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1 July, 21:02

A hospital arranges with a third-party payer to charge the third party 75 percent of its established billing rates. During January 2018, the hospital provided services amounting to $1 million at the established billing rates. Prepare journal entries to record the January billings.

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  1. 1 July, 23:52
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    Debit Cash account or Accounts receivables $750,000

    Credit Service revenue $750,000

    Being entries to recognize revenue earned and billed to the third party at agreed percentage of established billing rate.

    Explanation:

    When services are rendered and cash is yet to be collected, the revenue earned is recognized by a debit to accounts receivable and a credit to service revenue accounts.

    On collection of cash, credit accounts receivables and debit cash account.

    At an established billing rate of $1 million, if the hospital will charge 75%,

    revenue to be recognized

    = 75% of $1 million = $750,000

    Entries required on billing

    Debit Cash account or Accounts receivables $750,000

    Credit Service revenue $750,000

    Being entries to recognize revenue earned and billed to the third party at agreed percentage of established billing rate.
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