Funds
With the many restrictions resulting from donations, endowments, insurance company contracts, and government regulations for reimbursement, the activities of a health care provider have traditionally been accounted for using fund accounting. Health care entities employ two classes of funds:
With the many restrictions resulting from donations, endowments, insurance company contracts, and government regulations for reimbursement, the activities of a health care provider have traditionally been accounted for using fund accounting. Health care entities employ two classes of funds:
1. General funds, which account for resources available for general operations, with no restrictions placed upon those resources by an outsider, and other exchange transactions including resources from government grants and subsidies, tax support, and reimbursements from insurance contracts.
2. Donor-restricted funds, which account for temporarily and permanently restricted resources.
This class is subdivided into:
a. Specific purpose funds, which account for donor-restricted resources temporarily restricted for current but specified operations.
b. Plant replacement and expansion funds, which account for resources temporarily restricted by the donor for the acquisition, construction, or improvement of property, plant, and equipment.
c. Endowment funds, which account for resources that are received to create permanently restricted endowments (whose income only may be expended) and temporarily restricted term endowments (whose principal eventually will become available for expenditure).
d. Other donor-restricted funds such as annuities, life income funds, or loan funds. Each fund consists of a set of self-balancing accounts designed to reflect activities within its domain. Although the new FASB guidance on accounting and financial reporting represents a shift away from fund accounting to an organization-wide perspective, health care organizations are expected to continue some form of fund accounting for internal management and reporting. Some may even choose to continue to include information on funds in the external financial reports.
To demonstrate the organization-wide emphasis on accounting and financial reporting and to simplify the presentation, the following discussion assumes no fund structure.