Upgrade to remove ads
Only $35.99/year

financial management exam 2 material

Terms in this set (128)

define accounting
a process that encompasses all of the processes necessary to record, report, and analyze the financial activities of the company
what is the accounting process?
Recording - records all of the transactions that occur in a pharmacy
Reporting - putting the information in a standardized format or report
Analyzing - interpretation of the data
what are internal users of accounting?
managers, employees, owners, internal auditors
what are external users of accounting?
investors, external auditors, etc
compare and contrast financial accounting and managerial accounting
financial accounting is more concerned with external factors for the company. it uses GAAP and CPAs and has more of quarterly and annual financial statements

managerial accounting focuses on daily or weekly financial statements and helps the people make informed business decisions
what is the accounting equation
Assets = Liabilities + Owner's Equity
what are assets? give examples
things that the company has ownership of such as cars, buildings, cash, products, accounts receivable, and notes receivable
what are liabilities?
anything you awe to other people.
- accounts payable
- notes payable
- taxes
- wages to employees
what is owners equity?
All the money that the firm has that does not need to be paid back
- dividends
- retained earnings
- contributed capital
what are the four basic parts of a financial statement?
balance sheet, income statement, owner's equity/retained earnings, cash flow
describe the balance sheet
Shows the assets and liabilities as of a certain point in time
- a snapshot
describe the income statement
Shows the financial results (income) earned during a period. can also show the net losses
describe the owner's equity/retained earnings
the net worth of the company
assets-liabilities=owner's equity
describe the cash flow statement of a company
the exchange/transactions of a company made with the outside world. Does not really show how much is being spent or made but literally the transactions
what is GAAP?
Generally accepted accounting principles. A set of rules and practices, having substantial authortitative support, that accounting profession recognizes as a general guideline for a financial reporting purposes in the United States
what is FASB?
Financial Accounting Standards Board
this is the board that is responsible for managing GAAP in private companies in the United states
what is the Securities and Exchange Commission?
a government group that establishes the reporting requirements for companies that have stockholders
what is IASB?
International Accounting Standards Board
they are a group that sets the accounting standards for national companies so they are in compliance with other countries. They do not that the authority to impose their standards on all companies
what are the 6 basic accounting principles?
going concern
objectivity
conservatism
consistency
matching
materiality
what is going concern?
the business will remain in operation for the foreseeable future
what is objectivity?
accounting variables will only be recorded on the basis of objective evidence
what is Conservatism?
states that accounting estimates can not be an over or under estimate of the business
what is consistency?
this is the accounting principle in which the measurement methods within the same period must be the same
what is matching?
al expenses and revenues that are in the same period must be recorded in the same period
what is materiality in accounting?
acknowledges the significance of various decisions and their ultimate effects on the financial statements given the magnitude of a company's operations
what is SOX ?
Sarbanes Oxley Act - a United States federal law that focuses on the internal controls to prevent accounting fraud
goal: to make more transparency, accountability, and truthfullness
what are the three internal controls of SOX?
-safeguard the assets
-process information accurately
-ensure compliance with laws and regulations
what is an accounting period?
The time period covered by the accounts are prepared, this can either be one calendar year or one fiscal year which is june 1 to july 31st depending on the company
what is the periodicity concept of accounting?
states that each accounting period has an economic activity associated with it, and that the activity can be measures, accounted for, and reported
what is the time period principle of accounting?
the dividing of the time periods of a business into interim time period financial statements
what is the money measurement concept of accounting?
a concept that stipulates that all business transactions must be expressed in monetary terms
what are transactions?
basic exchanges of economic considerations between two entities
what are the two types of accounitng?
cash basis accounting and accrual basis accounting
what is cash basis accounting? does it follow GAAP principles? when is it used?
recording revenue or expenses in the period in which they are actually received or given to pay off debts
- they do not follow GAAP principles
- used for only select situations
what is accrual basis accounting? does it follow GAAP?
Recognition of revenue in the accounting period when the sale is made rather than when cash is received.
- conforms to GAAP
what are the four financial statements?
- balance sheet
- income statement
- cash flows
- shareholder's equity
what is the other name for a balance sheet?
the statement of financial position
- a snapshot of the company's financial position
what are the three components of a balance sheet?
- assets
- liabilities
- stockholder's equity
what order is the balance sheet in?
assets, then liabilities, then stockholder's equity
what is the other name for the income statement?
statement of operations for the period
what are the three components of the income statement?
revenues, expenses, and net income (aka the amount earned after all of the debts are paid)
what is the net income equation?
net income=revenues-expenses
what is the defining characteristic of something on the income statement?
$$$$$
what is the cash flow statement?
a report of the influx or outflows of cash in a business for a certain period and evaluates the sort term viability of a company.
what are the three major business activities recorded on the cash flow statement? describe them?
- operating activities - the revenue-generating activities of a business
- investing activities - payments made to acquire long-term assets
- financing activities - activities that will alter the equity or borrowings of a business
what kind of questions does the cash flow statement answer?
where does the company get the cash? how does the company spend its cash?

* components of this sheet will all have cash in the name!*
what is the statement of shareholder's equity? what are the components?
common shares
retained earnings

the shareholder's equity statement shows changes in these components
what are financial ratios?
ratios used to asses the company's performance form one branch to another, from one period to the next, and to the competing market
where do the components from the financial ratios come from?
the income statement and balance sheet
what are the two types of financial analysis?
vertical financial analysis and horizontal financial analysis
what is vertical financial analysis?
compares the financial ratios of a company to itself over time
what is horizontal financial analysis?
this compares the financial state of one company to other companies in the competitive market and to standard ratios
what is a factor that can distort ratios?
seasonal things such as cold season and sales of cough syrup
what are the four types of financial ratios?
profitability, liquidity, solvency, and turnover ratios
what is a profitability ratio?
a method to measure the overall success of generating profits through the company in the daily operations of a business
what are the two financial ratios that are for profitability?
gross profit margin and net profit margin
what is the gross profit margin equation? what does it mean? what is the appropriate range?
(sales-cost of goods)/total sales
- appropriate range is 10-40%
- the higher the percent is the better because it means the company has money to pay for all of its other expenses
what is the net profit margin equation? what does it mean?
net income after taxes/total sales

tells us how well the pharmacy is doing at managing operating expenses and it it something you can compare to other people
what are the liquidity ratios? what do these ratios measure?
current ratio and quick ratio
- provide the ability for the business to meet short-term financial obligations
what is the current ratio equation? what does it mean? what is an acceptable range of answer?
current assets/current liabilities
- if the number is too low then that means the company is being too risky and they have too many liabilities and not enough assets. if it is too high then that means the business is not being risky enough!
- 1.5-3
what is another name for the quick ratio?
acid test ratio
what is the equation for the quick ratio? what is an acceptable range? what does it mean?
current assets-inventories- prepaid expenses)/current liabilities
- should be between 1.1-2
- greater than 1 means there are more assets than liabilities, less than one means the company doesn't have enough liquefiable assets to pay off all of their debts
what are solvency ratios used for? what are the types? describe them
measures the company's ability to satisfy the long term debt and the ability to continue future operations
- debt ratio - liquidity and reliance on credit
- debt and equity ratio - owners reliance on credit
- interest coverage ratio - ability to pay interest on total debt outstanding
What are turnover ratios? what are the ratio types within this type?
measures an efficiency in which a business uses its assets
- inventory turnover
-receivables turnover
what is the inventory equation? what is a good range? what does it mean?
cost of goods sold/average inventory
- 6.0 or below is bad!
- if the ratio is 12, this means that the company was able to sell and replenish their inventory once a month over the course of 12 months
what is a receivables turnover ratio? what does it mean?
credit sales/average account receivable
this shows the ability of the organization to get cash for their accounts receivables, when this number is high that means they are effeceint at getting money from other while keeping their receivables relatively low!
What are the pharmacist patient care services within the community or ambulatory care pharmacy?
-MTM
-chronic condition management
-anticoagulation therapy
-Medication reconciliation**********
-Medication adherence

**this is the one that is different from the rest of the categories**
What are the pharmacist patient care services within the hospital or health systems pharmacy?
-ICU
-ED
-infectious diseases
-nutritional support
What are the pharmacist patient care services within the long-term care pharmacy?
-drug regimen review
-preventative care
-immunizations
-fall risks
What are the pharmacist patient care services within the managed care and physician's clinic?
- anticoagulation
- MTM
- chronic condition management
- medication adherence
What is medication reconciliation?
A broad range of healthcare services that are designed to optimize therapeutic outcomes for patients, particularly helpful for patients that are on very complicated dosing regimens and have just gotten out of the hospital
-seen in the community and ambulatory care setting
What are the three key steps in patient care services?
-identify
-justify
-plan
what are the aspects within the identify portion of approaching patient care services?
conduction of a needs assessment
what is a needs assessment? what are the three steps?
the collection of data to assess the need for a particular service or product within a defined population or community

1. What is the problem needing to be addressed?
2. does the market exist and will it continue to exist?
3. what is my competition on filling this gap in the market?
What is primary research?
original research that is conducted to answer a specific question
what is secondary research?
this is research that is done by someone else that you can view and apply to a population
Describe the needs assessment grid
* look at your notes for the picture*
There are 4 boxes labeled 1,2,3,4 from left to right and on top of each other. 1 and 2 have the most patients in them because they are on the top, but 2 and 4 have the smallest gap to be filled because they have been tended to more. So 1 and 3 need the most attention and work.
What patient population has the most need?
older patients with multiple chronic conditions
What are the 3 steps within justification?
Financial justification
SWOT analysis
gaining preliminary approval
what is the cost avoidance model?
a model that looks at how you can avoid certain costs, and actions you can take to avoid future expenditures
what is a BOE analysis?
"back-of-the-envelope analysis"
makes predictions on how much money a service will make overall by subtracting the expenses of the service (and work cost) by the amount of money we predict the service to make the company
what is a SWOT analysis? internal and external factors? Know how to look at a SWOT analysis and analyze what it is telling us about the company
Strengths Weaknesses Opportunities Threats
Internal: Strengths and weaknesses of the company
External: opportunities and threats of the company
what do we use the SWOT analysis for?
we use the SWOT analysis for the last step in the justification phase: gaining approval of the key stakeholders in the company
What are the two steps in planning patient care services?
service planning and payment
what are the steps within the service planning of the planning portion?
-clear service plan
-mission and vision statements
-well defined goals
-organizational stricture aka program structure and reporting structure
what is a program structure?
this is the structure overall of how the business is going to run and what supplies are needed
what is a reporting structure?
this is the organization of the reporting chain and the roles of various jobs
describe the situation regarding the collaborative practice agreement in Alabama?
We aren't recognized nationally as providers but we can now work under physicians and receive payment from then for our services because of this act.
-Alabama was the 49th state to get behind this
How do we document things and when do we document them?
Document everything, if it isn't documented it didn't happen.
-SOAP note form
What is the ECHO model? what is it used for and what does it stand for?
Economic outcomes - therapeutic issues and safety things
clinical outcomes - $$$$
humanistic outcomes - psycho-socio-behavioral effects of treatment

this is how the patient centered care model is evaluated.
what is the dispensing-driven model?
this is the payment model in which pharamcists are paid through product gross margin
what is the service-driven model?
this model requires that pharmacists be recognized as providers of services by third party payers
Can pharmacists bill under medicare part B?
for some things, but not all things
what organization has approved billing codes for pharmacists?
AMA
what are fixed costs?
costs that a business has regardless of whether it sells anything or not. the cost of existing, aka having machinery
what are overhead costs?
things that you cant control the payment over, this is stuff like utilities and water
what are variable costs?
costs that are directly related to service volume and increase when sales increases
what is direct billing?
this is a form of billing where the pharmacists can bill directly to a patient or third party payer
what is indirect billing?
this is where the pharmacists has to submit its bills indirectly, aka having to go through the physician in order to bill Medicare part B
what is a PCMH?
Patient Centered Medical Home
whole person care that is lead by the physician to conduct the team to treat a patient
what is an ACO?
Accountable Care Organization
"the medical neighborhood"
manage the care of a confined patient population
what is clinical pharmacy?
the health science discipline in which pharmacists provide patient care to optimize medication therapy as well as promote health, wellness, and disease prevention
-can be seen in a variety of places, but mostly just the hospital
what are the three pharmacy practice models?
clinical pharmacist centered
patient centered integrated or decentralized
comprehensive
describe the clinical pharmacist centered model
the clinical pharmacists and staff pharmacists are separated and do different things. this attracts highly specialized pharmacists but there is a large separation int he groups
describe the patient centered decentralized model
this is like the clinical pharmacist model except there is a mixed group in the middle of the clinical and distribution pharmacists

this one is more complete, but the problem is that it is less attractive to the specialized pharamcists
describe the comprehensive pharmacy model
everyone works as a team but has their individual roles, this is the most complete model but requires a high degree of organization because everyone is thrown in the same pot
What things will determine if a service is sustaining or not?
Can you bill insurance for it? Are the patients willing to pay for it?
Describe opportunities for academic collaboration
where a professor will also work at a practice site, so coordination of practice time and school time need to be coordinated
what is budgeting? what are its objectives?
a translation tool of the pharmacy's objectives and functional plans into monetary terms
- establishing goals
- plans to achieve those goals
- comparing actual results to where you planned to be
what are the three steps of budgeting?
planning directing and controlling
what are the 5 types of budgets? what are the three main ones?
-operating budget ****
-sales budget
-operating expense budget
-cash budget ***
-capital budget *****
what is an operating budget?
a budget that can contain the sales budget and operating expense budget and shows the pharmacy's anticipated revenues and expenses for the coming 6 to 12 months
- good for short term planning
-known as the master budget
what is a sales budget?
The sales budget shows the expected sales in units of each product and each product's expected selling price and is based upon the historical or revised average prescription price
what is the operating expense budget?
this is the budget that identifies all of the expenses that are key for operation such as payroll, rent, supplies, advertising, insurance and taxes
has two categories, controllable and not controllable
what are controllable costs?
costs that we can control based upon different planning and action
what are non-controllable costs?
costs that are not within the sphere of control of the manager
what is the cash budget?
shows a pharmacy's anticipated cash inflow and outflow for the next 6 to 12 months
-usually for upper level management
what is the capital budget?
a budget that shows that pharmacy's planned investment in fixed assets and is very common in large organizations
what are the two processes of budgeting?
forecasting and planning
what is forecasting?
looking at past history of the company and using expert judgement in order to predict what the future of the company will be
-if this is in regards to an existing company then you will assume that the future will be like the past, which is often untrue of what will really happen
What are the three forecasts that a pharmacy manager can develop?
-optimistic estimates
- pessimistic estimates
-something in the middle which is close to what actually will occur
how do you calculate the % sales increase?
sales 2-sales 1/sales 1 all multiplied by 100 to get a percent
-if you're looking at a year that hasn't happened yet, then you need to take the predicted percentage and solve for sales 2
describe forecasting for a new pharmacy
this is more difficult because there is no existing data on pats demand and you must develop an estimate for market potential
what is market potential?
total demand in the pharmacy's market area of goods and services that can be based on public statistics
what is a fixed budget?
based on a single level of forecasted demand and is the best possible scenario
what is a flexible budget?
allows budgeted variables expenses to change in response to changes in demand
-this is the preferred option for pharmacies because they typically experience wide variations in demand and need to plan for that
what is the analysis of budget variance?
this is the budget that provides a standard in which the actual performance can be prepared, looks at positive and negative ones
What are the three components of prescription pricing?
-cost of the drug dispensed
-cost of dispensing the drug
-net income (how much money we want to make in profit)
Other sets by this creator