Financial accounting

Financial accounting  Field that is concerned with the preparation of financial statements for decision makers, such as stockholders, suppliers, banks, employees, government agencies, owners, and other stakeholders

Pharma company financial management Most common Source of funds Pharma companies Banks (debt) Shareholders (equity) Government sources Venture capital Operations and activities Use money for Balance sheet Financial accounting Profit and loss account

Profit and Loss Account(P&L account) P&L account is a summary account. It is prepared after the preparation of trading account. A trading account does not disclose the net income or loss. P&L account is opened with a gross profit(or a gross loss) which is transferred from the trading account. It is prepared to ascertain the Net profit earned or net loss sustained by the trader during the trading year. Net profit : It is the surplus remaining after charging against gross profit all the expenses including depreciation and other provisions. Net Loss : Excess of all expenses over gross loss.

Profit and loss account (PNL) PNL is a company's financial statement that indicates how the revenue (money received from the sale of products and services before expenses are taken out, also known as the "top line") is transformed into the net income (the result after all revenues and expenses have been accounted for, also known as the "bottom line"). It displays the revenues recognized for a specific period Pharma company Production & manufacturing Sales (revenues) Top line (Less)Expenses Profits (Net income) bottom line

Profit and Loss Account(P&L account) Administrative expenses Selling expenses Distribution expenses NEED AND IMPORTANCE Knowledge of NP and NL Ascertainment of ratio of NP with sales Calculation of expenses ratio with sales Comparing actual with the desired performance Maintaining provisions and reserves Determine future line of action

Pharma PNL account Brand P&L COGS (cost incurred to produce the goods)   Brand P&L Rs.  1 Sales (Rs.) Units X NR 2 Less Cost Of Goods (COGS) 0.0 3 Gross profit (Rs.) 4 Less Advt & Promo (A&P) (%) 0.0  5 Less Selling Expenses (%)  0.0 6 Less Marketing expenses (%) 7 Less Distribution Expenses (%) 8 Net Profit Before Tax (PBT) COGS (cost incurred to produce the goods) Gross profit Net profit

Balance Sheet - Introduction A balance sheet is a statement of the financial position of the business at a given date. It is a snap shot of the financial conditions of the business. Entire situation of a business concern can be understood at a glance. “ Balance sheet is the mirror of the business wherein the business can see its face” Balance sheet is prepared after the preparation of the trading and the profit and loss account. Balance sheet is not an account, but a statement of assets and liabilities of a business

Balance Sheet - Introduction Assets- Things which are owned by the business Liabilities – Things which are owed by the business Definition of Balance sheet : Eric L. Kohler defines balance sheet as “ A statement of financial position of any economic unit disclosing as at a given moment of time , its assets, at cost, depreciated cost or other indicated value , its liabilities and its ownership equities”

Balance Sheet – Need and importance Helps understand the financial position of the firm. Ascertainment of current assets and liabilities. Ascertainment of proprietors equity. Ascertainment of working capital position. Comparison of actual position and desired position Comparison of current year’s position with last year’s position

Balance Sheet – Form A balance sheet is divided into two parts Left hand side is called Liabilities Right hand side is called assets By preparing a Trading or a P&L account we can find only Net profit and Net loss. But overall position of the business must also be known. E.g. What is the capital of the business Is it increasing or decreasing How are investments in assets made What are its creditors and debtors

Balance sheet format Liabilities is what we owe (example loan) Assets is what we own (example land) Capital is ownerships equity (funds)

Classification of Assets Fixed Assets : They are assets of a permanent nature which are used in business over and over again Floating Assets : Assets which are held temporarily. e.g. Cash in hand, Cash in bank, sundry debtors, bills receivable. Fictitious Assets : Not represented by anything concrete. No tangible property behind them.

Classification of Liabilities Fixed Liabilities : These are redeemed after a long period of time. E.g. Long term loans and capital Current liabilities : Those which are redeemed in the operating period, usually within a year. E.g. Sundry creditors, bank loans and bills payable Contingent liabilities : These are not actual liabilities but their becoming an actual liability is contingent on the happening of certain events

Reference B.K & accountancy by Chopde and choudhari (pg332-334 & pg336-339)

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