Part IV: Report and Measure Financial Results CHAPTER 9: REPORTING

Reporting The four major reports are: Balance sheet Statement of revenue and expense Statement of changes in fund balance/net worth Cash flow statements Each has its own contribution to the whole.

Reporting The basis of reporting is either cash or accrual. Cash Basis Accounting: Transaction doesn’t enter the books until cash is either received or paid out. Accrual Basis Accounting: Revenue is recorded when it is earned (not when payment is received) and expenses are recorded when they are incurred (not when they are paid). Most health care organizations are on the accrual basis. The reports in this chapter have been prepared using the accrual method.

Reporting Balance Sheet The balance sheet records what an organization owes, and basically, what it is worth. The balance sheet is stated at that particular time. Like a snapshot, it freezes the figures and reports them on a certain date.

Reporting Balance Sheet The balancing of the elements in the balance sheet represent: Assets = Liabilities + Net worth / Fund balance See Exhibit 9-1, the practice exercise and the Metropolis case study in Chapter 18.

Reporting Statement of revenue and expenses This statement records the inflow (revenue) along with the outflow (expense) and the net result (income or loss). This statement covers a period of time (a month; a quarter; a year). If the balance sheet is like a snapshot, then the statement of revenue and expense is like a diary; for it is a record of transactions over a period of time.

Reporting Statement of revenue and expense The reporting of the elements in the statement of revenue and expense represents: operating revenue - operating expenses = operating income See Exhibit 9-2, the practice exercise and the Metropolis case study in Chapter 18.

Balance Sheet & Statement of Income Components: Practice Look on pages 261-262 and identify the following items on the Doctors’ Balance Sheet and Statement of Net Income. Current Liabilities Total Assets Income from Operations Accumulated Depreciation Total Operating Revenue Current Portion of Long-Term Debt Interest Income Inventories

30,000 1,000,000 80,000 480,000 180,000 10,000 -05,000

Reporting Statement of changes in fund balance/net worth This statement records changes in equity over the reporting time. Think of the balance sheet, the statement of revenue and expense and the statement of changes in fund balance/net worth as locked together — the statement of changes in fund balance is the mechanism that links the other two statements.

Balance Sheet & Statement of Revenue Components: Practice Look on pages 283-284 and identify the following items on the Metropolis Balance Sheet and Statement of Net Revenue. Current Year Current Liabilities Total Assets Income from Operations Accumulated Depreciation Total Operating Revenue Current Portion of Long-Term Debt Interest Income Inventories

$ 5,825,000 32,800,000 1,700,000 26,100,000 35,100,000 525,000 80,000 900,000

Prior year $ 6,300,000 32,000,000 840,000 24,200,000 34,600,000 500,000 40,000 850,000

Reporting Statement of changes in fund balance/net worth The reporting of the elements in the statement of changes in the fund balance/net worth represents (in a simplified format): Beginning balance + operating income = ending balance, or Beginning balance - operating income = ending balance. See Exhibit 9-3, the practice exercise and the Metropolis case study in Chapter 18.

Reporting Cash flow statement This statement, in effect, takes the accrual basis statements and converts them to a cash flow for the period through a series of reconciling adjustments that account for noncash amounts.

Reporting Cash flow statement In accrual accounting, if cash is not paid or received when revenues and expenses are entered on the books, what happens? The other side of the entry is Accounts Receivable (for revenue) and Accounts Payable (for expense). These accounts rest on the balance sheet and have not yet been turned into cash. Another accrual characteristic is recognition of depreciation. Depreciation is recognized within each year as an expense, but it does not represent a cash expense (see text in chapter). All these non-cash amounts are reconciled within the cash flow statement.

Reporting Cash flow statement The reporting of elements in the cash flow statement represents the following (in a simplified format): Accrual basis beginning balance +/reconciling non-cash entries = cash basis ending balance. Cash flow adjustments are much clearer when looking at an example. See Exhibit 9-4, the practice exercise and the Metropolis case study in Chapter 18.

Reporting Subsidiary statements Provide more detail (than the major statements) The support (and are subsidiary to) the major statements See the Metropolis case study for good examples of subsidiary statements.