 Hello and welcome to this session. This is Professor Farhad and this session we're going to be looking at financial statements for healthcare providers such as hospitals. This topic is covered in governmental and not for profit accounting as well as the CPA exam. As always I would like to remind you to connect with me only then. YouTube is where you would need to subscribe. I have over 1500 plus accounting, tax and other thing lectures. You want to make sure you subscribe, you like my lectures, share them, put them in the playlist, let the world know about them. If you benefit from my lectures, it means other people might benefit as well, please share them. This is my Instagram account, this is my Facebook account and this is my website. And on my website, if you'd like to support the channel, you could always donate. So today we're going to talk about financial statements. We have to understand that we have three types of healthcare providers. We have government owned by county or city government or VA hospital, veterans hospital. That's one type of hospitals. We have privately owned hospital. Those are owned by investors. For example, Health South is a private hospital and we have non-governmental, non-profit hospitals. Usually they are religious but they don't have to be like University of 10 or UPenn in Philadelphia. That's considered a non-profit. For the financial statements, they prepare the following financial statements, a balance sheet or a financial statement of financial position, statement of operations known, we know it by the income statement, statement of cash flows, statement of functional expenses, and statement of changes in that asset. Basically that asset is equity. Now for internal purposes, various funds. For purposes of internal accounting, as I mentioned second earlier, you could have funds. You could have funds with donor restrictions, fund without donor restrictions. So you could have an operating fund with no donor restriction. This is where you have your financial resources account for that as well as property, plant and equipment. For fund with donor restriction, this is where you have your donated resources for a particular purpose, program service, replacement of assets, any asset that's donated for a particular purpose that's restricted. Term endowment fund, annuity funds, life income funds. This is what you would have under the donor restriction. Bear in mind that board designated resources are not part of the restricted funds. And this is first the balance sheet or the statement of financial position. Nothing earth shattering. You should be all familiar with this. Basically current assets, current assets, we start with current assets. We also have a property, plant and equipment. So we have current assets. We have a long term investments, property, plant and equipment, then we have total assets. Now we have liabilities. Again, we have current liabilities, long term liabilities. Then under net asset, just because this is a not-for-profit organization, you have net asset without donor restriction and net asset with donor restriction. So you have without donor restriction and with donor restriction. And these are the numbers. Again, on the balance sheet, nothing that's unusual, typically a balance sheet that you should be familiar with. Let's take a look at the income statement or we don't call it the income statement. We call it statement of operation. On the statement of operation, you're going to have obviously revenues and you're going to have expenses. Now you could show it all in one line or you could show two columns, which is with donor restriction, without donor restriction, would look at a sample. But basically we have revenues operating revenues and what would typically operating revenues include, they would include fees from residents, fees from non-residents, net asset released from restriction used for operation. So basically they were restricted. Some assets were restricted. Now they are, they left restriction and came to be not restricted. Therefore, they're part of income now. Extenses, we have salaries, medical supplies and drugs, insurance. So typically under operating, we have patient revenue under this, under this section here, we have patient revenue, nursing services, professional fees. Okay, we could hold, we could also have other income. Under other income, we could have, we could have contribution without donor restriction. This is not part of operating. We could have investment income. So we could have operating revenue and non-operating revenue or income. Okay. For example, here under non-operating, we could have educational expenses if the hospital has a university, if they charge fees for their parking lot and other services as well. Okay, miscellaneous services. Let's see. Under expenses, we could have insurance expense, depreciation interest, so on and so forth. Or the income statement could be shown this way, without donor restriction, with donor restriction, basically two column. And notice all the expenses are under without donor restriction. There is no expenses under with donor restriction. And we talked about this when we talked about not for profit in general. And notice also here, we have a line for net asset released from restriction. Net asset released from restriction, 19,125. Okay. Now the statement of operation, which is the income statement, revenue without donor are divided into at least two categories, patient care revenue, and they include routine services, other nursing services, professional services, or other revenue such as contribution that are not restricted by donors, educational services, miscellaneous resources. And we could also have revenue from capitation fees that also should be listed separately, should be listed separately. Okay. The expenses, expenses are reported exclusively within without donor category restriction. And I showed you this. It's all the expenses are under the without donor restriction. That's why they become unrestricted. And this is where we have the expenses. Expenses can be classified by function or by object. If they are classified by object, then the functional classification must be presented in the notes. Okay. So the statement of operation must also indicate net asset released from restriction in any transfer between funds. And we saw this net asset released from restriction. For example, this line here, net asset released from restriction will be reported separately. How much net asset released from restriction that occurred this period. So it went from unrestricted from not restricted from restricted to not restricted. Okay. Let's take a look maybe at a let's take a look at at a functional expense statement. Let me just see what it looks like. I think I have one for you. And this is what it would look like. For example, the function is nursing services, you would have salaries and wages other professional services employee benefit the general services, a physical services administrative services will have under purchases bad that is basically bad that depreciation is depreciation. This is this is basically likely functional and natural classification of expenses include the following. This is what they could include. Also, you have a statement of changes in net asset, which is the changes in equity. And this section shows you what happened that the changes in increase or decrease without donor restriction and increase and decrease with restricted net asset increase or decrease by restricted by donors. So under without donor restriction, you're going to have basically net asset released from restriction and income. So net income. Oops. So under this category, you will have net income or operating income G 327 420. Let me show you what this number coming from. This is coming from the from the income statement. Let me just erase everything here. Just give me one place. So this number 327 is this number minus 19,125. Let me show you how you came up with this number. So this way you see so 340, 346, 545 minus 19,125. It's 327 240. Therefore, you would you would list on the changes in net asset. What I'm trying to show you is you would list on the changes of net asset, the net asset released from restrictions separately from their income. But together they represent the changes increase or decrease in assets without donor restriction. Then net asset with donor restriction, you have contribution restricted for a specific purpose 30,600. Those are with donor restriction. So the contribution restricted in perpetuity 51,550 net asset released from restriction used an operation. So this one we released them and we used an operation net asset released from restriction. Notice this one up here for the purchase of the equipment. Now the net asset released from restriction to operation. This went up here with the expenses that went here. Then we have investment income which we saw investment income. So increase in net asset by restricted by donor is 64,260. Together this increase plus this increase equal to this increase 410805 plus the beginning balance equal to the ending balance. This 1,566,000 should be your balance sheet account. Let's go there and it is this balance sheet account right here 1,566,720. What's left to discuss is the statement of cash flow. Nothing or shattering about the statement of cash flow. You have operating activities for investing activities and financing activities and we are using here. If you notice, if you look at this, hopefully you notice we are using the direct method. Now, if you're using the direct method, we reconcile it to something quasi the indirect method. Doesn't have to be the indirect method, but something similar to the indirect method. Now, if you don't know how to prepare a cash flow statement, please go to my intermediate accounting chapter. Well, what chapter in intermediate accounting chapter 23 and have a detailed explanation about the cash statement of cash flow. If you have any questions about this topic, please email me. If you happen to visit my website for additional lectures, please consider donating. If you're studying for your CPA exam, as always study hard. It's worth it and see you on the other side of success. Good luck.