How to Read and Understand an Income Statement

Introduction 

The creation of the Brattleboro Memorial Hospital (BMH) occurred in 1904. It comprises of certified medical practitioners in primary care and specialized treatments. Moreover, the hospital is located in southeastern Vermont, but also serves individuals from New Hampshire and Massachusetts. Primarily, its health system includes the BMH Medical Group, a multispecialty group practice of primary care and specialty care physicians, nurse consultants, and physician aides (Brattleboro Memorial Hospital, 2019). Moreover, it encourages volunteers to assist the staff in caring for the patients. Its mission is to provide community-based quality health services delivered with compassion and respect while its vision is to be the best workplace for its employees and provide the best experiences to its patients. BMH is a not-for-profit organization as it is registered as a charity entity, as provided by Section 501(c) (3) of the Internal Revenue Code (Brattleboro Memorial Hospital, 2019). Consequently, it is exempted from paying taxes on related incomes. 

Financial Statement Discussion 

Financial statements refer to the formal records of a company's accounting activities. They, therefore, indicate the performance, equity, and financial strength of a company. In accounting, there are four types of financial statements. First, the statement of financial position entails the capital, assets, and liabilities of an entity at a particular period. 

  Second, the income statement mainly provides information on the revenues, expenses, and loss/profit generated during a financial year. Three, the statement of cash flows includes the cash inflows and outflows made during the reporting period. Fourth, the statement of retained earnings describes the movement of the owner's equity. This flow is generally derived from the income statement, dividend payments, revaluation surpluses, and share capital issued. 

Income Statement Analysis 

The BMH's income statement provides insights on the revenues made and expenses incurred during the 2017 financial year. The profit and loss account indicates $78,865,703 as of the total incoming revenue. This figure was derived by first subtracting bad debts from the unrestricted income from patient services, then adding other revenues. Moreover, meaningful use of revenue was added. 

The operating expenses mainly comprise of Salaries, wages, and benefits, supplies and other contracted services, depreciation and amortization, health care improvement tax and interest expense. They, thus, amounted to $81,302,911(Brattleboro Memorial Hospital, 2019). Furthermore, the hospital's net income was $2,915,604 (Brattleboro Memorial Hospital, 2019). The costs are, however, not in line with the revenues made as they were higher than the profits; hence, resulting in an operating loss. 

Body 

The accrual basis and cash basis are the two different methods of record accounting transactions. Importantly, the variation between the two types is based on when the transaction is recorded. Comparatively, cash accounting recognizes revenue when the cash is received and expenses when money is spent. In contrast, accrual accounting recognizes revenue when earned, for instance, after the completion of a project and costs when they are billed –for example, after receiving an invoice. The two methods are appropriately the same if aggregated over time. BMH maintains its accounts on a cash basis and converts them to an accrual basis at the end of the year. It, therefore, helps in the preparation of the annual financial statements. 

Conclusion 

The financial statements of the Brattleboro Memorial Hospital have provided various insights. To begin, they help in understanding that their profits are not paid to the owners; instead, they are re-incorporated back into the organization. An observation was made that the organization maintains most of its assets in the form of cash and cash equivalents. The Brattleboro Memorial Hospital is, thus, viable as it comprises of positive net assets. The main concern identified during the assessment of its financial statements was the high expenses incurred as compared to the revenue made. 

Reference 

Brattleboro Memorial Hospital. (2019). Retrieved from  https://www.bmhvt.org/