Acc_561_Week_1_Happy_Home_Accounting_Decisions

Happy Home Accounting Decisions W.R.Bijlsma ACC/561 July 9th 2010 Martin Ginsburg Happy Home Accounting Decisions Happy Hospital is a medium sized hospital with a community focus. The hospital has affiliations with a number of other hospitals and care facilities. This paper will address how Happy Hospital makes accounting decisions when looking at budgets, performance reports, ethics, and information sources. Budgets And Performance Reports In Decision Making Decision making in business is a critical thinking skill: information is analyzed, alternatives are explored and a final decision is made. Accounting information can be one of the information sources evaluated in decision making. Accounting can be broken down into financial accounting that looks backward and managerial accounting that looks forward (Finkler & Ward, 2006). Especially in managerial accounting, information is gathered for decision making. As Waddle (2009) states, having good information is key to making good business decisions. Happy Hospital uses budgets at the beginning of a year to allocate money to departments and resources. This allocation is influenced by decisions to expand specific departments or resources. Before a decision is made and any action undertaken, the implications of a decision can be thought through. For example, Happy Hospital uses budget calculations when deciding which electronic patient record software to purchase. Happy Hospital uses accounting information to calculate performance reports of its departments at the end of the year. This information is used for strategic planning. For instance, Happy Hospital may choose to discontinue financing a department because the department shows poor performance. Influence of Ethics on Decision Making Ethical dilemmas are frequent in decision making, especially in health care decisions. Considering costs when making a decisions about patient care creates ethical tension. After all, one likes to do what is best for an individual patient, but often this is not in line with decisions made at a more aggregate level of patient groups. When Happy Hospital considers stopping the treatment of a diagnostic related group because treating these patients costs more than the revenues, an ethical dilemma arises. According to McDevitt, Giaponni, and Tromley (2007) the variables that affect ethical decisions can be divided into the following categories: individual, job context, organizational context, and external environment. The authors propose a model of ethical decision making that first evaluates the risk of taking ethical action. Then the risk of taking unethical action is evaluated justification of the unethical action is considered. If no decision can be made in this first step, the elaborate process of problem-solving is started to decide upon the best decision. Relevant Accounting Information for Decision Making Hospitals are distinct from most companies because their ambition is not to make the largest profit, but to gain the largest value for the largest number of people. Often profit is made on some patient groups to be able to treat other, less profitable patients (Finkler, Ward & Baker, 2007). Therefore, profitability information on department or patient group level is important to make decisions. For all businesses to stay in business it is important to control liquidity. A business without cash will not be able to operate and will go bankrupt. Liquidity is another important variable that has to be taken into account when considering the impact of decisions. Solvency is almost as important as liquidity but with a focus on the longer term. Happy Hospital collects money by charging patients and spends money by paying for the use of resources. An imbalance between income and expenses can cause major liquidity problems. In the public sector, the rise of New Public Management has resulted in an increasing use of quantitative measures of performance to support better decision making (Hyndman & NcGeough, 2008). These measures are used to set performance targets for the next years on areas like finance, output volume, quality, and efficiency. Conclusion Happy Hospital uses accounting information for decision making. Accounting information is presented in budgets and performance reports describing profitability, liquidity, and solvency. In a hospital setting, ethics have a major influence on decision making. References Finkler, S. A. & Ward, D. M., (2006). Accounting fundamentals for health care management. Sudbury, MA: Jones and Bartlett. Finkler, S. A., Ward, D. M., & Baker, J. J. (2007). Essentials of cost accounting for health care organizations (3rd ed.). Sudbury, MA: Jones and Bartlett. Hyndman, N., & McGeough, F. (2008). NPM and performance measurement: a comparative study of the public sectors in Ireland and the UK. Irish Accounting Review, 15(2), 29-57. Retrieved from Business Source Complete database. McDevitt, R., Giapponi, C., & Tromley, C. (2007, June). A model of ethical decision making: The integration of process and content. Journal of Business Ethics, 73(2), 219-229. Waddle, M. (2009). Having good information is the key to making good business decisions. Optometry Times, 1(4), 34-36. Retrieved from Academic Search Complete database.