Tgf Health Care Facility

Case 10-6: TGF care facility

To: Board of Directors

From: Certified Accountant

Re: Accounting Policies at TCG care facility

Users and objectives: The main user of TGF’s financial statements is potential donors. Their main objectives are stewardship, since they would like to see TGF making good use of external funds. Accounting for expenditure is also important, as TGF is a NFP organization, cost recovery will be its main goal. Donors will be evaluating the financial statements to see whether TGF has met this goal

Constraints: Recommendations of the CICA handbook will be the main constraint, as TCG is looking to obtain an unqualified opinion as according to GAAP. TCG currently has more than $500,000 in annual revenue; recommendations of section 4430 on capital assets will have to be followed.

Issues:

1. TGF’s statements should be catered to reflect the cost of providing services. Thus a statement of operations prepared on top of the three existing statements will better reflect the cost structure of the firm.

2. It’s advised that TGF use the accrual basis of accounting, as it will better reflect the assets, liabilities, revenue, and expenses of the firm. This is better than the current modified cash basis used by TGF.

3. The firm’s activities are organized by programs. Thus it’s suggested that a statement of revenues and expenses be prepared for each of the various programs so that the board of directors could refer to them during meetings. This is so that it’s easier for the financial statement users to see if the firm is meeting its cost recovery goal.

4. Revenues and expenses will be recorded during the same period, as according to the matching principle stipulated by GAAP. This is a better presentation method compared to the modified cash basis currently being used by the firm. Revenue should be recognized as follows:

a. Revenue from residents will be recognized in the period during which service is provided under the above recommendation...