Why is it important to distinguish between operating and nonoperating revenue?
ORDER NOW FOR ORIGINAL AN ORIGINAL PAPER ASSIGNMENT: Assignment: Supplies and Pharmaceuticals
Assignment: Supplies and Pharmaceuticals
and an implicit price concession (the organization believes the patient is unable to pay, but the patient is not eligible for charity care, and the organization recog- nizes a write-off based on internal policy). The proposed new guidance for presenting bad debt would allow organizations to group patients with similar characteristics, such as true self-pay or high deductible (Connor and Mosrie 2016).
Premium revenue is money generated from capitation arrangements that must be reported separately from patient services revenue because premium revenue is earned by agreeing to provide care, regardless of whether care is ever delivered. Other operating revenue is money generated from services other than health services to patients and enrollees. It may include revenue from rental equipment and office space, sales of supplies and pharmaceuti- cals, cafeteria and gift shop sales, and so on. Often the test for whether revenue is considered other operating revenue or nonoperating revenue is whether the revenue was generated in support of the organization’s mission statement.
Why is it important to distinguish between operating and nonoperating revenue? Because for a not-for-profit hospital, income derived from operations is not taxed, but income from unrelated businesses, such as the gift shop, may be taxed as unrelated business income. Net assets released from restrictions used for operations, while not reflected in Bobcat Hospital’s statement of operations, consist of money previously restricted by donors that has become available for operations.
Expenses are the amounts of resources used by the organization. The category of operating expenses represents resources used on operations to generate revenue in support of the organization’s mission statement. These expenses can be listed by functional clas- sification (organizational division), such as nursing department and support department, which is useful for internal purposes, or by natural classification, under such categories as salaries, wages, and benefits or supplies, drugs, and purchased services, as is the case with Bobcat Hospital’s statement of operations, which is useful for external purposes.
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