decisions made in each scenario? Why or why not? Are these scenarios in the realm of managerial accounting, financial accounting, or both? Why do think this? How would you proceed in each situation? What information would you want to have, and why?

Here are the three scenarios for your consideration: Abraham has just taken a new job as a health care manager at a large hospital. During the interview process, he was told that one of his responsibilities is to analyze the organization’s financial statements and determine the average collection period (ACP). He determines that the hospital’s ACP is 43 days. The industry average is 23 days. Abraham emails his superior asking if this is a cause for concern. Mimi is the healthcare manager at a physical rehabilitation facility that has recently expanded its facilities to accommodate more patients. At the annual budgeting meeting, Mimi suggests the organization continue using a fixed budgeting strategy for the year ahead. Makayla is told by the head of her department that their unit must increase its return on assets (ROA) ratio from 3% to 5% by next year. If they do not, they risk losing certain benefits. Makayla goes to her office and thinks about how she could do this. First, she thinks about ways to increase revenue. Then, she notices that there are several assets that produce very little revenue. She suggests selling these items to help the department achieve its target ROA.

Your paper should be two to three pages in length (not including the required title page and reference pages) and conform to APA standards. Include at least three scholarly references in addition to the course content.

Paper For Above Instructions

Introduction

In the healthcare industry, effective financial management is critical for sustaining operations and ensuring the profitability of organizations. Healthcare managers are tasked with analyzing various financial statements and using financial ratios to assess the organization's performance. This paper evaluates three different scenarios faced by healthcare managers—Abraham, Mimi, and Makayla—and discusses the financial implications, accounting perspectives, and strategic actions for each case.

Scenario 1: Abraham's Average Collection Period (ACP)

Abraham's situation revolves around the analysis of the organization's Average Collection Period (ACP), which he finds to be 43 days, well above the industry average of 23 days. This scenario primarily falls within the realm of financial accounting because it involves external reporting and performance metrics that influence stakeholder decisions (Garrison, Noreen, & Brewer, 2018). While financial accounting primarily communicates data to external users, it also serves as a vital tool for internal decision-making by managers.

Abraham's decision to consult his superior about the ACP is prudent, as it indicates that he is keen on understanding the implications of this financial metric. An ACP that exceeds the industry average suggests potential cash flow issues, which could hinder operational liquidity. If I were Abraham, I would proceed by gathering more detailed information regarding the hospital’s receivables management practices, billing processes, and patient payment behaviors. I would also analyze historical trends to determine if this high ACP is a systemic issue or a temporary condition. Strong communication with the finance team would be essential to devise a strategy to reduce the ACP, such as improving billing efficiency or offering incentives for quicker patient payments (Walker, 2020).

Scenario 2: Mimi's Budgeting Strategy

Mimi, the healthcare manager at a newly expanded rehabilitation facility, has proposed to continue using a fixed budgeting strategy during the annual meeting. This case leans more towards managerial accounting because it involves internal planning and controls used by management to navigate uncertainties and ensure effective resource allocation (Kaplan & Atkinson, 2015). Fixed budgeting, while effective in stable environments, may not afford the flexibility needed to adapt to the dynamic circumstances of an expanding facility.

If I were in Mimi's position, I would critically evaluate the implications of a fixed budget against flexible budgeting alternatives, especially given the recent expansion. The healthcare landscape is evolving, and services may vary significantly from year to year. I would seek information on patient volumes, service types, and associated costs to develop a more adaptable budgeting approach. This could involve using a flexible budget that allows variances based on actual performance (Horngren, Sundem, & Stratton, 2005). Better responsiveness to unexpected changes in patient intake and resource requirements would position the facility for greater operational efficiency and financial sustainability.

Scenario 3: Makayla's Return on Assets (ROA)

In the final scenario, Makayla faces a directive to increase her unit's Return on Assets (ROA) from 3% to 5%. This scenario merges aspects of both managerial and financial accounting, as it emphasizes performance metrics that impact both internal and external stakeholders. ROA is a key indicator of how effectively an organization utilizes its assets to generate profit (Brealey, Myers, & Allen, 2019).

I agree with Makayla's approach of evaluating ways to increase revenue, but I would also prioritize assessing asset efficiency alongside revenue generation. Therefore, in this situation, I would conduct a thorough analysis of existing assets to determine which are underperforming and could be divested. Understanding the asset utilization rates, along with the potential return from newly acquired or improved assets, is essential for strategic decision-making (Finkler, Prince, & Gardne, 2016). Collaborating with the finance team to align on strategies that ensure asset optimization is critical to fulfilling the new ROA target without compromising the quality of care.

Conclusion

In conclusion, financial ratios and accounting metrics play a foundational role in guiding healthcare managers toward informed decision-making. Each of the scenarios presented sheds light on the necessity of combining knowledge of both financial and managerial accounting to navigate organizational challenges. As healthcare management continues to evolve, the ability to analyze data effectively and align strategies based on that analysis remains a crucial competency that drives operational success.

References

• Brealey, R. A., Myers, S. C., & Allen, F. (2019). Principles of Corporate Finance. McGraw-Hill Education.
• Finkler, S. A., Prince, L. P., & Gardne, D. M. (2016). Financial Management for Public, Health, and Not-for-Profit Organizations. Cengage Learning.
• Garrison, R. H., Noreen, E. W., & Brewer, P. C. (2018). Managerial Accounting. McGraw-Hill Education.
• Horngren, C. T., Sundem, G. L., & Stratton, W. O. (2005). Introduction to Management Accounting. Pearson Prentice Hall.
• Kaplan, R. S. & Atkinson, A. A. (2015). Advanced Management Accounting. Pearson Education.
• Walker, P. (2020). Financial Management in Healthcare Organizations. Health Administration Press.
• Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2018). Accounting Principles. Wiley.
• Garrison, R. H., Noreen, E. W., & Brewer, P. C. (2018). Managerial Accounting. McGraw-Hill Education.
• Drury, C. (2018). Management and Cost Accounting. Cengage Learning.
• Hansen, D. R., & Mowen, M. M. (2018). Cost Management: A Strategic Emphasis. Cengage Learning.