HINF 265 FINAL EXAM STUDY QUESTIONS
Causes of Growth in Spending - Answers :• Shift from acute to chronic care
• Growth in hospital expenditures• Fee-for-service reimbursement
• Growth in pharmaceutical costs
• Advances in medical technology
• Increased payments to health plans
• Increased payments to rural health providers
• Rising medical malpractice premiums
Master budget - Answers :Includes all financial information for the organization. Is
comprised of income statement, balance sheet, and statement of cash flows
Capital budgets - Answers :Wish list submitted to managers and proposals submitted by
managers to Financial Department (land acquisition, facility construction, renovation,
routine capital equipment used in clinical areas)
Capital rationing - Answers :Limit set on the amount of funds available for investment.
Those selected have the highest profitability index
Financial Accounting - Answers :Financial Statements (GAAP)
• External Reporting
• Balance Sheet- Shows what the organization owns and owes
• Income Statement
- Shows the revenue and expenses
- Net income (or loss)
• Cash Flow Statement
- Cash flows from operating activities, investing and financing activities
Managerial Accounting - Answers :• Internal Reporting
• Addresses the internal information for planning and reporting the use of resources
• Used to identify, measure and compare benefits and costs
• Used to make short term and long term decisions• Verify that the mission of the
organization is being fulfilled
Balance sheet: Assets - Answers :Current Assets
- Cash and can be converted to cash ; used to pay current liabilities
• Limited Use Assets
- Held for specified purposes
• Property, Plant, Equipment
- Long lived assets
• Other Assets
- Amortized into the future
Balance sheet: Liabilites - Answers :Current Liabilities
- Due within one year
,• Accrued Liabilities
- Pension and medical malpractice liabilities
• Long Term Liabilities
- Due into the future; are measured as the present value of future cash flows
Managing accounts receivable - Answers :Money owed to a company, current assets on
the balance sheet. Considered revenue earned but cash yet to be collected. Primary
goal of managing A/R is to reduce the collection period, or "days in A/R"
Two methods used to finance A/R - Answers :- Factoring receivables: selling at a
discount
.- Pledging receivables as collateral to negotiate a line of credit to cover temporary cash
shortfalls
Importance of Supply Chain Management - Answers :- Delivery of appropriate patient
care
- Provision of cost control: a non-productive asset, inventory loses value over time.
- Improvement of the organization's bottom line, through best pricing and reducing over-
utilization
Just-in-time (JIT) - Answers :products are literally delivered to the provider "just in time"
for use; decreases holding costs and obsolescence
ABC Inventory Method - Answers :each supply item is assigned to one of three groups
and is thus monitored according to cost
Managing Budgets - Answers :The process of turning the objectives of the organization
into a plan for earning revenues and controlling expenditures. Involves all managers
Major types of budgets - Answers :- Master budget: income statement, balance sheet,
and statement of cash flows
- Operating budget, or cash budget: annual budget that is a forecast of cash inflows,
outflows, and net lending or borrowing needs.
- Expense budget
- Revenue budget
- Capital budget: plan for expenditures for long-term assets whose useful life is more
than 1 year
Financial Management - Answers :The process of:
Providing oversight of the health care organization's financial operations
• Planning the organization's long-term financial direction (both internal and external)
• Increasing the organization's revenues and decreasing expenses to improve income
Major Objectives of Financial Management - Answers :-Generate a reasonable net
income.
-Set prices for services.
, -Facilitate relationships and manage contracts with third-party payers.
-Record and analyze cost information.
-Prepare, audit, and disseminate the organization's financial reports.
-Invest in long-term capital assets.
-Ensure that payroll is covered and that suppliers are paid.
-Protect the organization's tax status.
-Respond to government regulators, external auditors, accrediting agencies, and quality
consultants.
-Control financial risk to the organization.
Financial Governance: In order of responsibility - Answers :1. Governing body, or Board
of Directors/Trustees
2. Chief Executive Officer (CEO)
3. Chief Financial Officer (CFO)
- Controller
- Treasurer
- Internal auditor
4. All managers in the healthcare organization
Entity financial statements must be prepared in accordance with - Answers :Generally
Accepted Accounting Principles (GAAP)
General approaches to budgeting - Answers :Bottom up:
- Budgets originate at the department or program level and are combined to form the
organization's budget
- Engages the department in the process but may not be financially feasible for the
organization
Top-down:
- Budgets are prepared by finance staff and sent to the department or program to
implement
- Expeditious but less buy-in from departments
Statement of operations - Answers :Revenue (value of services provided, whether or
not cash has been collected)
Expenses (Consumption of resources in providing services)
Income from Operations (Excess (or loss) of revenues over expenses)
Non-Operating Gains (losses) (Donations or other activities)
Statement of Cash Flows - Answers :• Operating
- Cash collected from providing services, for expense and for interest and taxes
• Investing
- Cash from buying and selling assets (plant, property, equipment)
• Financing
- Borrowings, repayment of debt, cash from equity and dividends
Causes of Growth in Spending - Answers :• Shift from acute to chronic care
• Growth in hospital expenditures• Fee-for-service reimbursement
• Growth in pharmaceutical costs
• Advances in medical technology
• Increased payments to health plans
• Increased payments to rural health providers
• Rising medical malpractice premiums
Master budget - Answers :Includes all financial information for the organization. Is
comprised of income statement, balance sheet, and statement of cash flows
Capital budgets - Answers :Wish list submitted to managers and proposals submitted by
managers to Financial Department (land acquisition, facility construction, renovation,
routine capital equipment used in clinical areas)
Capital rationing - Answers :Limit set on the amount of funds available for investment.
Those selected have the highest profitability index
Financial Accounting - Answers :Financial Statements (GAAP)
• External Reporting
• Balance Sheet- Shows what the organization owns and owes
• Income Statement
- Shows the revenue and expenses
- Net income (or loss)
• Cash Flow Statement
- Cash flows from operating activities, investing and financing activities
Managerial Accounting - Answers :• Internal Reporting
• Addresses the internal information for planning and reporting the use of resources
• Used to identify, measure and compare benefits and costs
• Used to make short term and long term decisions• Verify that the mission of the
organization is being fulfilled
Balance sheet: Assets - Answers :Current Assets
- Cash and can be converted to cash ; used to pay current liabilities
• Limited Use Assets
- Held for specified purposes
• Property, Plant, Equipment
- Long lived assets
• Other Assets
- Amortized into the future
Balance sheet: Liabilites - Answers :Current Liabilities
- Due within one year
,• Accrued Liabilities
- Pension and medical malpractice liabilities
• Long Term Liabilities
- Due into the future; are measured as the present value of future cash flows
Managing accounts receivable - Answers :Money owed to a company, current assets on
the balance sheet. Considered revenue earned but cash yet to be collected. Primary
goal of managing A/R is to reduce the collection period, or "days in A/R"
Two methods used to finance A/R - Answers :- Factoring receivables: selling at a
discount
.- Pledging receivables as collateral to negotiate a line of credit to cover temporary cash
shortfalls
Importance of Supply Chain Management - Answers :- Delivery of appropriate patient
care
- Provision of cost control: a non-productive asset, inventory loses value over time.
- Improvement of the organization's bottom line, through best pricing and reducing over-
utilization
Just-in-time (JIT) - Answers :products are literally delivered to the provider "just in time"
for use; decreases holding costs and obsolescence
ABC Inventory Method - Answers :each supply item is assigned to one of three groups
and is thus monitored according to cost
Managing Budgets - Answers :The process of turning the objectives of the organization
into a plan for earning revenues and controlling expenditures. Involves all managers
Major types of budgets - Answers :- Master budget: income statement, balance sheet,
and statement of cash flows
- Operating budget, or cash budget: annual budget that is a forecast of cash inflows,
outflows, and net lending or borrowing needs.
- Expense budget
- Revenue budget
- Capital budget: plan for expenditures for long-term assets whose useful life is more
than 1 year
Financial Management - Answers :The process of:
Providing oversight of the health care organization's financial operations
• Planning the organization's long-term financial direction (both internal and external)
• Increasing the organization's revenues and decreasing expenses to improve income
Major Objectives of Financial Management - Answers :-Generate a reasonable net
income.
-Set prices for services.
, -Facilitate relationships and manage contracts with third-party payers.
-Record and analyze cost information.
-Prepare, audit, and disseminate the organization's financial reports.
-Invest in long-term capital assets.
-Ensure that payroll is covered and that suppliers are paid.
-Protect the organization's tax status.
-Respond to government regulators, external auditors, accrediting agencies, and quality
consultants.
-Control financial risk to the organization.
Financial Governance: In order of responsibility - Answers :1. Governing body, or Board
of Directors/Trustees
2. Chief Executive Officer (CEO)
3. Chief Financial Officer (CFO)
- Controller
- Treasurer
- Internal auditor
4. All managers in the healthcare organization
Entity financial statements must be prepared in accordance with - Answers :Generally
Accepted Accounting Principles (GAAP)
General approaches to budgeting - Answers :Bottom up:
- Budgets originate at the department or program level and are combined to form the
organization's budget
- Engages the department in the process but may not be financially feasible for the
organization
Top-down:
- Budgets are prepared by finance staff and sent to the department or program to
implement
- Expeditious but less buy-in from departments
Statement of operations - Answers :Revenue (value of services provided, whether or
not cash has been collected)
Expenses (Consumption of resources in providing services)
Income from Operations (Excess (or loss) of revenues over expenses)
Non-Operating Gains (losses) (Donations or other activities)
Statement of Cash Flows - Answers :• Operating
- Cash collected from providing services, for expense and for interest and taxes
• Investing
- Cash from buying and selling assets (plant, property, equipment)
• Financing
- Borrowings, repayment of debt, cash from equity and dividends
