N.J. Admin. Code § 8:31B-4.14

Current through Register Vol. 56, No. 11, June 3, 2024

Section 8:31B-4.14 - Matching of revenues and expenses

(a) Determination of net income for a reporting period requires measurements of revenue, revenue deductions, and expenses associated with the period. Hospital revenue must be recorded in the period in which it is earned; that is, in the time period during which the services are rendered to patients and a legal claim arises for the value of the services.

(b) Once the revenue determination is made, a measurement must be made of the amount of expense incurred in rendering the services on which the revenue determination was based. Unless there is such matching of revenue and expense, the reported gain or loss of a period is meaningless.

(c) It is important that revenue deductions be given reporting recognition in the same period that the related revenues are recorded, even though certain of these revenue deductions cannot be precisely determined until sometime after the end of the reporting period.

(d) Expenses and revenues are to be matched not only for the hospital as a whole, but also for each cost and revenue center. The cost (revenue) center is an accounting device for accumulating items of cost (revenue) that have common characteristics. A cost center may or may not be a department within the hospital. A cost center such as utilities is an example where the cost center would not be a department of the hospital. The costs of the functions and activities included in each cost center description (see N.J.A.C. 8:31B-4 Part vi) are to be included in the cost center. Revenue relative to such functions and activities must be included in the matching revenue center. For example, expenses related to Laboratory are included in the Laboratory cost center and related revenue is to be included in the Laboratory revenue center.

(e) Some hospitals record revenue on an all-inclusive rate basis (a rate based on type of accommodation regardless of the utilization of ancillary services). Utilization of an all-inclusive rate system results only in a modification of the patient billing and revenue accounting system. It does not eliminate the need to report expenses by proper cost center.

(f) Revenues are classified as either operating or non-operating according to the following definitions:

1. Operating revenues and expenses include those transactions which are a part of the normal day-to-day operation of the hospital. They include but are not limited to those operations involved in the performance of all patient care activities (i.e., Services Related to Patient Care, see 8:31B-4.32 ).

2. Non-operating revenues are defined to be all transactions of the hospital which are not part of the normal day-to-day activities. Non-operating revenues (or losses) are to be reported net of expenses incurred in the transaction (for example, gain or sale of securities should be shown net of brokerage fees, donations net of solicitation expenses, and rental income net of rental expenses.) Included are:

i. Gains or losses from investments and the operation of non-hospital related businesses usually run at a site separate from facilities utilized for Services Related to Patient Care;

ii. Donations and fund raising activities;

iii. Interfund transactions (see 8:31B-4.16(c) ).

N.J. Admin. Code § 8:31B-4.14

Amended by R.2006 d.27, effective 1/17/2006.
See: 37 New Jersey Register 2165(a), 38 New Jersey Register 667(a).
In (f)2, substituted "for example" for "e.g."; in (f)2ii, deleted reference to (c)7 which was a nonexisting paragraph.