C is corrent. According to the AICPA Audit and Accounting Guide, Health Care Organizations, the provision for contractual adjustments and discounts is recognized on the accrual basis and deducted from gross patient service revenue to determine net patient revenue. Bad debts expense is reported as an operating expense, not as a contra to gross patient service revenue. Accordingly, net patient service revenue for year 1 is $725,000. This amount is determined by subtracting the contractual adjustments of $100,000 and the discounts of $35,000 from gross patient service revenue of $860,000.
A is incorrect because the provision for contractual adjustments and discounts is recognized on the accrual basis and deducted from gross patient service revenue to determine net patient revenue.
A is incorrect because the provision for contractual adjustments and discounts is recognized on the accrual basis and deducted from gross patient service revenue to determine net patient revenue.
D is incorrect because the provision for contractual adjustments and discounts is recognized on the accrual basis and deducted from gross patient service revenue to determine net patient revenue.
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