Financial Management and Budgeting
Core concepts
Know the income statement (revenue − expenses = margin over a period), balance sheet (assets = liabilities + net assets at a point in time), and cash flow statement (operating, investing, financing). Understand accrual vs cash accounting: accrual recognizes revenue when earned and expenses when incurred.
Budget types: operating, capital, cash, and flexible budgets. Know variance analysis - favorable vs unfavorable, and whether a variance is price/rate or volume/efficiency driven. Understand fixed vs variable costs, contribution margin, break-even (fixed costs ÷ contribution margin per unit), and cost allocation for shared overhead.
Revenue cycle concepts: charge capture, coding, claims submission, denial management, and days in accounts receivable. Know payer mix and the difference between gross and net revenue (net = gross minus contractual allowances and discounts). Internal controls: segregation of duties, dual authorization, reconciliation, audit trail.
Traps
- Treating a revenue increase as automatically favorable - if volume rose but margin fell, the variance is unfavorable in context.
- Confusing capital budget (long-lived assets, depreciation) with operating budget.
- Forgetting that depreciation is a non-cash expense - it affects the income statement but not cash flow directly.
- Break-even questions that mix per-unit and total figures.
Rule of thumb
Break-even units = total fixed costs ÷ (price − variable cost per unit). Always check units before computing.
Worked example
Fixed costs $120,000; price per exam $100; variable cost $60. Contribution margin = $40. Break-even = 120,000 ÷ 40 = 3,000 exams. To earn $20,000 profit: (120,000 + 20,000) ÷ 40 = 3,500 exams.