Relationship Between Finance and Accounting in a Health Care Organization

Relationship Between Finance and Accounting in a Health Care Organization

Despite the fact that both finance and accounting deal with financial issues in an organization, managers and workers in the two departments handle the financial aspects differently. Accounting is primarily concerned with the preparation and examination of an entity`s financial records to ensure they are accurate, ensuring taxes are paid promptly, and that the company`s operations are running seamlessly. Conversely, the main role of the finance department is to make critical financial decisions for an organization and help in the formulation of strategies and plans to ensure the organization`s long-term financial goals are achieved. The difference between finance and accounting in a health care organization is examined in this paper.

Accounting offers vital information to an organization`s management to maintain a financially healthy business. The origin of such information includes financial statements from previous years. Some of this information may include approximations and projections. Besides, accounting also deals with issues related to compliance with government laws such as income tax reports. Unlike accounting, finance majorly deals with activities related to financing of a health care organization`s operations and processes.  Significant financial decisions have to be made in organization, and the finance departments helps in this role. Moreover, the finance function helps an organization to develop plans and strategies for the long-term financial objectives of an organization.

It is worth noting that management uses financial information prepared by the accounting department to make key decisions in an organization. On the other hand, financial managers and accountants must work efficiently to ensure that there is continued short and long-term financial viability of a healthcare organization. Therefore, there are various ways through which finance and accounting are related. Firstly, finance use accounting figures to analyze data. Business finance analysts frequently review accounting information to enable them to determine the effectiveness of their operations.  At the same time, accounting also relies on the finance function since it uses data from the finance function to record and report information so that organizations can make proper decisions. Accountants use different methods to present numbers to their customers.

When a healthcare organization seeks to determine its finances, the first thing it does is to review accounting, and use the data to make monetary decisions. The accounting data helps financial analysts to prepare financial plans, review an organization`s performance, and ensure that the entity is complying with its legal duties such as tax reporting. Accounting programs like Microsoft Dynamics NAV helps accountants in preparing accounting records that are vital in making financial decisions.

Conversely, finance mainly concerns raising money. Financial analysis is usually done to determine the amount of money required by a particular healthcare organization and where it can be sourced from. In most cases, financial analysis begins with analyzing accounting data to foresee what is most likely to happen in future. Any person who does financial accounting must have an understanding of GAAP accounting since the key objective of financing is to calculate the amount of cash required by an organization, which is the goal of GAAP accounting. After the analysis, the finance department often deals with structuring and raising finances to fund the organization`s operations. Healthcare organizations are predominantly non-profit entities (Needleman, 2017). Therefore, the financing function is very important in a healthcare organization`s operations.

Both finance and accounting are significant to the success of a healthcare organization. Accounting is knowledge, while finance applies the accounting knowledge to make decisions. Finance and accounting determine the financial viability within a healthcare organization since both are interrelated. Financing helps a healthcare organization raise funds to fund its working capital and achieve its mission (Needleman, 2017). Accounting helps the organization and indeed the donors to know how the resources assigned to the entity have been used in the provision of services to patients.

Financial analysts play a significant role in ensuring that an organization does not plan to spend more than its revenue sources. Hospitals have different sources of revenues because they provide both inpatient and outpatient services. Additionally, they offer other services like cafeteria and parking. Some hospitals are used in providing medical or associated education, while other revenues are used to carry out research. Some hospitals receive government subsidies and philanthropy that may not have a direct tie to any operational activities.

Accounting and finance are both significant in making calculations to determine revenue and expenses for a health facility. The data used is based on available data in the health facility. Additionally, accountants can use the revenue and income of a healthy facility to prepare financial records for health facilities like a balance sheet and a trial balance. Furthermore, accounting and finance is significant in determining the operating margin and profit margin of an organization. Operating margin is considered the main profitability in equity assessment. This is done by having the payer’s revenue and the patient care expenditures assigned to that payer.

Both financing and accounting are significant in health care organizations since without financial analysis, the facility is at risk of spending more or less than its income, which may negatively affect the achievement of its mission (Needleman, 2017). For resources to be properly used, revenue and costs are in balance. Similarly, accounting helps a healthcare organization to determine where the revenues have gone and whether they have contributed to the goals and objectives of the organization.



Needleman, J. (2017). Assessing the financial health of hospitals. Retrieved from,