Understanding Medical Cost Accounting

Join Our Mailing List

A Subset of Managerial Accounting

By Dr. David E. Marcinko MBA CMP®

By ME-P Staff Reporters

CMP logo

SPONSOR: http://www.CertifiedMedicalPlanner.org

Managerial and medical cost accounting is not governed by generally accepted accounting principles (GAAP) as promoted by the Financial Accounting Standards Board (FASB) for CPAs. Rather, a healthcare organization costing expert may be a Certified Cost Accountant (CCA) or Certified Managerial Accountant (CMA) designated by the Cost Accounting Standards Board (CASB), an independent board within the Office of Management and Budget’s (OMB) Office of Federal Procurement Policy (OFPP).

The Cost Accounting Standards Board

CASB consists of five members, including the OFPP Administrator who serves as chairman and four members with experience in government contract cost accounting (two from the federal government, one from industry, and one from the accounting profession). The Board has the exclusive authority to make, promulgate, and amend cost accounting standards and interpretations designed to achieve uniformity and consistency in the cost accounting practices governing the measurement, assignment, and allocation of costs to contracts with the United States.

Codified at 48 CFR

CASB’s regulations are codified at 48 CFR, Chapter 99.  The standards are mandatory for use by all executive agencies and by contractors and subcontractors in estimating, accumulating, and reporting costs in connection with pricing and administration of, and settlement of disputes concerning, all negotiated prime contract and subcontract procurement with the United States in excess of $500,000. The rules and regulations of the CASB appear in the federal acquisition regulations.

North American Industry Classification System (NAICS) codes are used to categorize data for the federal government.  In acquisition they are particularly critical for size standards.  The NAICS codes are revised every five years by the Census Bureau.  As of October 1, 2007, the federal acquisition community began using the 2007 version of the NAICS codes at www.census.gov/epcd/www/naics.html

Cost Accounting Standards

Healthcare organizations and consultants are obligated to comply with the following cost accounting standards (CAS) promulgated by federal agencies:

  • CAS 501 requires consistency in estimating, accumulating, and reporting costs.
  • CAS 502 requires consistency in allocating costs incurred for the same purpose.
  • CAS 505 requires proper treatment of unallowable costs.
  • CAS 506 requires consistency in the periods used for cost accounting.

The requirements of these standards are different from those of traditional financial accounting, which are concerned with providing static historical information to creditors, shareholders, and those outside the public or private healthcare organization.

AssessmentTwo Doctors

Functionally, most healthcare organizations also contain cost centers, which have no revenue budgets or mission to earn revenues for the organization.  Examples include human resources, administration, housekeeping, nursing, and the like.  These are known as responsibility centers with budgeting constraints but no earnings.  Furthermore, shadow cost centers include certain non-cash or cash expenses, such as amortization, depreciation and utilities, and rent. These non-centralized shadow centers are cost allocated for budgeting purposes and must be treated as costs http://www.CertifiedMedicalPlanner.org



Your thoughts and comments on this ME-P are appreciated. Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, subscribe to the ME-P. It is fast, free and secure.

Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com


Product DetailsProduct Details

Product Details

What is GAAP?



By Dr. David E. Marcinko MBA CMP®

CMP logo

SPONSOR: http://www.CertifiedMedicalPlanner.org

Generally Accepted Accounting Principles

As a new physician investor, it’s important to know the distinctions between like measurements because the market allows firms to advertise their numbers in ways not otherwise regulated. Often companies will publicize their numbers using either GAAP or non-GAAP measures. GAAP, or generally accepted accounting principles, outlines rules and conventions for reporting financial information. It is a means to standardize financial statements and ensure consistency in reporting.

When a company publicizes its earnings and includes non-GAAP figures, it means it wants to provide investors with an arguably more accurate depiction of the company’s health (for instance, by removing one-time items to smooth out earnings). However, the further a company deviates from GAAP standards, the more room is allocated for some creative accounting and manipulation.

When looking at a company that is publishing non-GAAP numbers, new physician investors should be wary of these pro forma statements, because they may differ greatly from what GAAP deems acceptable.

CITE: https://www.r2library.com/Resource/Title/0826102549


Image result for gaap


The Core GAAP Principles

GAAP is set forth in 10 primary principles, as follows:

  1. Principle of consistency: This principle ensures that consistent standards are followed in financial reporting from period to period.
  2. Principle of permanent methods: Closely related to the previous principle is that of consistent procedures and practices being applied in accounting and financial reporting to allow comparison.
  3. Principle of non-compensation: This principle states that all aspects of an organization’s performance, whether positive or negative, are to be reported. In other words, it should not compensate (offset) a debt with an asset.
  4. Principle of prudence: All reporting of financial data is to be factual, reasonable, and not speculative.
  5. Principle of regularity: This principle means that all accountants are to consistently abide by the GAAP.
  6. Principle of sincerity: Accountants should perform and report with basic honesty and accuracy.
  7. Principle of good faith: Similar to the previous principle, this principle asserts that anyone involved in financial reporting is expected to be acting honestly and in good faith.
  8. Principle of materiality: All financial reporting should clearly disclose the organization’s genuine financial position.
  9. Principle of continuity: This principle states that all asset valuations in financial reporting are based on the assumption that the business or other entity will continue to operate going forward.
  10. Principle of periodicity: This principle refers to entities abiding by commonly accepted financial reporting periods, such as quarterly or annually.

Thank You




%d bloggers like this: