Generally, the healthcare industry applies accrual and cash accounting to generate financial reports. The accrual accounting method records revenues and expenses when they’re earned or incurred by a healthcare organization instead of when payment is received or made. This method impacts the reliability of the income statement and balance sheet. It’s commonly practiced compared to cash accounting because it provides a true picture of the actual profits. However, it can be an uphill task to track and account for transactions such as accounts receivables and payables, especially for a large hospital. Cash accounting is easier to apply as it reports cash transactions. Revenue is recognized when cash is received and expenses are only recorded when cash is paid out. One major drawback of this accounting method is not showing the accurate financial health of a company. As a result, it’s not practical for hospitals as most transactions occur on an accrual basis.