Budgeting and Financial Statements Flashcards

Flashcards covering budgeting, forecasting, financial statements, and other concepts of pharmaceutical accounting.

Operating budget

Shows the pharmacies’ anticipated revenues and expenses for the coming 6 to 12 months.

Cash budget

The schedule of forecasted cash receipts and payments. Cash inflows and outflows for the next 6 to 12 months

Capital budget

Shows the pharmacies’ planned investment in fixed assets. More common in large organizations such as hospitals and chain pharmacies.

Projected financial statements

Estimates of a company’s future financial performance, using current trends and expectations to arrive at a financial picture that management believes it can attain in the future.

Projected income statement

Estimates of future revenues, expenses and profitability.

Projected balance sheet

Estimates of future assets, liabilities and equity

Projected Cash Flow Statement

Estimates of future cash inflows and outflows.

Forecast

Estimate of demand for the next 6 to 12 months

Market potential

Total demand in the pharmacy’s market area of those goods and services provided by the pharmacy.

Goals

Endpoints that must be accomplished for the organization to fulfill its mission

Objectives

Statement of specific goals that must be accomplished in the next 1 to 5 years if the organization is to meet its goals

Operating budget

Forecasts the cost of implementing plans and the revenues that will result from fulfilling objectives.

Cash budget

Forecasts the impact of plans to cash inflows and outflows

Capital budget

Reflects the costs of purchasing fixed assets that are required to meet the organization's objectives.

Fixed budget

Based on a single level of forecasted demand.

Flexible budget

One that allows budgeted variable expenses to change in response to changes in demand.

Budget variances

The differences between budgeted and actual amounts

POLC framework

What outlines the four fundamental function of management: Planning, Organizing, Leading and Controlling?

Controllable expenses

Are those over which the head of the unit can exert a level of control.

Non-controllable expenses

Are those in which the head of the unit can exert little or no control.

Cash budget

A weekly or monthly forecast of cash inflows and outflows

Fixed costs

Remain the same regardless of volume

Variable Costs

Increase in direct proportion to increases in volume

Semi-Variable Costs

Include both a fixed and a variable component

Break-even point (BEP)

Volume at which total revenues, or sales equal total costs.

Contribution margin

Revenues minus variable cost

Stay- even point

When Net income is considered as a fixed cost, instead of calculating the break-even point.

Catalog or list price

Used by manufacturers in selling drugs to trade outlets

Bids or quotations

Used in government transactions, e.g. government hospitals or other health institutions

Retail price

Used by wholesalers or retailers in selling to their customers

Wholesale price

When selling in bulk quantities

Net price

Cost of product inclusive of 12%VAT and discounts

Billing price

Cost of product inclusive of raw materials, labor and overhead - same as product cost

Rentals / allowances

Amount paid by marketers to trade outlets for rental of space of promo materials

Skimming Pricing

The strategy of establishing a high initial price for a product to “skim the cream” off the upper end of the demand curve.

Penetration Pricing

The strategy of entering the market with a low initial price so that a greater share of the market can be captured.

Cost-plus Pricing

The strategy where prices are determined by adding a predetermined profit to cost.

Competition- based Pricing

The firm uses competitors' prices rather than demand or cost considerations as its primary guideposts.

Direct Cost

Directly caused by or result from providing the service

Indirect Cost

Not directly caused by or result from providing the service

Differential (incremental) analysis

Analyzing revenues and costs that differ from one alternative to another when deciding between alternative courses of action

Differential revenues and costs

Revenues and costs that differ from one alternative to another

Avoidable Costs

Costs that can be avoided by selecting a particular course of action; treated a differential cost.

Opportunity Costs

A benefit is foregone when one alternative is selected over another, treated as differential costs

Sunk Costs

Costs incurred in the past that cannot be changed by future decisions; not treated as differential cost

Direct Fixed Costs

Fixed costs that can be traced directly to a product line or customer, treated as differential cost

Allocated fixed costs

Fixed costs that cannot be traced directly to a product line or customer; typically not treated as differential cost

Differential Analysis

Analyzing sales and costs that differ from one alternative to another

Capital investment or capital budgeting decisions

Involve investments in noncurrent assets

Future value

The amount to be received at the end of 1 year is the amount invested multiplied by 1 + interest rate.

Present Value

Calculated by dividing the amount to be received by 1 + interest rate.

Compound interest

The interest in later years is earned both on the original investment and on interest earned in earlier years

Net Present Value (NPV)

The difference between the present value of the inflows and the present value of the outflows

Required rate of return (RRR)

The interest rate which the investment must earn to be financially attractive to the HMO

Sensitivity analysis

Use a range of RRR estimates to make a confident decision based on NPV calculations.

Internal Rate of Return (IRR)

The interest rate at which the NPV of the investment is zero

Profitability Index

Used in order to rank proposals. It is the ratio of present value benefits to original outlay.

Cash Flows from Operating Activities

Designed show the cash effects of revenue and expense transactions reported in the income statements

Cash Flows from Investing Activities

Involve investing on non-current or fixed assets such as investing on a new business

Cash Flows from Financing Activities

Involve paying dividends, owner’s withdrawals.