Policy: II.A.3 (inactive as of 7/12/2004)
Issued: July 17, 1989
Owner: Hospital Director of Finance
FINANCIAL ACCOUNTING POLICY - MEDICAL CENTER
This policy describes the general guidelines for financial accounting in the Medical Center.
2.0 Policy [Top]
The significant accounting policies of the Medical Center are as follows:
2.1 Basis of Accounting
The Medical Center has adopted the accrual basis of accounting in accordance with the Hospital Audit Guide published by the American Institute of Certified Public Accountants.
2.2 Fund Accounting
To ensure observance of limitations and restrictions placed on the use of resources, the accounts of the Medical Center are maintained in accordance with the principles of fund accounting.
General funds are used to reflect resources of the Medical Center that are not restricted by a donor or grantor. Assets whose use is limited in substance under terms of debt indentures and trust agreements are reported in the general funds section as assets whose use is limited.
Resources restricted as to use by outside sources are segregated in restricted funds and are classified under the following categories:
- Specific Purpose Funds account for funds donated by outside sources for specific operating purposes. Restricted funds are reported as general funds revenue when expended.
- Plant Replacement and Expansion Funds account for funds donated by outside sources for additions to property, plant, and equipment. When expended, these funds are recorded as transfers to the general funds.
- Endowment Funds account for funds donated by outside sources for specific purposes, where the principal must be invested and remain intact and only the income is available for spending.
2.3 Patient Service Revenue
Patient service revenue is recorded at scheduled rates when services are rendered. Allowances and provisions for uncollectible accounts and contractual adjustments are deducted to arrive at net patient service revenue.
2.4 Receivables from Third Parties and Contractual Adjustments
A significant portion of the Medical Center services are rendered to patients covered by Medicare, Medicaid, or Blue Cross. The Hospitals have entered into contractual agreements with these third parties to accept payment for services in amounts less than scheduled charges.
In accordance with the third-party payor agreements, the difference between the contractual reimbursement and the Medical Center's standard billing rates results in contractual adjustments. Contractual adjustments are recorded as deductions from patient service revenue in the period in which the related services are rendered.
Certain annual settlements of amounts due for patient services covered by third parties are determined through cost reports which are subject to audit and retroactive adjustments by third parties. Provisions for possible adjustments of cost reports are estimated and reflected in the financial statements as considered appropriate. Since the determination of cost reimbursement settlements of amounts earned in prior years has been based on reasonable estimation, the difference in any year between the originally estimated amount and the final determination is reported in the year of determination as an adjustment of the deductions from patient service revenue.
Investments are carried at the lower of cost or market. The major portion of the investments of the Medical Center's endowment funds is pooled under the University of Virginia Consolidated Endowment Fund, the general endowment pool for the University. Investment income is recognized when earned. Gains or losses on investment transactions are recorded when realized. Annually, endowment earnings on the consolidated endowment pool are distributed to the participating funds based on the participating share of each fund in the pool.
2.6 Property, Plant, and Equipment
Property, plant, and equipment are stated at cost or, if donated, at fair market value at the date of donation. The Medical Center capitalizes expenditures for equipment in accordance with the Medicare Provider Reimbursement Manual.
Depreciation on property, plant, and equipment, excluding land and construction in progress, is computed over the estimated useful lives of the assets using the straight-line method.
Expenditures for construction in progress are capitalized as incurred. Interest expense during construction is capitalized in accordance with Financial Accounting Standards Board Statement No. 62, Capitalization of Interest Costs in Situations Involving Certain Tax-Exempt Borrowings and Certain Gifts and Grants.
2.7 Deferred Financing and Bond Issue Expenses
Deferred bond issue costs are amortized over the remaining life of the bonds.
2.8 Accrued Leave
Salaried employees' attendance and leave regulations make provision for the granting of a specified number of days of leave each year. The amount of leave earned but not taken is recorded on the balance sheet. The amount reflects, as of June 30, all earned vacation leave not taken and the amount payable under the Commonwealth of Virginia's sick leave payout policy upon termination which is the lesser of 25% of sick leave not taken or $2,500 per employee with five or more years of service.
Appropriations made from the General Fund of the Commonwealth of Virginia for indigent care and medical education costs are recorded as operating revenue of the Medical Center General Fund in the year received. Appropriations for capital outlay projects are recorded as non-operating revenue at the time these funds are appropriated. To recognize that the availability of General Fund monies appropriated from the Commonwealth of Virginia for construction projects which extend beyond reported fiscal years is contingent upon the reallotment of these funds by the State Department of Planning and Budget, these funds are reported on the Balance Sheet as Appropriations Receivable.
3.0 Definitions [Top]
4.0 References [Top]
5.0 Approvals and Revisions [Top]