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One of the most important things in business is to gain an understanding of finance-related concepts and terminology. It is a language unto its own. This appendix describes a number of basic concepts and their associated use in the healthcare financial arena (Waddill-Goad, 2015), in alphabetical order.

Accrual: A method of accounting that recognizes a financial or an economic event regardless of when the expense occurs.

Affordable Care Act (ACA) of 2010: A comprehensive effort to reform the current U.S. healthcare system in an attempt to improve access, reduce cost, and enhance quality. Also known as Obamacare. For an excellent summary of this legislation, visit the Kaiser Family Foundation’s website:

Amortization: A debt schedule paid over time.

Accounts payable: Money owed to vendors or suppliers (typically from a company) for which immediate payment is not required. Shown as unpaid invoices.

Accounts receivable: Money due from customers who have been billed for a product or service.

Asset: Any resource of value owned by a company.

Balance sheet: A financial document that provides a snapshot of a company’s owned assets.

Balanced scorecard: A term used with key performance indicators (KPIs). Usually, a balanced scorecard consists of a selection of measurable items in various categories that are key to running a business.

Capacity: The people, equipment, and/or space required to produce a product or service.

Capacity utilization: An analysis and calculation (generally a percentage) of available capacity and what was actually used in the production of products and/or services.

Capital: Hard assets acquired as a long-term investment to run a business. These are noted and accounted for on a balance sheet.

Cash: Typically, a checking account balance as shown on a bank statement, currency on hand, or checks received from customers not yet deposited.

Cash flow: The movement of money in, through, and out of a company.

Consumables: Inventory consumed for the production of a service or product.

Contribution margin: A percentage that shows sales minus the cost of goods sold, divided by sales. For example, 60 – 24 = 36 / 60 = 60%. In this case, for every dollar spent, the company earns $.60.

Cost: A metric comprised of fixed, variable, flexed, direct (tied to a cost object), and indirect types of cost categories.

Cost of goods sold: The amount of money a company spends to produce a product or service.

Demand: The consumer or market need for a product or service.

Demand forecasting: The use of currently available and retrospective financial data to predict (and potentially improve) prospective or future business performance.

Depreciation: A long-term expense used to replace assets over time, equal to the ...

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