• Sole Proprietorship
• General Partnership
• General Corporation (“C” corporation)

1.       No stock – owner has to transfer personal cash or generate more income from business operations to increase the equity in the business.

2.        No legal status – does not conduct legal or contractual transactions (the owner does).

3.       No legal existence – totally dependent on the owner’s desire to continue. In TX, no special requirements in TX for forming sole proprietorship

1.       Documentation are at a local or state level - no federal requirement

a.       Still have to pay federal income on income reported as “ordinary income.”

2.        The owner has complete control over the business.

3.       Success or failure of the business is depends only on the owner.

 Owner has to pay federal taxes as an individual.

1.       Unlimited personal liability

2.        Limited ability to come up with capital.

One of the most frequently adopted business forms for young pharmacists wanting to own a business is the partnership.

Partnerships are governed by ___ and ___ laws.

1.  Common law – law developed by custom or judicial decisions in US/English courts. Dates back to England, after Norman invasion. Not attributed to legislation or executive orders.

2.        Statutory law – law developed by legislative and executive body (not custom/judicial). – includes local ordinances such as zoning ordinances.

____ is probably one of the most common legal principles that affect many types of relationships we see every day.

Under common law, a partnership is therefore treated only as an ____ of individuals and never as a separate legal entity.

1. Traditional partnerships would require change of title to assets each time one or more of the partners changed. Under "entity" theory, property can be owned by partnership if title is in the name of the business--no need to change title each time a partner leaves.

2. Withdrawal of a partner in the traditional sense means the dissolution of the partnership. This is not true if the partnership is an entity.

3. In the case of a lawsuit, the traditional partnership would have the individuals named in the suit and be personally responsible for any judgment in excess of the partnership assets. If the partnership is an entity, the lawsuit against the partnership does not affect the other partners' assets UNLESS the partners are individually named in addition to the business name.

4. The biggest controversy under the entity theory is the transferability of interest.

• Under traditional partnership law, the articles of partnership govern the sharing of profits, losses and the distribution of sold assets upon termination of business. With entity theory states, the only transferable interest is the partner's share of the profits and losses---assets "owned" by the partnership entity are not necessarily transferable to an individual partner if the other leaves since they are owned by the company!       

• If partners create a specific set of instructions to manage the affairs of the business, then the UPA does not apply but rather the specific language contained in the partner’s agreement. This is called ___.

• This document should clearly state how profits and losses will be divided, general responsibilities of the partners, amounts to be "drawn" by each partner for personal living expenses, limits on each partner to bind the others to an obligation of the business, etc.

In Texas, statutes protect the professional against “errors, omissions, negligence, or incompetence”.

The basic requirements for an LLP include:

•  Filing a form with the Secretary of State and
• The business name must include the initials, LLP.

This form of hybrid partnership is primarily used in agriculture where the business partners are primarily of the same family. This form in many heartland states provides for exemptions from real estate transfer taxes when partnership real estate is transferred among partners.

one general partner;

one limited partner

general partner;

limited partner 

• The "charter" is called the____, which is a document that corporations must file with the ___. 

 Articles of Incorporation;

Secretary of State

• Municipal
• Membership
•  Business
• Professional
• Limited liability (LLC) etc.

• A business corporation, for federal tax purposes, is further divided into: 

"C" corporations - most common

or

"S" corporations.      

• All corporation names must include one of these 4  terms: 

"Corporation";

"Incorporated" or "Inc";

"Company"

1. The duration of a corporation is perpetual unless otherwise stated in the "Articles".

2. The death of any shareholder, Board member or officer does not affect its existence.

3. Since the corporation exists in it own name, the officers and shareholders are protected from personal liability. If a creditor is able, in court, to "pierce the corporate veil", the shareholders are only liable up to their individual ownership (value of shares).

1. Taxation: income is taxed at the corporate and at the dividend (shareholder) levels.

o   If the corporation liquidates, the proceeds are taxable both to the corporation and the stockholders.

o   The US has one of the highest corporate tax rates among industrialized nations.

• ____ combine the tax treatment of a partnership with the limited liability advantages of a corporation BUT ARE NEITHER.

shares;

interest certificates

T/F: LLC’s can have a limited life span (generally 30 years but varies by state) and if a member withdraws or dies, the LLC may dissolve unless there are buy-out provisions in the articles of organization

Mercantile (merchandising) concern (firm or business) or

a service concern

• The simplest form of accounting will be for___.

• In the various forms of partnerships, ___accounts will be established to account for withdrawals of money from the business to pay personal expenses or receive a “salary”. 

1.Cash

2. Account receivable

3. Inventory

4. Supplies inventory

5. Prepaid expenses

6. Land, securities, computer, investments etc

1. Account payable

2. Short term notes - <1yr promissory notes

3. Accrued interest/Salaries payable

4. Mortgage > 1yr

Claim against the business by the owners.

Owner's Equity = assets - liability

  Two primary sources of equity:

a.       Invested capital by the owners.

b.       Earnings (or losses) from the operation of the business.

___and _____ are the linkages between the balance sheet and the income statement.

Gross profit = Revenue - Cost of Goods Solds (COGS)

Net profit = Gross profit - Operating/Administrative expense (O/A exp)

Net profit = (Revenue - COGS) - O/A exp

Reflective of purchases in the accounting period and beginning and ending inventories-periodic system.

This is generated by sale of prescription or other merchandise. Can also be service fees for patient care (aka income).

The original book of entry and it contains initial recording of transactions.

____ is a listing of all account, and is where the journal and ledger is listed.

a.       Owner’s equity: has 4 subdivisions of retained earnings (nominal and real accounts)

                                                               i.      Revenue (sales) : increases in expense are recorded as credits

                                                              ii.      Expenses: Increases in expenses is recorded as debits.

                                                            iii.      Capital: increases in capital are recorded as credits.

iv. Withdrawals: increases in withdrawals are recorded as debits.

·         Accounts payable: unsecured claims of vendors

·         Current or short term notes payable

·         accrued expenses: claims against the business that build over time such as wages and salaries

·         estimated tax liability: the amount owned to the government

·         Current portion of long-term debt

·         car loans payable over five years

• property mortgages

Revenues: defined as cash or promises of cash that flow into the business as a result of the normal operations of the business

Net Income:  defined as the difference between revenues and expenses for a specific period of time

¨      _____are the raw material of the accounting process.

  The system most commonly used in transactions are ___ and ___.

  Information about each business transaction is initially recorded in an accounting record called a ____.

 For each transaction a journal provides places for recording:

1.      the transaction date

2.      the names of the accounts involved

3.      an explanation of the transaction

4.      the account numbers of the accounts to which the transaction’s debit and credit information is copied

5.      the transaction’s debit and credit effect on the accounts named.

1.      The process of  copying journal entry information and transferring it from the journal to the ledger is called ____

·         A title, consisting of the name of the particular asset, liability, owner’s equity, revenue or expense.

·         A left side called the debit side.

• A right side called the credit side

False:

Debit - positive amount

Credit - negative amount

increases in capital accounts are recorded as ____

1. Each transaction must be recorded separately.
2. The transaction must by recorded so that Assets = Liabilities + Owner’s Equity.
3. Each transaction will affect at least two accounts.
4. Every transaction must be recorded such that debits equal credits.

1. Sales return/allowances

2. Sales discounts

a.       seen in many stores where front-end merchandise is not priced to compete with every discount store, in fact there is no attempt to openly compete.  Store sales for these items "feed" off impulse buying.

T/F: more PBM’s have implemented MAC’s for multi-source generics drugs, especially with Part D plans.

cost / (1-%markup)

4/ (1-0.6) = x

x = $10

Wholesale Acquisition Cost (WAC): 

T/F: most wholesalers have contracts with manufacturers and always will pay WAC . Additionally, WAC is a close estimate of what community pharmacies will pay wholesalers for brand-named drugs.most wholesalers have contracts with manufacturers and rarely will pay WAC but something less than WAC. Additionally, WAC is a close estimate of what community pharmacies will pay wholesalers for brand-named drugs.

False: most wholesalers have contracts with manufacturers and rarely will pay WAC but something less than WAC. Additionally, WAC is a close estimate of what community pharmacies will pay wholesalers for brand-named drugs.

With the Affordable Care Act, ___is the price that will be used as the basis for Medicaid generic medications bought from manufacturers.

The ___method was developed expressly for the purpose of separating pharmacy service from the product cost. 

  The first is an amount, which recovers a portion of the overhead (i.e., lights, heat, supplies)

The second part is a measure of desired profit per prescription.

fixed (one fee often called flat fee) or

a sliding fee with breaks usually at certain dollar amounts

EAC

AWP-15% + $2.00 or

AWP-18% + $1.50

A typical pricing scheme would include:

1.             The cost of ingredients based either on actual amounts used or in some cases on the total cost of a container if the remainder could not be used,

2.             The cost of the final product container e.g. vial, jar etc.

3.             The cost of the pharmacist's time

4.             The professional fee which will recover an amount of overhead and a desired profit. NOTE: this professional fee does not have to be the same used for other prescription products.

1. The asset must be used in business or held for the production of income.

2.  The asset must have a determinable life and that life must be longer than one year. (long-term asset)

3.  The asset must be something that wears out, decays, gets used up, becomes obsolete, or loses value from natural causes.

____ method of depreciation allocates the largest portion of the value of the asset to the early years of its useful life

T/F: In the periodic system, accounts are established for purchases and inventory.  There are are accounts for cost of goods sold or for individual SKUs. 

False: In the periodic system, accounts are established for purchases and inventory.  There are no accounts for cost of goods sold or for individual SKUs. 

A perpetual inventory system’s purpose is strictly to support the analysis of an ___ and ___.

      A perpetual inventory system maintains the current levels of inventory and  cost of goods sold vs. a periodic inventory that is only a “snapshot” of the inventory one or more times each year and thus the best that can be done is an “estimate” of cost-of-goods sold.

perpetual ;

periodic 

From the accountant’s viewpoint, this is the ideal method of assigning cost to an inventory.