There are four elements of financial management. These four elements are planning, controlling, organizing and directing, and decision making. In planning the financial manager determines what steps are necessary to meet the organizational goals. Distinguishing goals and how to achieve these goals is planning. The manager ensures that the company takes these steps and follows them accordingly in order to meet the goals set forth by the organization. Reviewing current data reports with those of historical data is a step in the right direction. These reports are known as feedback. In doing so, one can draw attention to where the attention needs to be. Some areas require more effort to reach performance standards. Controlling allows organizations to stick to their plans. Organizing enables a financial manager to determine the best way to make good use of available resources. The goal is to make efficient use of resources toward carrying out the plan. Directing enables a manager to daily strive for success and productivity. It is the manager’s responsibility to make good use of resources and supervise the employees under him to ensure maximum efficiency. Concerning decision making, a manager has to narrow down the available options and decide which option fits the organization. Decisions are not just made at the end of or after planning, controlling, organizing and directing, but continue to be made throughout the entire process. Information is helpful in making decisions. Analyzing and evaluating are part of the decision process to reach an informed decision (Baker & Baker, 2011).
There are two types of accounting, including financial and managerial. Financial use consists of third party members or those outside the organization itself. External reports are useful in financial accounting. Reports are made readily available for government agencies such as, Medicare or Medicaid to name a couple. Paying taxes and the satisfaction of stockholders are important. In financial accounting, just as the name suggests finances must be accounted for in the health care industry just as in any other business. It must meet the generally accepted accounting principles and focuses on transactions that have already taken place. Managerial accounting on the other hand, takes place internally within the walls of the organization itself. Managers exercise managerial accounting by planning and controlling operations daily. The ability to turn a profit is reported under managerial accounting along with the cost of services provided. Strategizing and long-term planning are handled under this type of accounting. It is not restricted to generally accepted accounting principles as is financial accounting. It does deal with transactions that have occurred just as financial accounting does though. Nevertheless it must also focus on the future to predict outcomes and draft a budget accordingly. Managerial accounting is prospective as well as retrospective. Financial accounting is simply retrospective (Baker & Baker, 2011).
Generally accepted accounting principles (GAAP) govern how health care organizations prepare their financial documents for submittal and reimbursement. Most facilities are reimbursed partially for services provided. This is why there is an amount of time that passes between the date a patient is seen and treated and the date they are billed. The GAAP accounting standards require service revenue and that the patient seen and their account receivable are reported to include monies due from third parties (Federal Accounting Standards Advisory Board, 2011). The process can take quite some time to establish the amount collectible. In this estimates come in. Facilities must estimate amounts in order to keep track and maintain financial records for accuracy of reporting. Once calculations are made then these records are updated with the exact amounts as opposed to the estimated amounts. The differences