Changing Concepts in Hospital Accounting
BY EDWARD P. ALBERTS Principal, Milwaukee Office
Presented before the Milwaukee Chapter of American Hospital Accountants Association — December 1960
DURING THE FORMATIVE YEARS in the development of hospital accounting
procedures, hospitals tended to adhere to the accounting
principles prescribed for "non-profit institutions." These principles differed in many respects from those established for commercial enterprises.
Among the more notable differences, representing practices followed by many non-profit institutions but not generally found in commercial enterprises, are:
• Use of fund accounting
• Adherence to the cash basis or modified accrual basis of accounting
• Failure to record depreciation on fixed assets
CONTRASTING THEORIES AND PRACTICES
The question of whether to provide for depreciation of fixed assets in non-profit institutions has long been the cause of much controversy, particularly in the area of hospital accounting. In 1933, Herbert R. Sands made the following remarks in addressing the New York Conference
on Hospital Accounting:
Depreciation is a current expense and is continuous throughout the useful life of the property. But as applied to hospital buildings,
it is an expense which has to be paid only once in, say, a generation. Inasmuch as most hospitals are in reality non-profit organizations, finding it difficult to obtain sufficient current income to cover current expense, and therefore ending the fiscal year with a deficit, it is not desirable or necessary to increase the deficit by appropriating any part of the current income as provision for replacement of buildings when they shall have worn out or become obsolescent. As past and present generations
have provided existing hospital buildings, it is both fair and financially sound to let following generations make similar provision.
While this would appear to have been a fair statement at the time it was made, it does not reflect the financial situation to be found in most hospitals today.