Transaction #1 (May 4, 2019) - the hospital signed a purchase order for a $2,500 supply purchase, which will be delivered/completed in mid-June. Transaction #2 (May 15, 2019) - the hospital provided $15,000 in patient care services and billed patients' insurance plans. Transaction #3 (May 25, 2019) - the hospital took out a loan for $4,000 to meet future, unexpected payroll obligations.
First using cash accounting, and then accrual accounting, discuss what the balances of each account will be on May 31, 2019 at Hippie Hospital for the financial period below, taking into consideration the transactions listed. Then, discuss why/how you arrived at your answer for each ending account balance.
Beginning account balances for May 2019:
Assets = $1,400,000
Liabilities = $500,000
Net Assets = $890,900
Revenue = $25,000
Expenses = $15,900
Transaction #1 (May 4, 2019) - the hospital signed a purchase order for a $2,500 supply purchase, which will be delivered/completed in mid-June.
Transaction #2 (May 15, 2019) - the hospital provided $15,000 in patient care services and billed patients' insurance plans.
Transaction #3 (May 25, 2019) - the hospital took out a loan for $4,000 to meet future, unexpected payroll obligations.
In transaction 1 which occurred on May 4, 2019, a purchase order has been signed by the hospital for 2500 dollars. when the purchase order has been signed the transaction will not be recognized in the company books of account. No entry will be recorded under the accrual and cash method and the balance will remain the same.
In transaction 2 patient care services have been provided by the hospital for 15000 dollars and the insurance plan of the patient was also billed. As per the accrual accounting system, the amount of income will be recognized in the books of account as there is an increase in the revenue amount and also in the amount receivable. As per the ash accounting system no revenue will be recorded in the books of account as no cash amount has been received by the hospital
In transaction 3 as the cash amount has been credited the hospital will record this cash under the cash system of accounting and also under the accrual system of accounting it will be recorded as the liability of the hospital has been increased.
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