Accounting Practices

Part of any business whether it may be a health care organization that serves thousands of patients each year or a small corner store in a local neighborhood uses accounting practices to manage their daily financial matters.

To understanding financial issues in health care organizations, it is necessary to understand the different types of accounting practices, how entries are made, and how inventory is recorded using each practice. The three different types of accounting are accrual, cash flow, and fund accounting is used in healthcare organizations for financial management.

Accounting transactions are written or computed into journal entries posted to account ledgers on a daily or weekly basis. Accrual accounting method records all expenses and revenue as they are incurred in the absence of cash. For example, when patients come into an emergency room the hospital will invoice the visit as if the patient or insurance company has paid for the visit. The accrual principle should demonstrate the flow of resources as opposed to cash coming into the organization.

Cash flow accounting is the transfer of cash in and out of an organization in the form of payments to merchants and collecting money from customers (Peavler, 2010). Cash flows are obtained from three sources financing, operations, and investing (Peavler, 2010). Organizations must report a statement of cash flows as part of necessary financial statements. Statements of cash flows demonstrates the operations that is the current assets and liabilities, financing that are the long-term financing and dividends, and the investing that are the equipment and investments (Peavler, 2010). Companies that use cash flow must compare cash receipts or revenues with cash payouts or payments to determine their net cash flows (Peavler, 2010). Cash flow accounting is used by organizations that do not use numerous transactions. Inventory is accounted for only when the goods are purchased.

Fund accounting is used in...