Brandywine Homecare

Assignment #1
Brandywine Homecare
Merle Point-Johnson
HAS 525 - Healthcare Finance: An Introduction to Accounting and Finance Management
January 21, 2012

Brandywine Homecare, a not-for-profit business, had revenues of $12 million in 2007. Expenses other than depreciation totaled 75 percent of revenues, and depreciation expense was $1.5 million. All revenues were collected in cash during the year and all expenses other than depreciation were paid in cash.
1. Construct Brandywine’s 2007 income statement. Brandywine Homecare Income statement Month ending December 31, 2007 Revenue $12,000,000 Total revenue $12,000,000 Expenses: Depreciation $ 1,500,000 Other 9,000,000 Total expenses $10,500,000
The company broke even for the year. The total profit margin is calculated as follows: $0/$12,000,000 = $0. There is no profit margin. Cash flow is calculated as follows: $0 + $3,000,000 = $3,000,000. Brandywine Homecare is still generating cash even though there is no net income because the $3 million depreciation expense is listed as an expense, but there was no cash actually paid out.
4. Explain the difference between cash and accrual accounting. Be sure to include a discussion of the revenue recognition and matching
This means when revenue is actually received or expenses are actually paid. Advantages of cash accounting are one: it is simple and easy to understand. There are no complex accounting rules are required in the preparation of the financial statements. Next, cash accounting is close the method used for tax preparation. Thus, it’s easy to translate accounting statements into tax filing data. About 80 percent of businesses, especially smaller ones, use cash accounting. Disadvantages, primarily the fact that cash accounting in its pure form does not represent information on revenues owed to a business by payers or the business existing payment obligations. It should be noted that most businesses using cash method use a more modified method and not the “pure” method. Accrual accounting, or accrual basis accounting, is the economic event creating the financial transaction, rather than the transaction itself, provides the basis for the accounting entries. Accrual implies that revenue earned does not necessarily correspond to the receipt of cash. Expenses are reported even if they can’t be satisfied during the same time period. Revenue recognition principle revenue be recognized in the period they are realized and earned. This is generally the same period in which the services are rendered. Price is known, or realizable, and the service has been provided, or earned. The matching