Pharmaceutical Accounting

According to the American Institution of Certified Public Accountants (AICPA), Accounting is the art of recording,
classifying and summarizing, in a significant manner and in terms of money, transactions and events, which are in
part, at least of a financial character and interpreting the results thereof.

Aspects of Accounting
1. Recording – refers to writing down business transactions chronologically to books of accounts (journal,
ledgers)
 Journalization – recording in journals
 Bookkeeping – technical term for journalization

2. Classifying – refers to the sorting of business transactions recorded in journals to assets, liabilities, and
capital; synonymous to ledger
 Journal – book of original entry
 Ledger – book of final entry

3. Summarizing – refers to the preparation of financial statements in terms of

i. Balance sheet iii. Cashflow statement
ii. Income statements iv. Notes to the Financial statements

4. Interpreting

Nature of Accounting
 Art: Accounting requires skill/knowledge gained through studies and experiments
 Systematic process
 Service activity: serve in order to gain

Basic Functions of Accounting in Business

 Timely generation of reports for interested users
 Generation/production of relevant and timely financial information for the users

Users of Financial Information

A. Internal users
1. Owner / Investor / Stockholders – these people in a business need accounting information to assess
whether their capital investments are profitable or not, and whether to grant or not additional
compensation to their employees

2. Managers – information set forth in the financial statements assists the managers in carrying out their
day to day functions

3. Employees – they assess the stability and profitability of their company; they are interested in the ability
of their employer to provide remuneration, employment opportunities, retirement, and other benefits.
Accounting information is also needed by the Labor Union as basis for negotiating additional
compensation for their member-employees
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B. External users
1. Investors – they need information on risk and return of their investments; they are interested in the
financial information whether they are going to buy, hold or sell their investments in the business

2. Government – Bureau of Internal Revenue, Local Government Units; for the purposes or taxation and
licensing

3. Creditors/Lenders – they need information which helps them assess the business’ ability to repay its loan
and interest when they fall due

4. Suppliers – they assess the business’ ability to repay its obligation upon maturity

5. Public – information set forth in the financial statements may provide the public with trends and recent
developments in the prosperity of the company

6. Customers – they assess whether the business will continue in existence; this is especially needed when
customers have a long-term involvement with, or are dependent on, the business.

Types of Business Organizations

A. As to Form or Organization
1. Sole or Single Proprietorship
- Owner: proprietor
- Owned and managed by an individual
- Advantages:
 More infusion of capital and knowledge
 Easy to form due to minimal requirements to put up and there is only one person deciding when to
engage in the business
 All the incomes goes to only one person
 Flexibility and Strong Internal control: the owner is directly involved in business operations enabling
him to quickly respond to business conditions
 Ease of dissolution: since only one person decides when to dissolve or stop the business, it is very
easy to dissolve the business
- Disadvantages:
 Unlimited liability: the owner is personally responsible
 Limited resources and infusion of knowledge: The size of the business and extent of its operation
entirely depends upon the personal resources of the proprietor which is usually limited
 Limited life: a proprietorship business is automatically dissolved upon the death of the proprietor

2. Partnership
- Two or more persons join together in a single business to gain profit
- Advantages:
 More infusion of capital and knowledge: better credit and capital raising capacity
 Easy to form: a mere oral agreement between partners create a partnership
 Easier to manage with the divided labor or tasks
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- Disadvantages:
 All partners are liable: partners are jointly liable to the actions of other partners because partnership
is based on mutual agency
 Limited life: If one leaves, the partnership dissolves
 One cannot enter a partnership even if only one member disapproves

3. Corporation
- Formed by five or more stockholders
- Advantages:
 Long life: can last for more than 50 years
 More infusion of capital and knowledge
 Managed by a Board of Directors
 Limited liability: the owners or shareholders are liable only to the extent of their subscription; the
creditors of the corporation cannot run after the personal assets of he shareholders in the vent of any
unpaid liabilities of the corporation
 Transferability of shares: to the shareholder, he can sell his shares to another person without
unnecessarily dissolving the corporation or the shares can be passed on as inheritance to the future
generations; the death of a shareholder does not extinguish his business interest to the corporation
- Disadvantages:
 Costly to form: formal formation requires more resources and is more difficult to organize
 Control is defined by ownership of a shareholder: if a shareholder owns more than 50% of the voting
rights of a corporation, he is regarded as majority shareholder and generally has the power to govern
the financial and operating policies of the corporation; consequently, minority shareholder is
subservient to the wishes of the majority shareholder
 The Board of Directors, by their authority of being rich, are the ones managing even if they have
insufficient or inappropriate knowledge
 Corporations are subject to stricter rules and regulations

4. Cooperative
- Refers to the marginalized sectors who joined together as cooperators
- Advantages:
 Cheaper price because the product is from themselves
 The members are the one managing the cooperative business
- Disadvantage/s:
 Since it is managed by the members, there may be a lack of knowledge which can bring the
cooperative business down

B. As to Source of Incomes
1. Service

2. Merchandising – buying and selling of commodities without changing any characteristics or appearance of
the product for a profit
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3. Manufacturing – a type of business that buys products to create new products or change their
appearance/form or other characteristics

Generally Accepted Accounting Principles

- Broad, general statements or rules or procedures that serves as a guide in the practice of a profession
- Reason why it is created: for better general acceptability of the public about procedures done

Fundamental Concepts
1. Accounting Entity / Separate Entity
- The record of a store is different or separated from the records of the owner

2. Periodicity or Time Period Assumption

- Preparation of financial statements to know if you gained profit
- Divided into Calendar (January – December) or Fiscal Year (any 12 month period that starts any day other
than January 1 and ends any day other than December 31)

3. Going concern
- Regardless of anything, your business goes on

Basic Accounting Principles

1. Objectivity – all records must be verifiable data, supported by evidences such as sales or purchase invoices

2. Historical Cost – record the cost of an item at the price it was bough despite price changes after some time

3. Accrual Principle – money not paid for the month should still be recorded; all expenses must be recognized

4. Consistency – for easier comparison and/or verification

5. Monetary unit – being in the Philippines, we should always use Philippine Peso