Unit 3 Discussion A new regulation now requires hospitals to prepare for recordi

Question

Unit 3 Discussion A new regulation now requires hospitals to prepare for recording diagnoses using different codes than they used to. The efforts will involve learning, training, working with physicians, vendors, employees, and others. It will also require updating current software. The regulation is not in effect for a year from the time the hospital begins working on it. Discuss and explain how might the matching principle apply to this situation? Discuss the different transactions needed and the debits and credits you would make to which accounts.

Explanation / Answer

Here there is change in law due to that there are several costs to incur. In the given case we are going to incur costs.

The organisation has to create provision for costs to be incurred in future if they can be estimated reliably. Provision is a liability which can be measured with substantial degree of estimation.

In the given case by using prudence concept we can recognise future losses.

Here we have to debit profit and loss account and credit provision for various costs due to change in regulations. The provision will be reversed when there is actual costs incurred.

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