Dr. Lopez is a family practitioner who has recently opened his practice. Total b

Question

Dr. Lopez is a family practitioner who has recently opened his practice. Total billed revenues for July were $15,000. Currently, all of his patients are insured by Medicare or commercial insurers. Third-party payers typically pay two months after care is delivered, so his actual receipts in July equal zero. Dr. Lopez pays his nursing staff $1,500 twice a month. The rest of his expenses-rent, utilities, supplies, insurance, and bookkeeping-are paid monthly and total $6,000. This accounting method used by Dr. Lopez is illustrated in Table 15-1 (page 397) see below.

Contrast the profitability that Dr. Lopez faces by using the cash basis of accounting with the profitability he faces by using the accrual basis of accounting for the month of July. What if Dr. Lopez did not accept third-party insurance and required all patients to pay at the time of service? Would there be any difference between the cash basis and accrual basis of accounting? Why or why not?

Table 15-1 I Accounting Methods: Cash Basis versus Accrual Basis Dr. Lopez is a family practitioner who has recently opened his practice. Total billed revenues for July were $15,000. Currently, all of his patients are insured by Medicare or commercial insurers. Third-party payers typically pay two months after care is delivered, so his actual receipts in July equal zero. Dr. Lopez pays his nursing staff $1,500 twice a month. The rest of his expenses-rent, utilities, supplies, insurance, and bookkeeping-are paid monthly and total $6,000 Income Statement: Cash Basis, for the Month of July Receipts Income Statement: Accrual Basis, for the Month of July Disbursements Revenue Disbursements $0$3,000 (staff salary and benefits) 15,000 $3,000 (staff salary and benefits) $6,000 (other practice expenses) $6,000 (other practice expenses) $0 Net income for July:-$9,000 $9,000 $9,000 15,000 Net income for July: $6,000 Source: Campbell, C., Schmitz, H.,&Waller;, L(1998).Financial management in a managed care environment. Albany, NY. Delmar

Explanation / Answer

If Dr Lopez use cash basis accounting then he need to account only when the cash recepits generated or cash expenses incurred . So as per vash accounting profitabiloity would be as below Revenues 0 Exp. staff saalry 3000 Other monthly exp. 6000 Loss -9000 If Accural accounting will be used then profitability will be as under Revenues 15000 Less Exp. Total 9000 Profit 6000 What if Dr. Lopez did not accept third-party insurance and required all patients to pay at the time of service - Is this happens then there will be no impact on revenues to be booked in cash method or accural method , but there might be change in profitability due to cash exp Vs accural exp. but in gthe given question there is no such exp hecne no impact on profitability will be seen in both the methods

Related Questions

Navigate

• Browse (All)
• Browse D
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.