[jairvin3]

I am getting pretty confused with the following:

Question 1:

Terry, an auditor, is performing test work for a private not-for-profit hospital. Listed below are components of the statement of operations:

Revenue for charity care services $100,000

Bad debt expense 70,000

Net assets released from restrictions

used for operations 50,000

Other revenue 80,000

Net patient service revenue (includes revenue

related to charity care) 500,000

What amount would be reported as total revenues, gains, and other support on the statement of operations?

Question 2:

Hospital, Inc., a not-for-profit entity with no governmental affiliation, reported the following in its accounts for the current year ended December 31:

Gross patient service revenue from all services provided

at the established billing rates of the hospital (note

that this figure includes charity care of $25,000) $775,000

Provision for bad debts 15,000

Difference between established billing rates and fees

negotiated with third-party payers (contractual adjustments) 70,000

What amount would the hospital report as net patient service revenue in its statement of operations for the current year ended December 31?

Question 1 explanation states that a private NFP hospital does not deduct bad debt expense from revenue to get net patient service revenue.

Question 2 explanation states that non-governmental NFP hospitals deduct charity services, bad debt, contractual adjustments, and policy discounts from gross patient service revenues to determine net patient service revenues.

I am having trouble differentiating between the two. What is the difference between a private NFP hospital and a non-governmental NFP hospital?

[Anonymous]

private NFP = nongovernmental NFP, there is no difference.

As for bad debt expense, the default is that you do NOT subtract it from gross pt revenues to get to net pt revenues.

The only time you would subtract bad debt expense from gross pt revenues is if…

*you billed a patient for pt services at the full amount and did not assess their ability to pay. Later on, you find out that the patient can not pay = deduct from gross pt service rev (this is opposed to billing a patient, assessing their ability to pay, determining that they indeed should be able to pay, then later on finding out that they can not pay = do NOT deduct from gross pt service rev).

I'm not sure how you would derive that piece of information from question # 2 though. Also, I'm studying for FAR too so this could all be wrong, lol.

[Nagham]

Hello,

Revenue to be reported for a Private Not for Profit organization = Revenue- Charity Service- Contractual adjustments
unlike the Governmental Not for Profit organization, the Provision for bad debt expenses is not deducted from the Revenue in Private Not for Profit organizations unless the uncollectible amount is unable to be identified if it represents bad debt expenses or Charity service only in this case we should consider the total uncollectible amount as “charity service” & thus it should be deducted from the Revenue:

Uncollectible amounts might be either Charity service (Deducted fro Revenue)
or Bad debt(Doubtful clients) (Not Deducted fro Revenue)

If Uncollectible amounts are unable to be identified if they are Charity service or Bad debt(Doubtful clients): should be treated as Charity service & deducted from the revenue

In the 1st Question, it's clear the amount of Charity service & the amount of bad debt expenses, thus the revenue to be recognized= = Net patient service revenue (includes revenue related to charity care) -Revenue for charity care services+Net assets released from restrictions used for operations+ Other revenue= 500,000-100,000+50,000+80,000= 530,000

As you can see the charity service has been deducted & the bad debt expenses was ignored in the revenue recognition.

in the 2nd question, same as question 1 the provision for bad debt expense is also ignored in the revenue recognition.
the explanation of 2nd question differ between Non governmental not for profit organizations & governmental not for profit organizations: in governmental not for profit organizations the amount of bad debt expenses is deducted from Revenue recognized unlike the Non governmental not for profit organizations

Private not for profit organizations is other terminology of Non governmental not for profit organizations: it's the same.

[Author]

Replies