Happy Hospital Scenario

Channel and Pricing Strategies

ACC/HC561

Accounting in a Health Care Environment

December 20, 2010

Bruce Thomas

Happy Hospital is a 115 bed not-for-profit community hospital. Presently, their assets are approximately $12.5 million, with the vast majority in accounts receivable. They have 4.3 million in current liabilities (Finkler & Ward, 2006). The Hospital did not have any debt coming into 2008 but did take on some long-term debt the following year. Their solvency and profitability numbers reflect the fact that they have had two difficult income years. Because the hospital lost money, they have negative interest and debt service coverage ratios (Finkler & Ward, 2006).

Budgets and performance reports are vital tools for business planning and decision-making. Planning and controlling are two vital parts of managerial accounting. Budgets provide organizations with the ability to review and react to variances between expected and actual expenses and take corrective actions when warranted. Performing a variance analysis allows an organization to determine what has caused differences between planned and actual costs. Cash flow statements show the inflow and outflow of cash and provides relevant information needed to make effective decisions. The use of budgets and performance reports offer a clearer understanding of how an organization is fairing in the current economic environment.

Participating in the budgetary process will allow Happy Hospital to identify key factors of excessive spending in all areas and allow them to correct and change their budget when needed. It will allow them to identify any cash, working capital, or long-term financial shortages and will provide them with information that may help them avoid future disasters. There may be instances in the future where they may be forced to make non-routine decisions. Utilizing these reports will allow them to make economically sound and feasible choices.

Harm O. Knee...