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Eric Ducote

Week 5 Team Assignment

The Financial Accounting Standard (FAS) Number 116 adjustment referencing Table

5.3-1 means that the adjustment is made for recognition of interest revenues and for pledge

receivables. How contributions are recorded depends on the contribution. For example, there are

three categories that contributions would fall under on the statement of activities: unrestricted,

temporarily restricted, and permanently restricted. Unrestricted contributions have no strings

attached. They lack any restraints from the contributor allowing the funds to be used as needed.

Temporarily restricted funds have donor imposed restrictions. In these cases the restrictions will

be fulfilled either because of a period of time, such as funds available for one year or for a

specific purpose, such as using the funds for new equipment. Permanently restricted funds are

similar to temporarily restricted funds because of the time period or purpose but the restrictions

will remain permanently. Endowments are typically permanently restricted funds. Contributions

are recorded immediately when received no matter if there are restrictions involved or not. In the

cases of restrictions the use of the funds would show the restriction and limit, not how they are

recorded. Contributions are not limited to cash either, they can also be in the form of services or

assets like equipment and require the same recording principles.

There is a distinction between pledges receivable and accounts receivable. Accounts

receivables occur when an organization has provided a service or product and have sent their

customer the bill, but have not been paid yet. For example, if St. Jude provided blood work for a

patient they would send a bill and until a payment has been received the service would be

considered an account receivable. Pledge receivables are promises to contribute cash or non-
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cash, and are recorded immediately even if the money may not be received for a great deal of

time unlike accounts receivable that are typically received within a month from billing date.

There are circumstances when financial statements can quantify volunteer services. If a

volunteer is offering a specialized skill that a company would have had to purchase if they did

not have the volunteer then the volunteer services could be quantified. An important note is that

the value of the service provided would not be determined using earning potential but instead on

their specific work. FASB Statement Number 116 would be helpful to review the impact of the

volunteers work.

Financial statements users of not-for-profit can expect to be fully informed regarding

affiliated parties because according to the Securities and Exchange Commission (SEC) and the

Financial Accounting Policies Committee (FAPC) “investors and other users of financial

statements require complete, transparent, consistent, and comparable information about a

company's commitments and other obligations in order to properly evaluate the firm's risks and

future earning power” (paragraph 4). Therefore, the hospital should ensure they assess any

possible risks with American Lebanese Syrian Associated Charities, Inc. (ALSAC) and provide

any information not limited by materiality.

Comparison of revenue mix

When comparing the revenue mix of Universal Health Services, Inc. and St. Jude’s

Children Research Hospital, Inc. ALSAC it is important to first note the main differences in

these two corporations. Universal Health is a for profit company that operates 59 hospitals, while

St. Jude’s/ALSAC is a not-for-profit entity whose main purpose is to provide research for

catastrophic children’s diseases and to treat the children with these diseases. With these

differences, the revenue mixes of the two entities are very different as far as what the revenues
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come from. Universal Health receives revenues from third party payers, such as Medicaid,

Medicare, Managed Care (HMO’s and PPO’s), and a category labeled as other sources. St.

Jude’s/ALSAC, in contrast, receives its revenues from contributions, patient care services

(estimated value of third party payers), grants, and also has a category of other sources. As one

can see, of these two revenue mixes, the only similarities is that both entities do receive

payments from third party payers, however Universal Health receives most all revenues from

these sources, while St. Jude’s only receives a portion.

The strategies of investor owned companies in managing risk and ensuring adequate

capital as compared to not-for-profits are comparably different. If one relies entirely on the

financial statements and the source of revenues of the two entities for comparison, it is clear that

investor owned companies rely very heavily on third party payers for revenue. Relying heavily

on third party payers such as insurance or Medicaid appears to ensure that a major portion of the

patient’s bills will be paid. A not-for-profit entity, such as St. Jude’s relies very heavily on the

generous donations of others and grants. While St. Jude’s does receive revenue from third party

payers, this is a small percentage compared to the amount of contributions and grants received.

Government-owned

If the government owned and operated the hospital, the government would process

from its revenue and cash flow from the program services, bonds, and taxes instead of soliciting

donations. There would not be any reason for adjustments as contributions or revenue are only

recorded by the government and if they can be collected in 60 days or before the end of the

government's fiscal year. The patient revenue mixture should closely resemble to the United

Health Services. The value of the volunteer's time can be used in the financial statements for

each external and internal purpose. The hospital's financial statement users could be able to also
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read the government's Comprehensive Annual Financial Report (CAFR) and would be able to

separate and understand the interactions between affiliated and related parties.

Upon researching comparing and contrasting revenue mixes the readers will understand

all health fields including organizations that are for profit, not-for-profit organizations, as well as

government-owned hospital. Some organizations would depend on outside investors and

charitable contributions while others receive revenue while providing health care alone. The

health field receives its revenue differently, but it would not affect the primary goal of providing

effective health care for all individuals.


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References

SEC. (2002). Association for Investment Management and Research Financial Accounting

Policy Committee. Retrieved from http://www.sec.gov/rules/proposed/s74202/jadams1.htm.

St. Jude Children's Research Hospital. (2014). Retrieved from

http://www.stjude.org/SJFile/combined-sjcrh-alsac-audited-fs-fy11.pdf

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