Question

Part of the income statement includes operating expenses. Hospitals can incur some large expenses of the year from normal operations of the business. What do you think is the largest expense on a hospitals income statement and why?

Answer 1

Operating expenses are the expenses that are incured in the natural core of business. These expenses generally consist of the selling and administrative expenses.these expenses are revenue in nature since these are incurred in the day to day operations of the business and do not incur on the non current assets.The nature of the operating expenses is revenue. Therefore, these expenses are not capitalized. Unlike capital expenses that are incurred to support the operations of the business or in the extension of operations, these expenses are supporting in nature and are incurred to carry out the small operations.

In the case of hospitals, since they are providing services, they will incur a large amount of operating expnse.Some of the operating expense of hospitals are

• rent and rates
• electricity
• telephone
• maintanance and repairs
• depreciation expense
• employee benefits
• legal fees

Amoung these expenses maintanance ,repairs and depreciation expenses are very huge. Hospitals are equiped with most modern machineries which enables to save the life of many. These machineries are very expensive and the depreciation cost incured by these are very high. In order to keep the hospitals higenic they should invest a lumpsum amount for cleaning agents and for maintanance. They run the electricity 24*7 hence the electricity bills will shoot up. And most of the machineries used in hospital needs large units of electricity. By analysing all these we can conclude that hospital's income statements will consist of a massive operating expenses in their income statements. But they incur all these expenses to save the valuable lifes of humans.