Question

St Joseph Hospital began operations in December 2014 and had patient service revenues totaling $950,000 for the month. Of this $103,000 is billed to patients, representing their insurance deductibles and copayments. The balance is billed to third party payers, including insurance companies and government health care agencies. St Joseph estimates that 20 percent of these third party payer charges will be deducted by contractual adjustment. The Hospitals fiscal year ends on December 31.

1. Prepare journal entries for December 2014. Assume 15 percent of the amounts billed to patients will be uncollectible.

2. Prepare journal entries for 2015 assuming: a) $82,000 is collected from patients and $9000 written off b) actual contractual adjustments total $171,000. The remaining receivable from third party payers is collected.

3. The actual contractual adjustments differed from the amount initially estimated by the hospital. Briefly describe the type of accounting change this represents and the appropriate accounting treatment.

Answer 1

ST. JOSEPH’S HOSPITAL - GENERAL JOURNAL
ACCOUNT TITLES & EXPLANATIONS	DEBIT	CREDIT
1)
PATIENT ACCOUNTS RECEIVABLE– PATIENTS	$103,000.00
PATIENT ACCOUNTS RECEIVABLE– 3RD PARTY PAYORS	$847,000.00
REVENUES-UNRESTRICTED-PATIENTSERVICE REVENUE		$950,000.00
CONTRACTUAL ADJUSTMENTS-UNRESTRICTED (20% x $847,000)	$169,400.00
PATIENT ACCOUNTS RECEIVABLE– 3RD PARTY PAYORS		$169,400.00
PROVISION FOR– UNCOLLECTIBLE ACCOUNTS ($103,000 x 15%)	$15,450.00
ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS		$15,450.00
2)
a)
CASH	$82,000.00
PATIENT ACCOUNTS RECEIVABLE- PATIENTS		$82,000.00
ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS	$9,000.00
PATIENT ACCOUNTS RECEIVABLE- PATIENTS		$9,000.00
b)
CONTRACTUAL ADJUSTMENTS-UNRESTRICTED ($171000 - $169,400)	$1,600.00
PATIENT ACCOUNTS RECEIVABLE– 3RD PARTY PAYORS		$1,600.00
CASH ($847,000 - $171000)	$676,000.00
PATIENT ACCOUNTS RECEIVABLE– 3RD PARTY PAYORS		$676,000.00
3)
IT REPRESENTS CHANGES IN ACCOUNTING ESTIMATES SIMILAR TO THE PROVISION FOR UNCOLLECTIBLE ACCOUNTS, THE CONTRA-REVENUE (CONTRA ACTUAL ADJUSTMENT) RECORDED IN 2015 IS AN ESTIMATE.
THE APPROPRIATE ACCOUNTING TREATMENT IS THE CONTRA-REVENUE ACCOUNT IS ADJUSTED IN 2015 RATHER THAN RESTATING THE AMOUNT REPORTED IN 2014