Premium revenue is recorded in Unrestricted Revenues.
Contractual adjustments for Medicare and Medicaid are deducted from patient service revenue and are, therefore, included in Net Patient Service Revenue in Unrestricted Revenues.
Charges for charity care are not recorded.
Depreciation expense is recorded in Operating Expenses.
Interest expense is recorded in Operating Expenses.
Bad debt expense is recorded in Operating Expenses.
Unrestricted investment income is recorded in Other Income.
Equipment is a fixed asset and therefore, does not appear on the Statement of Operations.
Journal entries are primary books of entries that were recorded when a transaction takes place. However, the recording of transactions would be done through journal entries, for which a transaction necessarily needs to be reflect in monetary terms. The transactions that occur in day-to-day operations, and that can be measured in terms of money are recorded in the book of primary entries. The recording of transactions is usually done with the usage of journal form. Journal entries are recorded by debiting and crediting all the relative accounts that would reflect a particular transaction on the basis of transaction occurrence and nature.
The following are the journal entries to record the transactions:
Amount received from pledges can be used in any manner. However, it is possible to use only in the next year. Therefore, pledge amount is restricted by time. On its receipt, cash has been debited. Pledge amount was previously due. When the amount is received, dues should be cancelled. Hence, pledge receivable account has been credited. On receipt of money, time restriction has been satisfied. So transfer entry from temporarily restricted category of net asset to unrestricted category been made.
This amount has been promised to be received in the year 2016. It can be used for any purpose. Since, the amount has not been received, it is considered as pledge receivable. As per FASB guidelines, pledge is recorded in the book in the year of promise. So pledge receivable account has been debited as an asset. Corresponding credit is needed in contributions - restricted by time.
On payment of training cost, expenses - nursing training has been debited. Since cash has been expended, it has been credited. Amount of $35,000 was received in the previous year 2014. It was restricted for training purpose. This amount is appearing at the beginning of 2015 in net assets- temporarily restricted by use account. After spending the money, net asset is transferred from restrictive class to unrestricted class. Second Journal is needed for this transfer.
Amount has been received for cancer research use. On its receipt, cash is debited and the contribution account temporarily restricted by cancer use is credited. The money has not been used in 2015. So it should be transferred to net asset- temporarily restricted account at the end of the year.
Cash received is unrestrictive in nature. But, board has decided it to use for plant expansion. It will appear as a separate category as per FASB guideline. Therefore, board designated contribution account has been credited with a corresponding debit in cash account.
Contribution - restricted by use…………………………
Net asset - temporarily restricted for cancer
research use ………………………………
Contribution - unrestricted board designated………….
Net asset unrestricted - Board designated…………..
The above closing entries are passed to transfer different contributions to appropriate net asset categories. These entries are related with transactions (2), (4) and (5).
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