Comparing Financial & Managerial Accounting
Financial accounting accumulates information on business with external environments, whereas managerial
accounting emphasizes internal organizational needs. Compare these two types of accounting to understand
how each is applied.
Financial vs. Managerial Accounting
‘Happy Birthday Greg!’ Uncle Frank walks across the room and hands me an envelope. It feels like a
birthday card. Hopefully it’ll have something green in it. ‘Now that you are grown up, Greg, I figured
you could use something for your birthday that will pay off in the long run.’
I open it and pull out a piece of paper and read. It says ‘Stock Certificate’ at the top in fancy letters. I
read through the rest of the paper and discover that it’s stock in the company that Uncle Frank
works at. I know he’s a manager there, and that the company makes electronic components for
computers.
‘One thing you’ll have to learn, Greg, is that our company puts out financial statements and other
public information that’ll be important for you to pay attention to. Learn how to read them and use
them to make good decisions regarding this stock, and any more you might want to get. Depending
on the performance of our company, your stock value can increase or decrease. It all depends on
sales and other financial information.’
‘Uncle Frank, is there any other kinds of financial information that you could get me to help me
make decisions about selling or buying this stock?’
‘Unfortunately, no. Some of the financial information is confidential and used only by the company
to make decisions. We can’t release it to the public. It would compromise our operations.’
Financial Accounting
In this example, Greg was introduced to the two types of accounting through the gift from Uncle
Frank. First of all, he learned that some financial information of a company is provided to external
users. The process of collecting, recording and organizing this financial information is called
financial accounting. This form of accounting classifies and records business events and
transactions into external financial statements. Financial statements include the Income
Statement, Balance Sheet, and Cash Flow Statement.
Financial accounting information is used by external persons, such as shareholders and other
investors, to determine the financial health of the company. The preparation of this information is
determined under the guidelines of regulatory requirements, such as Generally Accepted
Accounting Principles (GAAP) or the International Financial Reporting Standards (IFRS). This
information must be uniform for all companies, so that the public has a reliable assumption that
the financial information that they are reading is accurate and follows guidelines that everyone has
to follow.
Think back through recent years to the news of companies failing because they misstated financial
information in their financial statements. The worst offender was a company called Enron, which
was a utilities and communications giant. The fall of Enron was brought about because they failed
to provide required and accurate financial information to external users. In short, they were able to
transfer liabilities from Enron to other internal companies so that Enron looked very healthy on
their financial statements. It was a regulatory nightmare. The corruption at Enron led to the
creation of legislation, which holds executives more responsible for the incorrect presentation of
financial information.
Managerial Accounting
The second type of accounting Greg learned about was managerial accounting. Managerial
accounting focuses on the information needs of management within an organization. Its purpose
is to gather and report information that adds value to the business. This type of information isn’t
regulated and isn’t shared with the public. The information that management uses can include:
Spending vs. budget variance analysis
Profitability reporting
Performance evaluations
Cost management
It’s important to remember that the financial information that an organization releases to the
public, such as financial statements, are still used internally at the organization to help managers in
their decision-making process. All members of the organization, from the CEO to employees in the
mail room, use both external and internal financial information to achieve the goals of the
organization and improve operations.
One trend in managerial accounting that has gained popularity for its effectiveness in business is
predictive accounting, which moves away from using historical data in management decisions to
relying on financial information that’s current to predict future operations. This allows an
organization to determine, for example, how much of Product A will sell during the upcoming
holiday season, which allows the organization to produce just enough of Product A, and thus
minimize excess inventory.
Lesson Summary
Financial accounting is a type of accounting that collects, records, and organizes financial
information for the benefit of external users. These users include shareholders, investors, and the
general public. Managerial accounting uses financial information to focus on the needs of the
organization and its internal users. It gathers and reports this information to add value to the
organization. Both types of accounting are required for organizational success, and each fulfills the
needs of different types of users.
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Accountable Care Organizations: Definition & Functions
In this lesson, we’ll define a new healthcare program called accountable care organizations. You’ll also learn
about why they were created, and see examples of their goals and successes.
Accountable Care Organizations
Dr. Martin, a primary care physician, wants to create an accountable care organization (ACO),
which is a voluntary collaboration between doctors, hospitals, and other healthcare providers to
provide quality healthcare to people. He schedules an informational seminar and invites healthcare
professionals from the surrounding communities to discuss the possibilities. Let’s see what they
discussed.
Healthcare Partnerships
What Is an ACO?
Dr. Martin starts by explaining the purpose and need for ACOs. He tells everyone that Medicare is a
government-funded insurance program for the retired and disabled, and Medicaid is a joint federal
and state program for low-income individuals and families. For many years, Medicare and Medicaid
recipients complained about subpar services. To underscore this point, Dr. Martin asks Medicare
and Medicaid recipients in the audience to give testimonies of their experiences, which align with
the national studies he’s described. He then explains that the new program would not only
improve care, it would save money, making it a win-win for the government since they’re drowning
in debt due to increasing costs and life expectancy rates.
Dr. Martin tells his audience that accountable care organizations attempt to solve these problems
by forming partnerships between hospitals, doctors, and other healthcare professionals and
entities that collaborate to provide quality healthcare for Medicare and Medicaid recipients in a
specific community. In this partnership, they also work together on cost-saving measures.
Now, he says, let’s review the goals and objectives of ACOs to gain a better understanding of their
commitments.
Goals and Objectives of ACOs
Next, Dr. Martin explains the overall goals and objectives of ACOs:
Deliver patient care in a culturally competent and family-oriented manner.
Create a treatment partnership for each patient in which healthcare professionals collaborate to
increase efficiency and reduce costs.
Encourage patient and family feedback, and take these concerns into account in designing the patient’s
treatment plans.
Improve healthcare-related services and education in the community in which the organization serves.
Utilize nationally recognized metrics to evaluate performance, efficiency, and patient experiences.
Accept other payment models that focus on preventive maintenance and reduce unnecessary testing
and services.
Healthcare Organizations Involvement in ACOs
To prompt healthcare volunteers to join the ACO, Dr. Martin introduces a few organizations that
were pioneer ACOs. These organizations each worked individually within a collective group to help
serve thousands of Medicare and Medicaid patients successfully and save millions:
Beth Israel Deaconess Medical Center is a teaching hospital for Harvard Medical School that serves
Medicare recipients with quality health care and provides valuable experience for aspiring healthcare
professionals.
Atrius Health served 25,000 recipients with a 95 percent quality rating from the Center for Medicare
and Medicaid Services and saved Medicare $6.8 million.
Partners Community Healthcare participated in ACOs over a five-year period and saved Medicare
over $38 million with a 94.5% quality rating.
Banner Health Network has been an ACO member for over a four-year period and saved Medicare
over $35 million.
Dr. Martin concludes by explaining that ACOs benefit the patient and help the government find
new ways to reduce costs from a debt-laden program. He then asks, ‘Who will join me in forming
an ACO in our community?’
Lesson Summary
Accountable care organizations are voluntary collaborations between doctors, hospitals, and
other healthcare providers to provide quality healthcare to Medicare and Medicaid patients. The
need for an ACO is two-fold: first, Medicare and Medicaid recipients want access to superior
healthcare where they are treated with dignity and respect, and second, the Medicare and
Medicaid programs are highly leveraged with no end to their debt in sight due to increasing life
expectancies and costs. The goals and objectives of ACOs were designed to meet patient needs and
reduce the financial obligations of the government. So far, pioneer programs have proven a
success. Millions of dollars have been saved, and thousands of recipients are satisfied with the
quality of service. We’re sure to see more ACOs in the future.
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Medical Practice | Types & Examples
Learn about medical practice. Understand what medical practice is, read the types of medical practice, learn what
private and group practice are, and see examples.
Diverse Doctor Experiences
While TV may tell us that all doctors have experiences like Meredith Grey in Grey’s Anatomy, the
truth is that there are many different options for new doctors looking for a practice. Most don’t
even involve significant drama!
Let’s review a few of the main types of medical practices.
Doctors Office
Solo Practice
A solo practice is an office that is run by one individual without partners or affiliations with other
practices. This type of practice is typically seen in more rural areas where there’s high medical need
and less competition from other practices. Advantages of this kind of practice include having a
small staff and fewer patients, which encourages more personal relationships with both. It also
means that the physician has more control over their business model and how things are run.
However, solo practitioners are often responsible for not only providing medical care, but also
handling the health insurance and business sides of the practice, which can be time consuming.
Group Practice
There are two different types of group practices: single-specialty and multi-specialty. A singlespecialty practice includes multiple doctors providing the same type of care, like a primary practice
office or a specialist’s office. A multi-specialty practice has multiple doctors providing different
types of care in one institution.
There are many advantages to running a group practice, including more financial stability and
being able to offer more benefits to employees. Having more physicians also takes more of the
business burden off of one physician since there is usually someone in charge of the administrative
side of the organization. And it provides more flexibility in scheduling, with more physicians
available to take call time on the weekends, evenings, or at hospitals. However, with more
physicians can come inter-office conflict and differing opinions on how the organization should be
run. Larger practices can also become more policy driven, and this may be seen as a disadvantage
to some.
Employed Physician Practice
Employed physicians may be hired independently or as a group to work in inpatient facilities or
clinics. This type of practice follows more of an employment model rather than a partnership
model as seen in a group practice – in other words, you the physician are an employee of the
facility.
One of the largest benefits of this type of practice is that the employer is responsible for the
administrative aspects and physicians are able to focus on just practicing medicine. These practices
also tend to be larger and have more resources, which means they can provide a stable baseline
salary with incentives. Having more resources can also cross over to more scheduling flexibility,
more opportunities for educational in-services, and more clinical resources while practicing. Some
disadvantages to this type of practice may be decreased autonomy, decreased input in policies and
procedures, no control over scheduling and flexibility, and the expectation that you’ll serve on
committees or panels.
Other Types of Practices
There are a few other types of practices, including independent contractor relationships and locum
tenens. In an independent contractor relationship, a practice remains independent but has
coverage from outside contracted physicians. One advantage of this type of practice is increased
flexibility in scheduling, but it can decrease your decision making capabilities.
Locum tenens literally means ‘place holder.’ These are temporary positions that are opened to fill
clinical holes in practices, hospitals or healthcare organizations. Locum tenens positions are often
paid more than what a permanent employee would be offered, and they give physicians the
opportunity to gain experience in an area without a long term commitment. This type of practice is
not convenient for those who need permanent employment.
Lesson Summary
In choosing what type of practice is the best fit it is important weigh the advantages and
disadvantages of each business model. There are several different options as discussed, giving
physicians flexibility in choosing what works best for them. Solo practice, group practice (singleor multi-specialty), and employed physician practices are the most common ones, but physicians
may come across other, less common types in the job search process, like independent
contractor relationships and locum tenens positions.
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