Using The Provided Information For Necessary Closing Entry

Using The Provided Information The Necessary Closing Entr

P8.2 P8.2. 1) Using the provided information, the necessary closing entries are: Account Name and Explanation Account Number Debit Credit 1) Routine services revenue 401 Ancillary services revenue 402 Interest income 403 Rental income 404 Tuition income 405 Other operating revenues 406 Revenue & expense summary To close revenue accounts 2) Revenue & expense summary 302 Contractual adjustments 501 Charity care adjustments 502 To close revenue deduction accounts 3) Revenue & expense summary Salaries & wages expense 601 Supplies expense 602 Utilities expense 603 Insurance expense 604 Repairs expense 605 Rent expense 606 Depreciation expense 607 Interest expense 608 Bad debt expense 609 Other expenses 610 To close expense accounts 4) Revenue & expense summary 302 Hospital net assets 301 To close revenue and expense summary account and add net income to net assets P8.2. 2) The statement of operations is: Gatorberg Hospital Statement of Operations December 31, 20X1 Gross patient service revenues: Routine services revenue Ancillary services revenue Gross patient service revenues: $ - Less revenue deductions: Contractual adjustments Charity care adjustments Total revenue deductions 0 Net patient service revenues 0 Other operatingrevenues Rental income Tuition income Other operating revenues Total other operating revenues 0 Total operating revenues 0 Less operating expenses: Salaries & wages expense Supplies expense Utilities expense Insurance expense Repairs expense Rent expense Depreciation expense Interest expense Bad debt expense Other expenses Total operating expenses 0 Operating income Add nonoperating income (Interest) Excess of revenues over expenses $ - &"Arial,Italic"&11Chapter 8: Problems P8.3 (1,2) P8.3. 1) The worksheet is as follows: Preadjusted Trial Balance 12/31/X/31/X1 Adjustments Adjusted Trial Balance 20X1 Statement of Operations 20X1 Statement of Net Assets 12/31/X1 Balance Sheet Acct. No. Account Titles Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit 101 Cash 102 Temporary investments 103 Accrued interest receivable 104 Accounts receivable 105 Allowances for uncollectible accounts 106 Inventory 107 Prepaid insurance 120 Land 130 Buildings 131 Accumulated depreciation--buildings 140 Equipment 141 Accumulated depreciation--equipment 201 Accounts payable 203 Accrued interest payable 204 Accrued salaries & wages payable 205 Deferred rental income 250 Bonds payable 301 Hospital net assets 302 Revenue & expense summary 401 Routine services revenue 402 Ancillary services revenue 403 Interest income 404 Rental income 406 Other operating revenues 501 Contractual adjustments 502 Charitycare adjustments 601 Salaries & wages expense 602 Supplies expense 603 Utilities expense 604 Insurance expense 605 Repairs expense 607 Depreciation expense 608 Interest expense 609 Bad debt expense 610 Other expenses Totals Net income for the year: 0 Totals Hospital net assets, December 31, 20X1 Totals 0 0 P8.3. 2) The financial statements are: Grandtown Hospital Statement of Operations Grandtown Hospital Balance Sheet December 31, 20X1 December 31, 20X1 Gross patient service revenues: Assets Routine services revenue Cash Ancillary services revenue Temporary investments Gross patient service revenues: 0 Accrued interest receivable Less deductions from revenue: Accounts receivable Charity care adjustments Less allowances for uncollectible accounts Contractual adjustments Inventory Prepaid insurance Total revenue deductions 0 Total current assets 0 Net patient service revenues 0 Land Other operating revenues: Buildings Rental income Less accumulated depreciation Other operating revenues Equipment Total other operating revenues 0 Less accumulated depreciation Total operating revenues 0 Total assets 0 Less operating expenses: Salaries & wages expense Liabilities and Net Assets Supplies expense Accounts payable Utilities expense Accrued interest payable Insurance expense Accrued salaries & wages payable Repairs expense Deferred rental income Depreciation expense Total current liabilities 0 Interest expense Bonds payable Bad debt expenses Other expenses Total liabilities 0 Total operating expenses 0 Hospital net assets Operating income (Loss) 0 Total liabilities and net assets 0 Add nonoperating income (Interest) Excess of revenues over expenses 0 Grandtown Hospital Statement of Net Assets Year Ended December 31, 20X1 Hospital net assets, January 1 Add net income for Hospital net assets, December &"Arial,Italic"&11Chapter 8: Problems P8.3 (3,4) P8.3. 3) The necessary adjusting entries are: Account Name and Explanation Account Number Debit Credit 1) Accrued interest receivable 103 Interest income 403 Adjustment for 2 months' interest on temporary investment in bonds 2) Contractual adjustments 501 Charity care adjustments 502 Allowances for uncollectible accounts 105 Adjustment for estimated uncollectible accounts 3) Insurance expense 604 Prepaid insurance 107 Adjustment for portion of prepaid premium that expired during 20X) Depreciation expense 607 Accumulated depreciation--buildings 131 Adjustment for 20X1 depreciation of hospital building 5) Depreciation expense 607 Accumulated depreciation--equipment 141 Adjustment for 20X1 depreciation of hospital equipment 6) Interest expense 608 Accrued interest payable 203 Adjusment for 6 months' interest accrued on bonds since July 1, 20X) Salaries & wages expense 601 Accrued salaries & wages payable 204 Adjustment for accrued payroll 8) Deferred rental income 205 Rental income 404 Adjustment for 7 months of rental income earned P8.3. 4) The necessary closing entries are: Account Name and Explanation Account Number Debit Credit 1) Routine services revenue 401 Ancillary services revenue 402 Interest income 403 Rental income 404 Other operating revenues 406 Revenue & expense summary 302 To close revenue accounts 2) Revenue & expense summary 302 Contractual adustments 501 Charity care adjustments 502 To close deduction from revenues accts 3) Revenue & expense summary 302 Salaries & wages expense 601 Supplies expense 602 Utilities expense 603 Insurance expense 604 Repairs expense 605 Depreciation expense 607 Interest expense 608 Bad debt expense 609 Other dxpenses 610 To close expense accounts 4) Hospital net assets 301 Revenue & expense summary 302 To close revenue & expense summary account & add net income to net assets &"Arial,Italic"&11Chapter 8: Problems

Paper For Above instruction

Accounting for hospital operations involves meticulous recording of revenues, expenses, and adjustments to accurately reflect the financial position of healthcare institutions. This paper explores the essential closing entries, income statement analysis, worksheet adjustments, and financial statement preparation, using the provided information from Gatorberg and Grandtown Hospitals as practical examples.

Introduction

Hospitals operate within a complex financial environment that requires precise accounting practices to ensure compliance, transparency, and effective management. The closing process is fundamental in transitioning from temporary accounts to retained earnings or net assets, and it involves a series of systematic journal entries that reset revenue and expense accounts for the new fiscal period. This paper discusses the necessary closing entries, statements of operations, worksheet adjustments, and the compilation of balanced financial statements aligned with Generally Accepted Accounting Principles (GAAP) for healthcare institutions.

Closing Entries for Hospital Revenues and Expenses

The primary objective of closing entries is to transfer the balances of temporary accounts—revenues and expenses—to a permanent account, namely, the hospital’s net assets or accumulated fund balance. The process begins with closing all revenue accounts, including routine services, ancillary services, interest income, rental income, and other operating revenues, into the revenue & expense summary account. This consolidation facilitates a clear view of total operating income or loss.

Subsequently, the accounts representing deductions such as contractual adjustments, charity care adjustments, and allowances for uncollectible accounts are closed into the same revenue & expense summary, enabling accurate net revenue calculation. Expenses—including salaries, wages, supplies, utilities, depreciation, interest, and miscellaneous expenses—are then closed into the revenue & expense summary. This systematic closure ensures the temporary accounts are zeroed out, ready for the next accounting period, and the resulting net income or loss is transferred to the hospital's net assets account.

Statement of Operations Analysis

The statement of operations provides a snapshot of a hospital’s financial performance over a specific period. It summarizes gross patient service revenues, revenue deductions, net patient revenues, other operating revenues, and total operating revenues. Deduction categories like contractual and charity care adjustments are subtracted from gross revenues resulting in net patient revenue. The statement also lists operating expenses, leading to the calculation of operating income or loss.

Non-operating income, such as interest income, is added to derive the excess of revenues over expenses, giving a comprehensive view of the hospital’s financial health. The Gatorberg Hospital’s statement, which indicates zero figures due to no recorded revenues or expenses in the provided data, exemplifies the need for timely and accurate recording of all financial activities for meaningful reporting.

Worksheet Adjustments

Medical and hospital entities often prepare worksheets to facilitate adjustments, especially for accruals and deferrals. Adjustments include accruing interest income on investments, estimating uncollectible accounts, adjusting prepaid insurance for expired portions, recording depreciation expenses for buildings and equipment, and accruing interest and salaries payable. These entries refine the financial data to reflect true economic events and prepare accurate financial statements.

For example, the interest accrued on bonds or investments is recognized by debiting interest income and crediting accrued interest receivable. The adjustments for uncollectible accounts and contractual adjustments ensure revenue recognition aligns with realization concepts. Similarly, depreciation adjustments are vital to allocate the cost of long-term assets over their useful lives, thus matching expenses with related revenues as per the matching principle.

Preparation of Financial Statements

Post adjustments, the financial statements are prepared, including the statement of operations, balance sheet, and the statement of net assets. These documents provide a comprehensive snapshot of the hospital’s financial position, asset base, liabilities, and net assets at year-end. For instance, the Grandtown Hospital’s statements illustrate the compilation of assets, liabilities, and net assets, although actual values were unspecified in the provided data.

Effective financial management hinges on accurate presentation and interpretation of these statements, informing stakeholders about the hospital’s operational efficiency and financial stability. They also serve as essential tools for budgeting, planning, and regulatory compliance.

Conclusion

The financial accounting processes demonstrated through the example of Gatorberg and Grandtown Hospitals underscore the significance of meticulous record-keeping, timely adjustments, and systematic closing procedures in healthcare accounting. These practices ensure the integrity of financial reporting, facilitate informed decision-making, and uphold regulatory standards. As hospitals continue to navigate evolving healthcare regulations and financial complexities, adherence to sound accounting principles remains indispensable for sustainable operations and stakeholder trust.

References

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  • Yee, R. & McGinnis, J. (2022). Modern Healthcare Finance. Routledge.
  • Office of the Nebraska State Auditor. (2021). Healthcare Audit and Financial Management. State of Nebraska Publications.

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