Question

A hospital arranges with a third-party payer to charge the third party 75 percent of its established billing rates. During January 2018, the hospital provided services amounting to $1 million at the established billing rates. Prepare journal entries to record the January billings.

Answer 1

Debit Cash account or Accounts receivables $750,000

Credit Service revenue $750,000

Being entries to recognize revenue earned and billed to the third party at agreed percentage of established billing rate.

Step-by-step explanation:

When services are rendered and cash is yet to be collected, the revenue earned is recognized by a debit to accounts receivable and a credit to service revenue accounts.

On collection of cash, credit accounts receivables and debit cash account.

At an established billing rate of $1 million, if the hospital will charge 75% ,

revenue to be recognized

= 75% of $1 million = $750,000

Entries required on billing

Debit Cash account or Accounts receivables $750,000

Credit Service revenue $750,000

Being entries to recognize revenue earned and billed to the third party at agreed percentage of established billing rate.