Every organization uses a chart of accounts to categorize its financial records, and the long-term post-acute care industry is no different. The chart of accounts is essentially the overall framework for how financial information is organized and presented, and the way it is structured can significantly impact critical business decisions.
The details of an organization’s financial activity are captured by financial statements that are produced monthly. It is important that this information is presented in a way that can be easily interpreted so financial performance can be accurately evaluated. Detailed account activity is often beneficial to the end user, but on the other hand too much information can be overwhelming and cause more harm than good.
When a chart of accounts – and the software that goes along with it – is set up correctly, it will provide more transparency in the financial report. This allows for clear insight into the company’s financial health, and better decision-making as a result.
Setting Up a Chart of Accounts
When setting up your chart of accounts, there are a few things to keep in mind. For one, consider your end user. Who will be reviewing the financials and basing decisions on that information? Whether it may be the COO, CFO or an owner, find out how they want to see and digest the information, and start with that.
Second, you will need to consider the number of segments you will need to create. Segments can be broken up by department, account, or another identifier, especially if you have multiple entities within one consolidated chart of accounts. For example, providers can use a facility identifier to differentiate buildings, even though they all share the same account number. There are many different account types, and your format should present each one easily to avoid any coding or configuration errors. Once you have the primary segments established, consider any subcategories you will need as well.
While there is technically no “right” or “wrong” way to structure your chart of accounts, there does need to be a method behind the numbers. Be sure there is a reason and use for each account, and understand what each category means. Are the numbers consistent in length and format? Are you leaving room to add more accounts when you need to? Keep in mind you will be budgeting based on the account data, so it needs to make sense for your unique organization.
The basic account types used by all entities include:
In addition to the above categories, other account types are more unique to the LTPAC industry. Below are our suggestions for structuring these accounts within your continuing care organization.
Balance sheet accounts Balance sheet accounts are comprised of assets (cash, receivables, etc.), liabilities (debts, invoices, etc.) and equity. Be mindful not to summarize subcategories too much, which can make account reconciliation more difficult if there are too many transactions flowing through a small number of accounts.
Expense accounts Expense accounts encompass all the ways money is spent in efforts to generate revenue. When creating your expense accounts, keep in mind any third-party reporting needs such as cost reports, COVID Provider Relief Funding (PRF) reporting, and third-party lender requirements. While it can be a tricky balancing act, the accounts should have enough detail that you can make business decisions and budget efficiently, but not too much detail that it “muddies” up the review. If you configure the accounts with specific department categories, you can present the department heads with their monthly expenses to assist with purchasing and staffing decisions, as well as budget comparisons. Any red flags or significant losses will be easier to spot, allowing management to make more informed spending decisions.
Revenue accounts Revenue accounts are used to report income from monthly operations, which can include operating and non-operating revenue. For LTPAC providers, revenue accounts should be set up based on your payer structure. Rather than lumping all room and board revenue into one generic account, segment the revenue accounts by payer so you can easily see the average rate you are reimbursed per patient day (PPD). If rates are not accurate, it could be an indicator that there is a configuration issue.
Unit accounts Unit accounts are used for data analysis purposes only – they do not feed into the bottom line or get included in totals. This could include payroll hours and contract labor hours for a payroll analysis, or total days.
Enhance Outcomes with Richter
If your organization is struggling to understand your chart of accounts or is in need of a restructure to get you back on track, Richter can help. Our accounting professionals can help standardize your accounts, create custom reports, and offer insight to help you achieve budget goals. To learn more about our accounting solutions, contact us here or call us at 866.806.0799.