Under the new standard, how is a patient's unpaid balance treated?

The treatment of a patient's unpaid balance as bad debt expense if not paid aligns with the accounting principles governing revenue recognition and expense matching. When a healthcare provider provides services, they recognize the revenue at the point of service delivery. However, if the patient fails to pay their balance, or if it becomes unlikely that the amount will be collected, the organization must account for that unpaid balance as a bad debt expense. This reflects the economic reality that the revenue initially recognized may not be collectible, ensuring that financial statements accurately represent the provider's financial situation.

Recognizing unpaid balances as bad debt expense also complies with the generally accepted accounting principles (GAAP), which require that expenses be matched with revenues in the period in which they occur. By treating unpaid balances this way, healthcare providers maintain transparent and reliable financial reporting, which is crucial for accurate performance evaluation and planning.