Question

Why is it essential that the healthcare organizations such as nonprofit and Proprietary organizations report their cash flow statements, balance sheets, and income statements?

Answer 1

Financial statement basically is used to understand the current situation of the company in financial aspects. There are three types of financial statements to understand the same. They are balance sheet, profit and loss statement and cash flow statement

In non profit organisation, Balance sheet comprises of Assets which is equal to liabilities plus net assets where as in profit organisation's balance sheet, total asset is equal to sum of total liabilities and owner equity. Basic difference between non profit organisation and other company is, the non profit organisation motive is not to generate profit but revenue. This revenue is used to fund any programs, societal activities. But other organisations motive is to generate profit. So balance sheet of non profit organisation has assets, liability and net assets.

Similarly, profit and loss statement is used to understand the profit of the company as on date. But for non profit organisation, profit and loss statement is used to understand the expense and keep track of expense used for administrative purposes or for funding any program. This helps in keeping funds in track and the excess fund should be positive for ongoing activities to run smoothly.

The cash flow statement of non profit organisation is similar to other companies which also have cash flow from investing, operations and financial. This is to understand from where the cash is coming from into the organisation.

Thus even for healthcare organisations, financial statement is necessary to keep the financial status and expenses in control or in track..