Accepted Accounting Principles related to Health Care Essay - 1

Accepted Accounting Principles related to Health Care - Essay Example Inother words, it separates the business from its owners and treats it as an economic unit. Only assets, liabilities, and owners equity related to the group or organization are on one financial statement. If there are sub entities, the financial records of these entities are maintained separately. The second principle is the going - concern concept which is a presumption that the group or organization will be running in the future and will not be liquidated in the next 12 months. It is a very concept in case of healthcare business because hospitals, nursing homes, etc. which do not intend to stay in business the net realizable value of the asset may be not ascertained and could be sold at a much higher price than they worth at the moment of sale. The third principle is the matching principle which is a combination of cash accounting and accrual accounting. The matching principle and cash accounting states that revenue or expenses are recognized only when the organization receives cash or pays cash. For example, medical equipments are recognized in the books of accounts only when the cash is paid out in entirety. The problem therefore is, all transactions that are not done on a cash basis and not done in the same accounting year are not recognized which gives a deceptive picture of what actually occurred a respective accounting year. On the other hand, when accrual accounting is done this gives the actual as to what occurred in that year. An example of this is if an organization provides care for a patient but does not receive reimbursement until the following year but the funds will be documented on the year the patient was cared for. The fourth principle is known as the historical cost principle and states that the cost of a resource is what the organization pays to receive the economic need. Historical cost does not reflect the current market valuation of the asset. Therefore the problem with the cost principle for example is if a hospital pays twenty