ACC281 Week 1 Discussion 1, Why is Accounting Need and the Basic Accounting Equation

ACC281 Discussion 1 Alayna Yelding Why is Accounting Needed and the Basic Accounting Equation • Review the Basic Accounting Equation. Why is this equation key to understanding the balance sheet, which is one of the foundational financial statements? The basic accounting equation is the basis for the double entry accounting system. Assets = Liabilities + Equity, states that the assets in the equation are resources that a medical corporation has available for it to use, such as cash, accounts receivables, fixed income, and inventory. The medical business pays for these resources by either incurring liabilities or by obtaining monetary investment from investors. Therefore, resources are offset by claims against them, either from creditors or investors (also known as stakeholders). All three components (assets = liabilities + equity) appear in a medical business’s balance sheet, which reveals the financial position of the business at any given time. The liabilities part of the equation is comprised of accounts payable for such items as DME, phlebotomy equipment, and even toilet paper. Liabilities can also be taxes owed to the IRS, sales tax owed to the state, and any debt owed to stakeholder i.e., investors. The Equity part of the equation is based on the initial investment, plus any gains that the business has made, minus any losses or disbursements, or withdrawals paid to stakeholders. The balance sheet shows where the total of all assets is equal to the sum of liabilities and the equity in the business. (Schneider, & Epstein, 2014, p. 17) • How would healthcare companies operate without accounting? The accounting department within healthcare companies play an enormous role in the running of the business. Accountants (be it managers, head nurses, or CPA’s) allow the healthcare organization to operate according to its broadest potential. Without accounting it would be improbable for the healthcare organization to operate in a cost-efficient fashion. Accounting provides organizations with data that determines its financial health, businesses would not be able to flourish without it. • Review the information contained on the balance sheet and income statement. Revenue causes stakeholder’s equity to increase while expenses causes stakeholder’s equity to decrease. So, a positive net income which is reported on the income statement (which is caused by the revenues being greater than expenses) causes the stakeholder’s equity to increase. The opposite is true when a negative net income is reported. An income statement shows how an organization has performed as far as services, expenses, and any resulting profit or loss. It also shows how much stakeholders would receive if the organization disseminated all its gross earnings for the tax period. Balance sheets as stated previously provide important information about the financial strength of the company, they allow stakeholders to calculate days of working capital, which shows how a corporation can withstand any changes in income. • Explain the importance of this information to the operations of the organization. Financial information, such as income statements and balance sheets provide monetary information to stakeholders and creditors so that they can evaluate a healthcare organizations financial presentation. Financial information is also important to healthcare managers so that they can communicate with outside parties about their organization’s accomplishments. (Schneider & Epstein, 2014, p. 19-20) Reference Epstein, L. & Schneider, A. (2014). Accounting for Health Care Professionals [Electronic version] San Diego, CA: Bridgepoint Education, Inc. Retrieved from ACC281 Discussion 2 Alayna Yelding Health Care Spending • Review the information provided in the Health Care website. Discuss the major financial challenges of health care reform. The main problem with the health care system is that costs keep going up. Rising health care costs continue to drain our society. The major economic change we have faced in the United States has altered the way American think about the role health care plays in our lives as well as the deficiencies that come along with it. The growth in population that America has seen and the amount of uninsured, America is suffering, “US health care spending was $2.4 trillion in 2008 and spending is expected to reach $4.2 trillion in 2016.” () All the other problems in the health care system stem from this and won’t be solved until we give everyone real choices and the ability to take responsibility for what they spend on care. That means reducing regulation and using free market competition to allow insures to offer a wider range of plans. We should also embrace managed care, which watches expenses carefully and has already slowed down the increase in health care costs “Despite its nearly $1 trillion price tag, the Congressional Budget Office predicts the health care reform legislation is expected to lead to a $143 billion net reduction in federal deficits over the next nine years. The CBO determined the reductions will come from $124 billion in net reductions from the health care and revenue provisions and $19 billion in net reductions deriving from education provision.” (Baron, 2010) Americans spend twice as much as residents of other countries on health care, but receive lower quality care, less efficiency, and have the least equitable system. In this period of financial uncertainty for U.S. families, it is evident that some form of health care change was necessary. What should really be pointed out is” the impact of bankruptcies on the U.S. economy, as nearly half of bankruptcies in the U.S. resulted from medical costs (and only 25 percent of those that filed for bankruptcy were uninsured). This supports the fact that the existing health care system is clearly challenged.” (John B. Veihmeyer, 2010). Reference Baron, J. & Veihmeyer, J. (2010). Healthcare reform effect on Business. Retrieved from Https://