Regardless of the business one is in, accounting is a common denominator.
Accounting for pharmacies can include keeping records, ledgers, financial statements, and journals. On their own, these documents may not seem complex. However, bookkeeping for pharmacies involves many transaction types that need to be accurately summarized to get accurate information.
Financial Statements Are at the Heart of Bookkeeping for Pharmacies
- There are four basic financial statements that a CPA for pharmacies works with. These include:
- The Balance Sheet— This summarizes the company’s assets, liabilities, and shareholders' equity at a particular point in time.
- The Income Statement– This reflects the company’s expenses and revenues over a period of time.
- The Statement of Shareholders Equity (Or Statement of Retained Earnings)- This outlines all activities pertaining to a company’s ownership. It lays out the results of operations over various periods of operation.
- Cash Flow Statement– This is where you see all sources of income and expenditures. Information presented in this statement is normally divided in three categories. They include operating, financing, and investing.
Who Uses the Financial Statements Produced by Accountants for Pharmacies?
There are several individuals in a pharmacy who may use the financial statements that are produced. Broadly, these individuals are classified as external or internal users. These could include but are not limited to:
- Owners monitoring company profitability (internal)
- Lenders, potential investors, and shareholders looking to evaluate the financial strength of the pharmacy (external)
- Managers making front line decisions that impact the operation of different departments within the pharmacy (internal)
Upper-level management is often tasked with overseeing various operations, including accounting and bookkeeping for pharmacies. Financial statements help those in managerial positions in pharmacies to determine which stores or products are profitable and which ones are not.
How to Choose Cash or Accrual Basis Accounting For a Pharmacy
To be consistent in preparing financial statements, accounting for pharmacies must follow one of two methods. When offering CFO advisory for pharmacies, an accountant may help the pharmacy owner determine what form of accounting is right for them.
Cash basis accounting is where revenue and expenses are recorded during the period where the cash was actually received or spent. This method seems straightforward. However, it doesn’t work in all circumstances. There may be times when a pharmacy needs to make large expenditures for products that will not be sold until a future date. Using the cash basis accounting method would give the erroneous impression that the company was performing poorly.
The accrual basis accounting method fixes this distortion. With this style of accounting, revenue and expenses get recorded in the period when they are earned or incurred. For example, a pharmacy may order products to cover a request made by a customer. With this type of accounting, revenue and expenses are recorded when they are essentially earned, like when the sale is made, or when they are incurred, like when products are ordered. This is before any cash is dispersed or received.
We at Fusion CPA have worked with many small and medium-size pharmacies in Atlanta, Georgia, and other parts of the country. The CFO advisory for pharmacies we offer includes tax planning for pharmacies, an explanation of financial statements, and general accounting. As a CPA for pharmacies, we can help you look at your current accounting methods and recommend changes to minimize liability and increase revenue. You can learn more about our services by clicking the button below to schedule a complimentary discovery call today!
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