"Calculation of patient revenue on accrual basisSection A Requirements:1. Calculate patient revenue on accrual basis for the coming year. Subdivide revenue byprogram, and within each program subdivide it by type of payer.Solution-:Hospital revenue consists of bed charges, Pathology charges, Oxygen charges, Endowmentrevenue, Private Insurance, Medicare Insurance etc. These revenue is received from patients i.e.service receiver for Hospitals.Above is all direct revenue which is directly received from patients. Besides this there are alsoIndirect income which accrues to Hospital. The patient revenue is calculated as follows-:Calculation of patient revenue -:Particulars Amount1) Bed charges a) Mr. RamXXXb) Mr. Shyam XXX c) Mr. Mohan XXXXXX2) Pathology chargesa) Mr. RamXXX b) Mr. Shyam XXXXXXc) Mr. Mohan XXX3) Oxygen charges a) Mr. RamXXXb) Mr. Shyam XXXc) Mr. Mohan XXX XXX 4) Boyle’s Apparatus a) Mr. RamXXXb) Mr. Shyam XXXc) Mr. Mohan XXXXXX5) Endowment revenue a) Mr. RamXXXb) Mr. Shyam XXXc) Mr. Mohan XXXXXX2. Calculate endowment revenue on an accrual basis for the coming year.Solution-:If endowment is granted to Hospital for some specific purpose then it must be utilized for thatpurpose. Otherwise endowment revenue for general nature is to be booked as income.From management point of view endowment is to be invested carefully to get optimum return innext year. Organization may hire an Portfolio manager to look after this amount. It’s Capital aswell as accretions are to be regarded as inflow in next year. So Endowment revenue in next yearis equal to Original Investment + Return on Investment.3. Prepare a revenue budget on an accrual basis, including all sources of revenue discussedpreviously. The revenue budget does not have to show all of the detail from requirements 1and 2, but should show each major source of revenue, such as patient services andendowment.Solution-:Revenue Budget on accrual basis means income which accrues to hospital in current year. Theseare some of the major revenue items of the Dension Hospital-: Revenue BudgetParticulars AmountRevenue XXXBed charges XXXPathology charges XXXOxygen charges XXXBoyle’s Apparatus XXX Endowment revenue XXXPrivate Insurance received XXXMedicare revenue XXXTotal Income XXXSection B Requirements:1. Calculate expected bad debt expense on an accrual basis for the coming year.Solution-:Expected bad debt is to be calculated by management by forecasting no. of customers whowill make default in payment next year. Such provision for bad debt is made in current year.Organization may take services of factoring to avoid risk of bad debt. Bad debt provision ismade on basis of previous year’s data. So on accrual basis only provision is made onestimated figures of next year. Management should make provision on those customers whoare likely to make default in next year.2. Calculate an expense budget on an accrual basis for the coming year. The expensebudget does not require detailed information by program or department, but shouldshow each type of expense such as salaries and supplies. Be sure to consider the impactof capital acquisitions on the expense budget. Solution-:In Hospital Industry expenses can be of revenue in nature and those related acquisition ofcapital assets. Direct expenses can be related to particular patients. Overhead expenses can’tbe allocated to particular customer. Interest and finance charges is levied on acquisition ofcapital assets. A brief expense budget is prepared in this manner.Particulars AmountExpenses XXXDisposable purchased XXXPathology purchased XXXOxygen expenses XXXEmployee’s salaries XXXElectricity expenses XXXInterest and Finance charges XXXDepreciation on Fixed assets* XXXLaundry expenses XXXTotal Expenditure XXXExpense Budget? Note- Depreciation on fixed assets is a non-cash expenditure. 3. Combine the revenue (Section A) and expense budgets to present an operatingbudget for the coming year.Solution -: Operating budget is simply the calculation of operating profit which will accrue toHospital by doing normal business. If there is profit then management is likely tocontinue or otherwise they might decide to shut down. Operating budget excludesabnormal gain or losses to hospital.Operating BudgetParticulars AmountRevenue XXXBed charges XXXPathology charges XXXOxygen charges XXXBoyle’s Apparatus XXXEndowment revenue XXXTotal Revenue XXXLess: Expenses Disposable purchased XXXPathology purchased XXX Oxygen expenses XXXEmployee’s salaries XXXElectricity expenses XXXInterest and Finance charges XXXDepreciation on Fixed assets XXXLaundry expenses XXXTotal Expenditure XXXOperating Profit XXXSection C Requirements:1. In Part I, Section B, number 2, you prepared a line-item expense budget on anaccrual basis. Prepare the expense budget again as a responsibility center budget,showing the projected costs for each department (Radiology, Nursing, andAdministration).Solution:- Responsibilty budget is prepared to see performance of each department. Expenses areallocated to particular departments. Key Decisions are taken by management on theresponsibility centre budget. Responsibilty Centre BudgetParticulars Radiology Nursing Administration TotalExpensesDisposable purchased XXX XXX XXX XXXPathology purchased XXX XXX XXX XXXOxygen expenses XXX XXX XXX XXXEmployee’s salaries XXX XXX XXX XXXElectricity expenses XXX XXX XXX XXXInterest and Finance charges XXX XXX XXX XXXDepreciation on Fixed assets XXX XXX XXX XXXLaundry expenses XXX XXX XXX XXXTotal Expenditure XXX XXX XXX XXX2. Prepare an expense budget with expense shown by program (Oncology, Cardiac,Rhinoplasty). For simplicity, assume that bad debts are not assigned to specificprograms.Solution:-Expense budget by each programParticulars Oncology Cardiac Rhinoplasty TotalExpensesDisposable purchased XXX XXX XXX XXXOxygen expenses XXX XXXECG paperXXXXXXEmployee’s salaries XXX XXX XXX XXXNitrous expenses XXXXXX XXXOvertime Payment XXX XXX XXX XXXAMC Expenses XXX XXX XXX XXXPathology Chemical XXX XXX XXX XXXTotal Expenditure XXX XXX XXX XXXSection D Requirements:1. Prepare a flexible budget assuming patient volumes are 10 percent and 20 percent higherand 10 percent and 20 percent lower than expected. Also include the expected patientvolume level in the flexible budget. Prepare the flexible budget before doing the cashflow budget in Section E.Solution-: Flexible budget is prepared to estimate income on budgeted basis. Cuts and additions isadjusted in next year to know deviation form the budgeted figure. Below is 10% and 20%cuts and additions details-:Flexible BudgetParticulars Original Higher Lower10% 20% 10% 20%No. of Beds XXX XXX XXX XXX XXXNo. of Patients XXX XXX XXX XXX XXXTotal no. of Patient Day’s XXX XXX XXX XXX XXXAverage Occupancy XXX XXX XXX XXX XXXRevenue from Patients XXX XXX XXX XXX XXX Doctor’s fees XXX XXX XXX XXX XXX Economy PackageXXX XXX XXX XXX XXX Medicines and Disposables XXX XXX XXX XXX XXX Other Charges XXX XXX XXX XXX XXX In house Charges XXX XXX XXX XXX XXX Misc. Charges XXX XXX XXX XXX XXXLess: Expenses Disposable purchased XXX XXX XXX XXX XXXPathology purchased XXX XXX XXX XXX XXX Oxygen expenses XXX XXX XXX XXX XXXEmployee’s salaries XXX XXX XXX XXX XXXElectricity expenses XXX XXX XXX XXX XXXInterest and Finance charges XXX XXX XXX XXX XXXDepreciation on Fixed assets XXX XXX XXX XXX XXXLaundry expenses XXX XXX XXX XXX XXXOperating profit XXX XXX XXX XXX XXXProfit per Patient XXX XXX XXX XXX XXXSection E Requirements:1. Prepare a cash budget for the coming year. It will help if you prepare it in the following order:a) Determine patient revenues by quarter by type of payer for the coming year. That is, determineprivate insurance revenues for each quarter, Medicare/Medicaid revenues by quarter, etc.b) Determines patient revenues by quarter for the current year. Since many payers pay with a lag,some of the coming year's cash receipts some from current year's revenues.c) Determine patient cash collections by quarter for the coming year, using revenue informationfrom parts a and b, and payment lag information provided in the narrative of the problem.d) Develop the cash budget by quarter. Start with the beginning cash, add cash receipts shown by source (e.g., patient revenue by payer,endowment). Calculate the available cash. (Note that it will be necessary to determine other cashreceipts and payments by quarter. For example, determine how much is received fromendowment each quarter and how much is paid for supplies.)Deduct cash payments by line-item (e.g., salaries). Be sure to include interest payments. AssumeDension does not owe any money at the beginning of the year. Subtract cash payments (calleddisbursements) from available amount to get a subtotal.Based on the subtotal calculate the amount to be borrowed or repaid. Combine the amountborrowed or repaid with the subtotal to get ending cash balance for quarter.Show loan payable amount on cash budget below the ending cash balance.It is easier to develop a correct cash budget if you work one quarter at a time.Solution-:Dension Hospital prepares cash budget estimate cash receivables and cash payments. ClosingCash balance is calculated by deducting cash expenses fom cash recipts.Cash is introduced orwithdrawn based on Closing Cash Balance. Below is Projected Cash Balance for next yearquarter wise. Furthermore only cash transactions are reflected in cash budget .i.e. no accrualstransactions are recorded in Cash Budget.Cash BudgetParticulars Current Year Next YearQtr III Qtr IV Qtr I Qtr II Qtr III Qtr IVOpening Cash Balance XXX XXX XXX XXX XXX XXXAdd: Cash ReceiptsPatient revenueMr. Ram XXX XXX XXX XXX XXX XXXMr. Shyam XXX XXX XXX XXX XXX XXXMr. Mohan XXX XXX XXX XXX XXX XXXAccruals of last quarter @ 30% XXX XXX XXX XXX XXX XXXPrivate Insurance receipts XXX XXX XXX XXX XXX XXXMedicare revenue XXX XXX XXX XXX XXX XXXEndowment revenue XXX XXX XXX XXX XXX XXXMisc. Receipts XXX XXX XXX XXX XXX XXXTotal Available cash XXX XXX XXX XXX XXX XXXLess-: Cash paymentsInterest on Loan XXX XXX XXX XXX XXX XXXDisbursements XXX XXX XXX XXX XXX XXXSalaries XXX XXX XXX XXX XXX XXXFinance Charges XXX XXX XXX XXX XXX XXXDirector Allowances XXX XXX XXX XXX XXX XXXCash receipts less Cash Expenditure XXX XXX XXX XXX XXX XXXAmount to be borrowed/repaid XXX XXX XXX XXX XXX XXXClosing Cash BalanceLoan payable XXX XXX XXX XXX XXX XXX Note- Any part payment is received in next quarter as per the terms of payment. Suppose 70%receivable from debtors is received in current quarter. Then Balance 30% is reflected in nextquarter as per receipts basis. 2. Based on your cash budget, prepare a revised operating budget. That is, take the operatingbudget Part I, Section B, number 3, and incorporate the interest expense from the cash budget.Do not prepare a revised flexible budget.Solution-:Revised Operating Budget after incorporating Interest expense. Revised Operating BudgetParticulars AmountRevenue XXXBed charges XXXPathology charges XXXOxygen charges XXXBoyle’s Apparatus XXXEndowment revenue XXXTotal Revenue XXXLess: Expenses Disposable purchased XXX Pathology purchased XXXOxygen expenses XXXEmployee’s salaries XXXElectricity expenses XXXInterest Expenses XXXLaundry expenses XXXTotal Expenditure XXXOperating Profit XXX3. As an advisor to the Denison Hospital, you are certain of one thing: the Board of Trustees ofthe hospital will not approve a budget that projects an operating deficit. If the operating budgetprojects a deficit, what do you suggest that Denison do about it?Solution-: If Operating budget is showing a deficit balance that means entity is running in loss. No entitycan survive in loss. So Dension Hospital should follow some of the suggested measures to be agoing concern. These measures are as follows-:a) Dension Hospital should try to reduce it’s cost.b) Management should focus on increasing revenue. If more new business can’t be addedthen per patient revenue must be increased.c) Some of the high cost facilities may be outsource to others if there is cost saving. "