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The Difference between Accounting and Finance
Summary
As far as the topic of finance is concerned, it is first of all necessary to understand the difference between the two notions that some people usually use interchangeably. They are accounting and finance, and the exact line drawn between them facilitates the further understanding of finance as the science and as the practically applicable matter (Finker & Ward, 2006). Thus, accounting is mostly a passive work which presupposes compiling financial reports of all kinds and dealing with great amounts of documentation: Accountants primary function is to develop and provide data measuring the performance of the firm, assessing its financial position, and paying taxes (Castro, 1).
Finance, on the contrary, is an active work connected with decision making and strategic development of an organization: It uses the financial statements prepared by accountants to make decisions about the firms financial condition and to advise others about possible losses and profits (Castro, 2). Thus, it is evident that the main difference between accounting and finance lies in the former being the tool for the successful conduct of the latter; accounting is the assistance to keep ones finance in order.
Managerial and Financial Accounting
Needless to say, there are certain types of accounting existing in the world. The major ones include managerial accounting and financial accounting. The main difference between the two types mentioned lies in the context they are used in and the purpose of their use (Kaplan, 392 393). Thus, managerial accounting is an occasionally needed accounting process carried out for making decisions and controlling the companys financial information. Managerial accounting has the free form of its conduct and can be carried out without the help of external specialists and auditors. Nevertheless, it is often detailed and quite focused on the specific issue, e. g. productivity decrease, etc (Kaplan, 392 393).
On the other hand, financial accounting is the procedure that is traditionally carried out at every company and is aimed at monitoring the financial state of this company on the regular basis (Finker & Ward, 2006). In the sphere of health care, this difference is important as mostly the financial accounting is used due to the specific type of funding and payments that health care organizations obtain.
Financial Risk and Financial Return
Further on, the concepts of financial risk and financial return come into play as one develops his or her knowledge in finance. These two concepts relate to each other as the reason and the consequence. In other words, risk in the financial context is the concept used to denote the possibility of the loss of a certain amount of the invested finance (De Bondt, 357). Such a loss is also called the state when the actual financial return is less than the expected one.
Thus, financial return is the amount of investment obtained after the conduct of a transaction or any other financial operation, while the financial risk is the possibility of getting less return than one expects (Reinhardt et al., 11). In the area of health care, these concepts are especially important as far as this area is connected with numerous contingencies including health issues of patients, the inability of the potential funders or investors to present the money they planned to, etc. As numerous peoples lives are dependant upon the balance of financial risks and returns, it is necessary to be careful choosing the investors and partners in this sphere.
Complex Health Care System in the US
On the whole, the health care system in the United States of America is characterized by a great degree of complexity (Finker & Ward, 2006). This happens due to the complicated structure of health care in the country, which can be compared to the US political organization or the structure of the court system. Health care in the US consists of mainly privately-owned organizations, while federal, state, and local health care facilities are still present (Finker & Ward, 2006).
Although the general amount of non-profit health care facilities remain at the level of over 70% in the US, profit-oriented organizations can also be observed. The system of health insurance adds to the complexity of US health care as well. All the employed people have to obtain health care insurance from the state through their employers or personally (Reinhardt et al., 14). Moreover, those who are temporarily or permanently unemployed have to obtain insurance through their family members that have jobs or can afford to buy the insurance at their own cost.
All these facts facilitate the development of the attitude about the US health care system as about the complex one (Creese, 311). And though it is universally accepted as one of the most effective in the world, the US health care still demands reforms to be more accessible to clients who want to see the clearer structure of the institution responsible for their health and lives.
Ways in Which Health Care Organizations Get Paid
The system of payments in USD health care is also complex. While the non-profit organizations obtain the bulk of the funding from either local or state governments, the latter ones are funded exclusively through the charges that patients have to pay for the services that private profit-oriented hospitals offer (Creese, 315). First of all, in both private and governmental health care facilities there is a complex system of insurance discussed above.
Payments for the very insurances are accompanied further by payments for specific services obtained by the patient in case of an emergency with his or her health. The fact that more than 85% of the US population has health insurance allows saying that the funding of the health care facilities is carried out regularly and properly (Reinhardt et al., 18). In the cost of insurance, there are parts funded by the very people buying the insurance as well as by the governments and certain investment organizations which are different from every particular region.
Gross Charges Are Not Revenue in Health Care
What cannot be included in the list of revenues of any health care organization are the gross charges that this organization has for the services it presents. The first reason for this is the system of health care insurances mentioned above. The insurance presupposes that the part of its costs are paid by the very health care system client while the rest is funded by the government, either state, federal, or local, and by other interested or charitable organizations (Hines, 252). Therefore, the health care facility receives only a part of the set gross charges for its services, and moreover, it is diminished by the flexible system of discounts and partnership agreements with various organizations and companies (Brief and Peasnell, 1996). Thus, gross charges for health care services are nominal, or face, values for those services, while the actual payments obtained by hospitals for those services are smaller. That is why gross charges cannot be considered as revenues for health care organizations.
References
Brief, R. P. and K. V. Peasnell (1996). Clean Surplus: a link between accounting and finance. Taylor & Francis.
Castro, D. (n. d.) Finance, An Exciting Career. School of Business, LeTourneau University, 1 4.
De Bondt, Werner P. M. (1993). Betting on trends: Intuitive forecasts of financial risk and return. International Journal of Forecasting, 9(3), 355-371.
Finker, S.A., & Ward, D.M. (2006). Accounting fundamentals for healthcare management. Sudbury, MA: Jones and Bartlett.
Hines, Ruth D. (1988). Financial accounting: In communicating reality, we construct reality. Accounting, Organizations and Society, 3(4), 251-261.
Kaplan, Robert S. (1984). The Evolution of Management Accounting. The Accounting Review, 59(3), 390-418.
Reinhardt, U. E. et al. (2004). The U.S. Health Care Spending In An International Context. Health Affairs, 23(3), 10 25.
Creese, A. (1991). User charges for health care: a review of recent experience. Health Policy and Planning, 6(4): 309-319.
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