Accounting Principles and Health Care Essay

964 Words Apr 2nd, 2012 4 Pages
Accounting Principles and Health Care
Samantha Mrazek
HCS 571
March 19, 2012
John Hodnette

Accounting Principles and Health Care There are no formal accounting principles that apply to health care. However, there are five generally accepted guiding principles used in the management of the financial aspects of health care management (Cleverly, Song & Cleverly, 2011). Understanding the five guiding principles are important in understanding financial information and managerial accounting and how the principles relate to health care (Cleverly et. al.). The five principles include, accounting entity, money measurement, duality, cost valuation, and stable monetary unit. Each principle and how it relates to health care is
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Assets are the resources that the organization has and the money generated. Liabilities are resources that are owed for services, supplies and other things that the organization has acquired. The ideal goal of any business is for the assets to be greater than the liabilities (Cleverly et. al.). Duality Duality is a simple mathematical equation or rather, it seems simple. The equation states, “The value of assets must always equal the combined value of liabilities and residual interest, which we have called net assets.” (Cleverly et. al. pg. 185 para.1) This requires balancing reports about changes in either side of the equation. In health care, for instance, changes such as buying supplies, receiving payment for services, or paying the electric bill are all transactions that require balancing the books, so to speak, so that the equation is still equal. Cost Valuation Cost Valuation can be defined as choosing the right price for services, supplies and other things of value (Hutton, 2005). Choosing the right price may be based on the history of what the entity has paid that is reflected by money measurement or may be based on other measures of what a cost should be (Cleverly et. al.). Market value is a way to assess a cost value. This seems to be favorite way with many organizations. This method is not considered
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