Finances - Part 1 Flashcards
Asset
○ Resource owned / controlled by an entity that has “value”
○ Used, or can be used to generate revenue for the business
○ 2 types of assets
■ Current assets - assets that will be converted into cash within 12 months (visa owes me money as patient paid with credit card, pharmacy inventory)
■ Non-current assets - assets held longer than 12 months - depreciate over time
(not easily convertible to cash, building)
Liability
○ An obligation that you owe to someone else (debt)
■ Current liabilities - claims that will be paid off within 12 months (buy it off of mckesson, pay it off in a week)
■ Non-current liabilities - claims that take longer than 12 months to pay off
purchasing a house - non-current
pharmacy building purchase dis an asset
but the bank loan is a non-current liability, need mroe than 12 mo to pay it off
Equity
○ The funds invested by the owner PLUS any retained earnings (or minus losses)
○ The difference between the ASSETS and LIABILITIES of a business
if you sold off all assets, subtract all liabiltiies = equity
Assets
which are current
non-current?
describe goodwill
Cash
Bank accounts (chequeing / savings)
Accounts receivable (credit card, send claim to ABC which doesn’‘t pay you right away)
Inventory
Prepaid expenses
Computers* (probably not gonna convert to cash but it still has value and is ujsed by business to generate revenue supply)
Fixtures*
Furniture*
Software (can be current or non-current)
Building and/or land*
Security deposit*
Leasehold improvements*
Goodwill* (if you buy an existing pharmacy, you will pay for more than all the assets listed –> difference that you pay for), pharmacies generally make money so you need to pay above the asset price
- Signifies a non-current asset
Liabilities
Accounts payable (vendors) Income taxes (Government) Line of Credit Accrued expenses Short term loan Overdraft Shareholder loan* (sharholder paying out money) Long term loan*
- Signifies a non-current liability
Equity
ASSETS = LIABILITY + EQUITY
where does that equity come from
● Contributed capital
○ Shareholders (owners) providing money to the business
● Retained earnings
○ From profits (subtract revenues - expenses and taxes)
● Equity increases
○ Profits are made
○ Shareholders contribute money to the business (if not a shareholder loan)
● Equity decreases
○ Losses are made, losing money
○ Shareholders remove money from the business (dividend)
Balance Sheet
accounts receivable vs payable
what makes up equity?
see balance sheet
finance report to show how well business is doing
● Financial position at a defined point of time
● Current assets / long term assets / capital assets
○ Goodwill (intangible asset - from an acquisition)
● Current liabilities / long term liabilities
● Owner equity
accounts receivable is how much money in visa, mc, ABC which will pay
prepad expense: pay ahead of time (pay for the entire yr of insurance, show just 1 monthj)
or rent you paid for 1 yr
accounts payable: how much i owe mckesson
current portion of loans payable: short term loan that has to be paid off this year
shareholder equirt - share capital: invest $1000 at the start
retained earnings: period of time that pahrmacy has been generated profit has been added to how much money is sitting within pharmacy -> what pharmacy is worth
Income
● Money coming into a business
● aka Revenue, Sales
● Given in response to the provision of a good or service
Pharmacy - Sources of Income
● Prescription sales ● Front store sales ● Rentals of equipment (e.g. ambulatory blood pressure monitors, breast pumps, crutches, etc.) ● Clinical service fees ● Early payment discounts ● Rebates / allowances
want to breakdown where revenue is coming from
Expenses
● Money going out of a business
● Cost required to purchase something for use by the business
● Costs of operating a business in order to generate income
Pharmacy - Examples of Expenses
must be linked to using it to generate revenue
Wages and benefits Repairs and maintenance Utilities - telecommunications, gas, power, water Rent Interest and bank charges Professional and business fees Advertising and promotion Freight costs Insurance Business taxes, licences and dues Dividends Meals and entertainment Office supplies and services Postage and courier Security Computer support
What About Products?
● When a pharmacy PURCHASES products that they will then sell, at the time
that they purchase the product they are purchasing INVENTORY which is
NOT considered an expense
○ It is considered an ASSET (ur buying an asset)
● When a pharmacy SELLS a product, that is when they recognize an EXPENSE related to the COST OF GOODS SOLD (or COGS)
○ May also be referred to as COST OF SALES
- the business intends to resell it, we dont actually expensue the use of that inventory until dispensed or sold
- when you buy it it shows up on balance sheet as asset, not on income statement
- when we sell, it is cost of goods sold, it is expense, shows up on income statemnt
Dispensing a prescription for 100 capsules of Duloxetine 60mg
15 Cost: $0.9769 x 100 = $97.69 Upch #1: 3% of $97.69 = $2.93 Upch #2: 7% of $100.62 = $7.04 Dispensing Fee: $12.15 TOTAL SALE: $119.81 COGS: $97.69
when we buy it from apotex it is an asset
upcharge to generate revenue
COGS is what i paif for the pdt when i brought it into my store
Example - Front Store
Sale of 100 caplets of Tylenol Extra Strength
Cost: $8.86
TOTAL SALE: $12.79
COGS: $8.86
revenue: $12.79
gross profit $12.79 - $8.86 = $3.93
Gross Profit
Sales minus cost of goods (dollar value)
● Gross Profit of Duloxetine Rx: $119.81 - $97.69 = $22.12
● Gross Profit of Tylenol Sale: $12.79 - $8.86 = $3.93
