N.Y. Comp. Codes R. & Regs. tit. 10 § 442.19

Current through Register Vol. 46, No. 53, December 31, 2024

Section 442.19 - Timing differences

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(a) Timing differences result when accounting policies and practices used in an organization's accounting differ from those used for reporting operations to governmental units collecting taxes or to outside agencies making payments based upon the reported operations. These differences must be recorded on the hospital's records when they arise. The references relative to their acceptable accounting treatment are as follows:

-Income tax allocation-Accounting Principles Board Opinions Nos. 11, 23 and 24.

(b) The following condensed income statement illustrates a timing difference attributable to different methods of calculating depreciation expense for financial accounting versus tax or third-party reimbursement purposes.

(1) Assumptions:

(i) Depreciation for accounting purposes is calculated on the straight-line method and amounts to $10 for the current year.

(ii) Depreciation for tax and third-party reimbursement purposes is calculated on a declining balance method and amounts to $20 for the current year.

(iii) The tax rate is 40 percent.

(iv) The third-party utilization is 50 percent.

(v) The only deduction from revenue is the contractual allowance.

(2) Income statement.

	Accounting records	Tax/third-party cost report
Revenue	$180	$180
Deductions from Revenue	30	25
Net Revenue	$150	$155
Expenses (excluding depreciation)	110	110
Depreciation	10	20
Total Expenses before Taxes	$120	$130
Income before Taxes	30	25
Taxes	12	10
Net Income	$ 18	$ 15

(3) The income tax expense is comprised of three components:

$10 currently payable and $4 payable in future periods representing the tax effect of the difference between depreciation expense for accounting and tax purposes (40% × $10 = $4), and $2 to be applied against tax liabilities in future periods, representing the tax effect relative to reimbursement caused by the difference between depreciation for accounting purposes and cost report purposes, computed as follows: 40% (tax effect) × 50% (third-party utilization) × $10 (difference between depreciation for accounting and cost report purposes) = $2 or, stated another way, it is the difference between the deductions from revenue per the accounting records ($30) and the Tax/Cost Report Records ($25) times the tax rate of 40%.

(4) The journal entry to record these items is:

	Account	Dr.	Cr.
Provision for income taxes-Federal-current	9411	$10
Provision for income taxes-Federal-deferred	9412	2
Income taxes payable	2090		$10
Deferred income taxes payable	2120		2

(5) The deduction from revenue (contractual adjustments) is calculated as follows:

(i) Calculation.

	Accounting records	Tax/cost report
Medicare revenue ($180 × 50%)	$90	$90
Reimbursable costs:
$120 × 50	60
$130 × 50%		65
Contractual Adjustment	$30	$25

(ii) Of the $30 contractual adjustment for accounting purposes, $25 is the current portion and $5 is the deferred portion.

(6) The journal entry to record this expense is:

	Account	Dr.	Cr.
Contractual adjustment-Medicare	5910	$30
Allowance for contractual adjustments-Medicare	1042		$25
Deferred revenue-Medicare	2131		5

N.Y. Comp. Codes R. & Regs. Tit. 10 § 442.19