Btandywine Healthcare

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Brandywine Homecare

Health Financial Management – HAS 525

October 20, 2011

Bandywine Homecare, a not-for-profit business, had revenues of $12 million in 2007. Expenses

other than depreciation totaled 75% percent of revenues, and depreciation expense was $1.5

million. All revenues were collected in cash during the year and all expenses other than

depreciation were paid in cash.

What were Brandywine’s 2007 net income, total profit margin, and cash flow?

Net income = 12M * (1 - 75%) - 1.5M = $1.5 million

Total profit margin = $1.5M/12M = 12.5%

Cash flow = 1.5M + 1.5M = $3 million

Suppose the company changed its depreciation calculation procedures(still within GAAP)such that

its depreciation expense doubled. How would this change affect Brandywine’s net income, total profit margin, and cash flow?

Net income = 12M *(1 - 75%) - 3M = $0 million = a decrease of $1.5 million

Total profit margin = $0M /12M = 0% = a decrease of $1.5 million

Cash flow = 0M + 3M = $3 million = no change

1Income statement

Revenues $ 12.00
Less: Expenses $ 9.00
Less: Depreciation $ 1.50 $ 10.50
Net income
$ 1.50

2Net income $1.50

Total profit margin12.50%

Cash flows $ 3.00
Revenues - Expenses

3
Income statement

Revenues $12.00
Less: Expenses $ 9.00
Less: Depreciation $ 3.00 $ 12.00
Net income $ -

Net income $ -

Total profit margin0.00%

Cash flows$3.00
Revenues - Expenses

Explain the difference between cash and accrual accounting. Be sure to include a discussion of the revenue recognition and matching principles.

Cash accounting accounts for expenses and revenues at the time that there is cash flows while accrual

accounting accounts for business...
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