Question

1. Can an organization use any month as its fiscal year end? Explain.

2. Give three reasons why health care organizations need to generate and accumulate operating profits. Explain why profits might be preferred to other sources of resources (such as borrowing).

Answer 1

Solution. Detailed explanation of the above statements are given below:

1.Any organization operating on small or big scale identifies its profit/loss by preparing financial statements for a period.This period of time chosen is known as fiscal year end.Generally it is considered to be ending on March 31st, June 30th, September 30th or December 31st.

An organization can go for any month as its fiscal year end.

Factors determining are: a. An organization may close its accounting period when its revenue pays off all its tax burden.

b. Different organization have different points of maximum and minimum sales activities and therefore, an organization may chose to close its accounts when the sales activities are minimum and begin with new inventory at the maximum sales period.

c.U.S. government fiscal year is considered from October to next September. Many organization keeping in view this period can chose their fiscal period which helps in filing taxes.

d.It gives a better picture to an organization for comparing its last year profit assessment to this year fiscal end.

e.Major holidays occur between the months of November - December,so,Organization may close its accounting period on these months and start afresh in January the following year.

From above we can conclude that there exists no formal or defined structure for the organization to choose its fiscal year. It should evaluate its business cycle, profit maximising month,due date of tax filing,date of fresh inventory calculation while choosing its fiscal year end. The decision should be made by the people involved in preparation of financial statement, stakeholders and managers of an organization.

2.Health care organizations are both public and privately owned. Investment in health care are generally for long term, future oriented research and development, campaign and community based.

Huge investments are made and proper financial statements will increase stakeholder and government's confidence in the system.

Health care organizations need to generate and accumulate operating profits for below reasons:

a.To meet current expenses of any infrastructure change,research and development,change in political scenario,crisis.

b.Operating profit will give the organization a view on its working and whether any change should be anticipated or not to cut on its costs and future profitability structure for the management.

c.Operating profit builds confidence among investors and organization management that the organization is working on positive path.

Profits are preferred to other sources of resources(such as borrowing) due to below reasons:

a.It generates interest cost on health care organization which may cut on its future research and development process which will hamper organization in long run and increase cost due to lack of proper use of technology.

b.It will create poor credit score for the health organization which might will lead to cut in investment and confidence of stakeholders.

Health care organization are mainly government regulated and forms a major part of GDP.