Accounting Procedure Documentary
evidence
Transaction entries
JOURNAL
LEDGER
Chart of accounts
Closing entries
Postclosing trial balance (1)
Worksheet (3)
(7)
Statement of net assets
(4)
Statement of
operations Balance sheet
(2) (6)
(5)
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There are, however, additional steps involved in a complete accounting cycle. One of these additional steps is the journalizing and posting of another kind of journal entry called the adjusting entry. This procedure, often a matter of considerable difficulty for introductory accounting students, is treated in detail in the next three chapters.
Questions
Q4.1. What is the major purpose of a general worksheet?
Q4.2. Distinguish between the cash basis and the accrual basis of accounting.
Q4.3. Distinguish between revenues and cash receipts.
Q4.4. Distinguish between expenses and cash disbursements.
Q4.5. Why should cash basis accounting not be used by hospitals?
Q4.6. What is the purpose of the statement of hospital net assets?
Q4.7. Define briefly each of the following terms: (1) assets, (2) liabilities, and (3) net assets.
Q4.8. Describe briefly the procedure known as closing the books.
Q4.9. Distinguish between real and nominal accounts.
Q4.10. Distinguish between a preclosing trial balance and a postclosing trial balance.
Q4.11. List, in the sequence normally completed, the steps involved in an accounting cycle.
Q4.12. What is the significance of double rulings in ledger accounts?
Exercises
E4.1. Dowdy Hospital provides you with the following information:
Revenues for 20X2 $500,000
Expenses for 20X2 450,000
Hospital net assets, December 31, 20X1 860,000
Revenue and expense summary
-0-Required: (1) Prepare closing entries for 20X2 in general journal form. (2) What is the hospital’s net assets balance on
December 31, 20X2?
E4.2. Doit Hospital provides you with the following information:
Assets $350,000
Liabilities 150,000
Hospital net assets 180,000
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Revenues 420,000 Expenses 400,000 Required: (1) Prepare a preclosing trial balance. (2) Prepare a postclosing trial balance.
E4.3. Devon Hospital provides you with the following information:
Revenue and Expense
Summary 302
787,000 800,000 13,000
Required: Answer the following questions:
1. What were total revenues for the year?
2. What were total expenses for the year?
3. What was the excess of revenues over expenses for the year?
4. If hospital net assets were $400,000 at the beginning of the year, what were the hospital’s net assets at the end of the year?
E4.4. Select the best answer for the following five multiple-choice questions.
1. Posting is an accounting procedure in which
a. Information is transferred from the ledger to the journal, b. Information is transferred from the journal to the ledger, c. Information is transferred from the ledger to the hospital
financial statements, or
d. Information is transferred from the trial balance to the ledger.
2. A trial balance can be prepared a. Only before the books are closed, b. Only after the books are closed,
c. Either before or after the books are closed, or d. Only at the end of the fiscal year.
3. In closing entries,
a. Expense accounts are always debited, b. Expense accounts are always credited,
c. Expense accounts may be debited in some cases and credited in other cases, or
d. Expense accounts are not debited or credited.
4. Under the accrual basis of accounting, revenues are recorded a. In the period in which they are collected in cash,
b. In the period in which they are earned through the provision of services or the sale of products,
c. In the period in which management decides they should be recognized, or
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d. In the period in which the income tax laws indicate that they are taxable.
5. Dawson Hospital provides you with the following information:
• Services rendered to patients were valued at $600,000.
• Cash collections on patients’ accounts totaled $540,000.
• Cash disbursements for expenses were $530,000.
• Expenses incurred during the period totaled $550,000.
Under the accrual basis of accounting, the excess of expenses over revenues (loss) of the period should be
a. $(10,000), b. $10,000, c. $50,000, or d. $70,000.
Problems
P4.1. The following balances, among others, appeared in the general ledger of Dent Hospital at the end of its fiscal year:
Acct.
No.
301 Hospital net assets $143,674
302 Revenue and expense summary -0-401 Routine services revenue 85,375 402 Ancillary services revenue 52,939 406 Other operating revenues 21,655 601 Salaries and wages expense 101,488
602 Supplies expense 22,475
603 Utilities expense 13,880
604 Insurance expense 4,203
605 Repairs expense 1,922
608 Interest expense 3,077
610 Other expenses 1,249
Required: Prepare, in good form, general journal entries to close the books of Dent Hospital for the year.
P4.2. The preclosing trial balance of Dunston Hospital on December 31, 20X2, is as follows:
Acct.
No. Dr. Cr.
101 Cash $ 11,200
104 Accounts receivable 27,400
106 Inventory 7,300
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120 Land 15,000
130 Buildings 80,000
140 Equipment 35,000
201 Accounts payable $ 6,900
202 Notes payable 14,000
250 Bonds payable 60,000
301 Hospital net assets 96,900
302 Revenue and expense summary
-0-401 Routine services revenue 86,400
402 Ancillary services revenue 41,700
406 Other operating revenues 19,200
601 Salaries and wages expense 94,600
602 Supplies expense 28,700
603 Utilities expense 13,400
604 Insurance expense 3,100
605 Repairs expense 2,700
608 Interest expense 4,400
610 Other expenses 2,300
Totals $325,100 $325,100
Required: (1) Prepare a general worksheet to develop financial statements for the year ended December 31, 20X2. (2) Prepare, in good form, financial statements for 20X2. (3) Prepare, in general journal form, closing entries for 20X2.
P4.3. The following balances, among others, appeared in the general ledger of Dixon Hospital at the end of its fiscal year:
Acct.
No.
301 Hospital net assets $294,600
302 Revenue and expense summary
-0-401 Routine services revenue 121,800
402 Ancillary services revenue 87,500
406 Other operating revenues 26,300
601 Salaries and wages expense 155,400
602 Supplies expense 31,400
603 Utilities expense 18,700
604 Insurance expense 6,400
605 Repairs expense 3,900
608 Interest expense 7,500
610 Other expenses 3,300
Required: (1) Enter the balances in ledger accounts, (2) journalize the necessary closing entries for the year, and (3) post the closing entries to the ledger accounts.
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P4.4. The following balances appeared in the general ledger of Deerly Hospital at December 31, 20X2:
Acct.
No.
101 Cash $ 31,100
104 Accounts receivable 89,700
106 Inventory 11,200
120 Land 25,000
130 Buildings 240,000
140 Equipment 114,000
201 Accounts payable 22,800
202 Notes payable 28,000
250 Bonds payable 75,000
301 Hospital net assets 372,300
302 Revenue and expense summary -0-401 Routine services revenue 140,700 402 Ancillary services revenue 79,900 406 Other operating revenues 21,300 601 Salaries and wages expense 150,800
602 Supplies expense 38,500
603 Utilities expense 22,100
604 Insurance expense 4,700
605 Repairs expense 3,200
608 Interest expense 7,900
610 Other expenses 1,800
Required: (1) Prepare a general worksheet to develop financial statements for the year ended December 31, 20X2. (2) Prepare, in good form, financial statements for 20X2. (3) Prepare, in general journal form, closing entries for 20X2.
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