Maria Cecilia Blancia
University of Phoenix
HCS/571- Financial Resource Management
January 19, 2015
Introduction Many health care organizations today are facing challenges on how to manage and operate financial information. Some of the generally accepted accounting principles used in the past may not as effective to tackle the current issues in dealing with the dramatic changes in health care competition, government regulation, and reimbursement. In order to survive economically, health care organizations must need to look back on every single accounting principles and its application.
Generally Accepted Accounting Principles According to Cleverly, Song, and Cleverly (2011), there are five generally accounting principles accepted in managing financial information relating to health care: accounting entity, money measurement, duality, cost valuation, and stable monetary unit.
An accounting entity can be a business or corporation that report and record the financial activities through balance sheet and statement of operation. “ An Accounting entity represents an area of interest, to make real & to circumscribe the objects and activities of which financial reports will speak” (Kurunmaki, 1999, p. 219). A hospital, nursing school, or outpatient clinics are examples of business organizations that apply the different accounting principles. An accounting entity is separate and distinct from its owners. For example, a hospital as an entity is distinct from its owners and employees who constitute the entity. The transaction, which the hospitals carry on, is totally different from the transactions that the owners of such hospital have.
The second principle is the money measurement, which is the incoming and outgoing revenues of accounting entity that excludes the morale of the employees, quality of service, and health of company’s owner. The two factors to consider when making money measurement are economic resources and economic obligation (Cleverly et al., 2011). Resources can be considered assets in the company while obligations are considered liabilities. Examples of scarce resources include buildings, supplies, money, equipments or other things that the company need to generate revenue. A nurse manager must understand that acquiring capital assets such as investing in buildings and equipments requires a long term financing in order to provide health care services to patients while being innovative with other healthcare competitors.
The third principle is the dual principle, which simply discusses basic accounting equation of assets, liabilities, and net assets. When making transaction, it is always essential to remember the dual principle in order to prevent imbalance in the accounting equation. In the unit where I work, our nurse manager always ensure that there is a balance among the quality of performance from employees while making them satisfied with their job and controlling the cost or resources.
The fourth principle is the cost valuation that includes the historical or acquisition cost of assets or liabilities when sold in the market. Market value and replacement cost valuation are the two primary alternatives when making historical cost valuation (Cleverly et al., 2011). One good example is the economic evaluations of health interventions today which often take the form of cost-utility analyses that compare options in terms of health care costs and health outcomes to patients, with the latter expressed in terms of a generic measure called the quality-adjusted life-year (QALY) (Singh, Lord, Longworth, Orr, McGary, Sheldon & Buxton, 2012). In cost valuation, the value