Question

The administrative assistant records a $10,000 charge for a patient surgery. The patient pays $500 towards the surgery, and the insurance company is scheduled to pay $8,000. The outstanding balance from the service is a(n)

A. Accrual accounting to $0. B. Cash accounting to $500. C. Cash accounting to $8,000. D. Accrual accounting to $1,500

Answer 1

The answer is D. Accrual accounting to $1,500.

Accrual accounting is a method of accounting that records revenues and expenses when they are incurred, regardless of when the cash is received or paid. In this case, the hospital has incurred a cost of $10,000 for the surgery, even though it has only received $500 in payment so far. The outstanding balance of $10,000 - $500 - $8,000 = $1,500 is therefore an accrual.

Cash accounting is a method of accounting that records revenues and expenses when the cash is received or paid. In this case, the hospital would only record $500 in revenue and $8,000 in expenses, resulting in an outstanding balance of $0. However, cash accounting is not generally accepted accounting principles (GAAP) compliant, so accrual accounting is the preferred method.

So the answer is D. Accrual accounting to $1,500.