Operating expenses of a health care facility may differ, depending upon the nature of the facility’s activities. Expenses may be reported on the face of the financial statements using either a natural classification or a functional presentation. Functional allocations are to be based on full cost allocations. The following functional expense categories are common to many health care organizations:
1. Nursing Services Expense, for the cost of nursing services directly related to the patient or resident.
2. Other Professional Services Expense, for professional services indirectly related to the patient or resident, such as lab fees or pharmacy costs. Note that some hospitals combine the two accounts Nursing Services Expense and Other Professional Services Expense into one account labeled Professional Care of Patients Expense.
3. General Services Expense, for costs of the cafeteria, food service, and housekeeping. Where food services constitute a major cost, some hospitals prefer to segregate them into the account Dietary Services Expense.
4. Fiscal Services Expense, for admitting, data processing, billing, and accounting costs.
5. Administrative Services Expense, for purchasing, public relations, insurance, taxes, and personnel costs.
6. Other Services.
7. Malpractice Insurance Expense, if not already allocated.
8. Depreciation Expense, if not already allocated.
9. Interest Expense, if not already allocated.
10. Provision for Bad Debts, if not already allocated.
For example, salaries expense is often recorded and allocated to the first six functional expense accounts at year-end. The statement of activities (operating statement) would show the total for each service, such as Nursing Services Expense, but not the nature of that total (salaries, supplies, etc.). The footnotes to the financial statements provide detail on the natural classifications of the expense, such as salaries, supplies, etc.