In cash accounting, revenues and expenses are recognized when cash is received or paid respectively (Gapenski & Reiter, 2016). The method does not, therefore, recognize accounts receivable and accounts payable. The upside of this method is that it is simple to maintain and easier to determine when a transaction occurred. A healthcare facility can track how much income the business has at a given time, as well as the expenses that it has incurred. For UnitedHealth Group , this model is a poor fit in the system because healthcare facilities may earn revenue for services rendered in one day. Still, the cash may not be recorded or received for several weeks, or months, or at a less amount than billed (Gapenski & Reiter, 2016).
Moreover, revenues are shown on the income statement in the period that they are earned as opposed to when they are collected. The result is that there is no consistency in the financial statements. For example, on one side, recognizing expenses earlier may result in lower net income, and on the other, identifying it later will result in higher net income.
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Accrual accounting, on the other hand, recognizes revenues when they are earned and expenses when incurred (Gapenski & Reiter, 2016). Revenues are therefore recorded in accounting books or software when billed to patients, their insurance companies or other third-party payers. For instance, when an admitted patient receives a medical service and the hospital bills them, the associated revenue and expenses will be recorded at that point (Gapenski & Reiter, 2016). The benefit of this accounting procedure is that it allows for accuracy and offers a good picture of business operations (UnitedHealth Group, n.d.). The only downside of this process is that it requires technological software that will handle accounts payable and receivable.
It is imperative to note that in all the surveys conducted by the UnitedHealth Group , statistics are published on the accrual basis of accounting (UnitedHealth Group, n.d.). It is from these surveys that healthcare practices compare their operation statistics to know whether their collections are in line or overhead and if they are within their reasonable limits.
References
Gapenski, L. C., Reiter, K. L. (2016). Healthcare Finance: An Introduction to Accounting & Financial Management. United States: Health Administration Press.
UnitedHealth Group: Financial Reports & SEC Filings. Retrieved from http://www.unitedhealthgroup.com/investors/FinancialReports.aspx
