Generally Accepted Accounting Principles
Health care organizations are required to have financial records audited or examined at least once a year by a certified public accountant (CPA). During the audit, the CPA is looking for substantial errors, evaluating the hospital’s accounting system, and making certain that financial statements are being prepared in accordance with generally accepted accounting principles (GAAP). GAAP is a set of guidelines established by the Financial Accounting Standards Board (FASB) to determine the financial position of an organization by providing detailed information such as fiscal returns, balance and outstanding debt of the health care organization. According to Finkler, Kovner, & Jones (2007), “A few of the most common and important GAAP include the following: entity concept, going-concern concept, matching principle and cash versus accrual accounting, cost principle, objective evidence, materiality, consistency and full disclosure” (p. 183). The entity concept is the unit that is being accounted for. Entities can be the whole organization (i.e. nursing home, nursing school, surgical center, etc.) or each individual department within the hospital. When defining the entity two points must be taken into consideration: once defined the resources cannot be mixed with other entities, and the finances should be completely indicative to that specific entity. These two concepts will help keep track of the organization’s finances as they occur during the year. An example of the entity concept would be if someone is examining the finances of a nursing school, and see that the school has ordered supplies from the hospital but has not paid for them yet. The schools record should display an account payable which specifies the debt to pay for the supplies. The hospital’s records should have a note on the account receivable side showing