Btandywine Healthcare
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 transactions when revenue earnings and expense procedures have been completed. Of the two, accrual accounting presents a more accurate matching of revenues and expenses. Both are similar methods of maintaining accurate accounting records. There are two key differences that distinguish one from the other, it boils down to the way debits and credits are applied in the bookkeeping process.
