Financial Management

Question 1

What is accounting?

Answer 1

A service or activity that provides quantitative (mainly financial) information about economic entities to support economic decision-making. It includes the process of keeping financial accounts.

Question 2

What are the financial needs of a community pharmacy?

Answer 2

Funds to operate, including money to acquire land, rent space, buy stock, hire staff, and invest in technology.

Question 3

What are common sources of capital?

Answer 3

• Personal savings
• Gifts
• Bank loans
• Money borrowed from friends or relatives

Question 4

Define equity and liability in financial terms.

Answer 4

Equity: Owner’s money invested in the business.

Liability: Money the business owes to others.

Question 5

How are assets defined in this context?

Answer 5

Assets = Owner’s money + Borrowed money.

Question 6

What is a balance sheet?

Answer 6

A financial statement that shows a business’s assets, liabilities, and shareholders’ equity.

Question 7

What is an income statement?

Answer 7

A financial statement showing how money was made (sales/income) and spent (expenses), and the resulting net income or loss.

Question 8

What is a cash flow statement?

Answer 8

A record of cash inflows and outflows over a period of time.

Question 9

What are financial ratios used for?

Answer 9

To evaluate an organization’s financial performance (profitability, liquidity, and turnover efficiency).

Question 10

Give examples of financial ratio applications.

Answer 10

-Profitability: Net income/total assets
-Liquidity: Cash available for operations
-Turnover: How quickly stock or receivables are converted to cash

Question 11

What is a budget?

Answer 11

A detailed plan in quantitative terms outlining how resources will be acquired and used over a specific period.

Question 12

What are the functions of budgeting?

Answer 12

• Planning and quantifying needs
• Communicating goals
• Allocating resources
• Controlling profits and operations
• Evaluating performance

Question 13

What types of budgets exist?

Answer 13

• Short-term budgets
• Long-term budgets
• Activity budgets

Question 14

Why are financial statements important?

Answer 14

• They help monitor profitability
• Required by law (e.g., tax returns)
• Provide evidence to financiers
• Inform shareholders for dividend distribution