Select two different types of HCOs and comment on the most positive and most negative effects of using the cash versus accrual accounting method for the business.

The two types of Health Care Organizations (HCOs) that I will be discussing are hospitals and physician’s practices. Hospitals generally have larger operations than a physician’s practice, so the effects of using cash versus accrual accounting may differ between the two.

The best thing about using cash accounting in both HCOs is the ease of keeping records. Income and expenses can now be recognized as they are received, or when they have been incurred. Cash accounting can give you an easier way to budget and avoid overspending. This may have a positive impact on tax because taxes are not required until all invoices are paid.

However, cash accounting can have the disadvantage of not reporting income or expenses in the correct periods due to deferred recognition until receipt/payment. This can cause profits to appear artificially large in some periods, while real losses due to other activities may remain concealed until later. If this is not monitored properly it could result in confusion, or even manipulation.

Overall, for both hospitals and physician’s practices there are benefits and drawbacks associated with either method; however it is important for each organization to evaluate their individual circumstances before deciding which approach best aligns with their goals.