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Examine excess of revenues over expenses

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Question: A not-for-profit hospital is seeking a loan from a bank to finance a major acquisition of equipment. The hospital is preparing its financial statements for 2012, which the bank's loan officer wants to review before completing the loan agreement. Based on preliminary data, the hospital's treasurer thinks the loan officer will be troubled with the amount the hospital will report as "excess of revenues over expenses" in the hospital's statement of operations.

The treasurer knows the hospital comptroller plans to report the allowance for bad debts at 20 percent of patient accounts receivable, the same rate used in preparing the 2010 and 2011 financial statements. The treasurer goes to the comptroller and says: "I'd really like to improve our bottom line a bit. Seems to me the economy is better than last year. I suggest you reduce the bad debts allowance to 12 percent." What should the comptroller do?

Reference no: EM131704431

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