Phar 125: Pharmaceutical Accounting

Financial information is very significant to business owners and managers, or for businesses in general, as this allows checking and keeping track of the company's performance and operations. Financial statements can also factor in decision-making among the departments or during a company meeting. However, there are certain limitations to it. Financial statements may be manipulated by authorities to achieve a certain quota that was yet to be reached, creating confusion in the company; some financial statements may be adequate, but not verified. These limitations may be resolved by having credible people or the auditing department to countercheck the information listed in the financial statements. There may be business that opt to have financial statements done based on a specific time period, which can negatively affect the owners' view on the business cash flow. Rather than having it on specific time periods, it is more recommendable to have a financial statement that is consistent (eg. monthly or yearly) to avoid any confusion and overlooking the gaps that may be present in the financial statement.

Some of the financial information from financial statements are profit and loss statements that reports the net income of the business for a specific period of time. It is important to know company’s financial conditions especially if investors and creditors are involved to gauge conditions for both the safety and profitability of their invested capital.
These information can also both evaluate a company’s past income performance and assess the profits to continue the business' operation.
One of the limitations is that financial information dependent on historical or past costs. Since transactions are initially recorded at their cost, it becomes a concern when reviewing the balance sheet, where the values of assets and liabilities may change over time. Market values may change over time and the balance sheet may be misleading. To remedy this, a company may depend on other items such as fixed assets when it comes making their own different accounting practices.

The goal of any business is to make money. Financial statements are tracking tools, used to provide proof like:
1.) Expenses are not overcoming income,
2.) Resources are being spent on the right things,
3.) Whether or not the business is stable enough to make risky business moves (experimental marketing, new products, investments, etc.),
and many other things.

One of the limitations of financial statements is definitely the reporting frequency, and related to it is market value fluctuations. When reporting is too sparse, irregularities in finances may slip through and build up over the time between reports, which may delay responses and cause significant chaos. The market values of assets and investments may also show some volatility over some period of time, and affect the accuracy of reports. If done too frequently however, reports may prove to be impractical, and may fail to show trends that the company may want to look for. Thus, the company must decide on a good balance, but generally monthly is considered acceptable.

Financial information from financial statements are important especially to managers because this is the basis of knowing the financial position and progress of the business. Financial statements show the performance of the business and they are important as managers use these to make wise decisions, formulate courses of action and policies that would help improve the business, or help the business avoid any unfavorable or dangerous situations.

To business owners and shareholders alike, financial statements are important because these show how well the business is running. It shows how efficient and effective the management of the business is, hence showing the financial strength and earning capacity of the business. Financial statements will also dictate whether the shareholders will continue making investments in the business, and whether other people would want to invest in the company.

Some limitations of financial statements is (1) not many people can make them. A person needs to be knowledgeable in accounting to be able to make a proper financial statement. If the person/s in charge of making them is/are not available, the release of financial statements may be delayed hence, the financial position of the business cannot be accurately determined in time. It is important that a number of people running the business are knowledgeable in accounting. (2) Financial statements is quantitative in nature; it cannot completely show the reputation of the business from the customers' perspective. The financial statements should not be the sole basis of tracking the performance of the business. Other factors must also be considered. (3) Values of assets and liabilities may change over time. This is why financial statements must also be done regularly as fluctuations in their values also happen frequently.

Financial statements are critical to the success of a business. They provide valuable information of the financial status of the business that can be used in making important decisions. For example, financial statements can be used in deciding which aspects of the business are most profitable so that managers can allocate more resources into improving that aspect of the business for more profit.

Financial statements have some limitations however. First of all, financial statements cannot accurately capture the actual worth of the business since the value of assets and liabilities change frequently. The discrepancy between the actual values and recorded values can be mitigated by reporting financial statements more frequently. Another limitation is that financial statements cannot show the complete financial status of a business, especially if you only look t the statements of one reporting period. This may be mitigated by using horizontal analysis to analyze trends in the financial statements to try and predict outcomes in the business.

The financial statements (Balance Sheet, Income Statement, Statement of Owner’s Equity, and Cash Flow) are formal records reflecting the financial activities of a business. As these are usually prepared quarterly or annually, financial information, such as if the business is earning or losing profit, how cash is moving inside the business, how much is invested into the business, and what the company owes and owns—are recorded, documented, and communicated to both business owners and managers to make appropriate, timely, and wise decisions for business growth and operations. Even people outside the business, such as investors, creditors, and debtors are also given an idea on how the business is operating and remaining stable over a specific period of time.

Although financial statements are vital to the operation and maintenance of every company, it still has limitations. One, the financial statements only show the position of the financial accounting for the business, and not the financial position. There are non-monetary factors that impact the financial position and operating results of the business, and are not reflected in the financial statements as they cannot be measured in monetary terms. Examples include reputation of the management, credit worthiness, sources and commitments for purchase and sales, and well-being of employees. With this, the most accurate and possible documentation is done by efficiently and completely undergoing the process of booking, segregating assets or liabilities to current and non-current, applying depreciation adjusting factors to cater to avoidable errors found in the financial sheet. In terms of the non-monetary factors, these should not be neglected, but also considered and analysed with a specialised method. Share of voice (number of conversations about the brand divided by the number of conversations about the industry), for example, is a metrics tool used commonly in public relations to determine and help measure brand reputation. Customer satisfaction and consumer trust may also be measured through surveys about customer feedback and experiences. Two, the precision of the recorded financial statement data is not possible to achieve as statements deal with an unknown future and outcome, with the presumption of a going concern (expected to continue in the future). The information documented are by conventional procedures which are followed over the years. Despite this, various conventions, theoretical postulates, and educated guesses are currently used and employed for developing worthwhile financial information.

Financial statements provide important information to managers and owners regarding the financial status of the company. These information help them track how and where the money from the owner and investors was used, help them understand the debts and equity components. Financial statements show if the business is making or losing money, which also shows what operations or strategies are working/effective and which ones are not. Ultimately, financial statements give information that help guide the changes or improvements needed to be made by managers and owners for the success of the business.

Unfortunately, financial statements are usually snapshots of transactions made at the time they were prepared, therefore, they are dependent on historical costs and are based on time specific periods. The situations during that time such as prices, inflation, events could be different to the current and future situations, so financial statements do not have predictive value. Furthermore, financial statements do not address non-financial issues such as attentiveness or performance of the company's operations. This could be remedied by not focusing on financial statements or status alone when making decisions for the company.

Financial information such a financial statement is important to business owners because financial statements reflect the performance of a business and therefore influence the decisions of owners and managers. The flow of financial information from the operational to the top management is that the performance information is passed from the operations to the top management. Then based on the performance information, which includes financial information, the top management or the business orders would create budget information, instructions, and strategies to the operations to improve the performance of the firm.

Some limitations that a financial statement may have are that a financial statement is only based on a specific period of time, this means it can be viewed incorrectly especially if a user would only account for one financial statement only. A solution to this problem is that a user of the financial statements must consider looking at several successive financial statements to have a better perspective of the performance of the company. Another problem that could be encountered is that financial statements could be subject to fraudulent and it is not verified. The operating management may change the results, to have reflected a good performance of a company. One of the solutions for this problem is to verify financial statements by auditing them signed by a certified public accountant, this checks the compliance of the firm to the standards. By auditing, frauds can be lessened, but it is not a guarantee that all fraudulent activities will be detected. Lastly that there is no discussion of non-financial factors of the company, firms should not only look at financial information, but they must also take into account the non-financial factor. Non-financial factors such as market data, human resources, management of resources, and others, are also necessary for decision making. For example, a sales report will help management to anticipate consumers’ demand.

Financial information from financial statement is important to owners and managers for them to objectively evaluate the condition and performance of the business. One of the primary goals of a business is to make profit, and the financial statements can help them see whether or not the business is meeting this goal. Information from financial statements is a helpful tool for owners and managers to make financial decisions concerning the business' operations, priorities, investments, loans, etc. It can also help them make predictions about the performance of the company in the years to come and thus make short- and long-term goals or decisions accordingly. However, there are also limitations to this. A business' overall condition and performance cannot be evaluated solely in terms of money. The business must also focus on the non-monetary factors (customer satisfaction, employees' welfare, etc.) that contribute to the health and growth of the business. Another limitation to financial statements is that they cannot be completely relied upon to make accurate predictions about the business' future performance due to the volatile condition of our economy as influenced by changing world events (like what is happening now during the pandemic). The owners and managers of the business can only do so much, but making financial statements on a regular interval can help them make good decisions during much normal times.

Financial statements are crucial for a business as it keeps proper record of company's financial health. It also allows for the assessment for the trajectory of the business; if a certain technique is profitable or losing them money. It can help the management make informed decisions based on which plan of action will give the most return of investment. However, there are limitations to financial statements. One example of this is timing issues. Business owners and managers could be tempted to overstate revenues or understate expenses for the year to put the financial statements in a better light. This could make it appear as though the business made more sale or spent less than it actually did. For example the manager reported a sales record of a certain amount for this year, when in reality it is not due to be shipped till the next year. A solution to this could be to set up a form of accountability. This could be in the form of someone double checking or auditing the financial statements at certain time periods within a year.

Financial statements are formalized written records of a company's financial situation. As a business owner/manager, it basically helps track where the company's funding goes and if it's going to the right places. One of most important takeaways from financial statements is being able to ensure that the company you are running is paying its fair share of taxes, since the law requires us to do so. Financial statements can be a tool to aid decision-making, planning, and can even be a means to communicate financial information to outside entities with possible investment opportunities. It is important to note that not all business professionals are trained to read and understand financial documents, possibly missing relevant financial information, but a solid understanding of its foundations would be of big help to the business owner/manager.

There are many reasons as to why financial information that are obtained from financial statements are very important to business owners and managers. One of these is that it allows the owner of the business to have a comprehensive view of the situation and observe how the company is currently operating. It also allows the business owners and managers to view the liabilities accumulated by the company as well as the ability of the company to pay off these liabilities so that they may plan and create decisions based on this information for the benefit of the business. Other advantages include allowing the owners and managers to see the movement of inventory and how well the products are selling and the trends in the operations of the business. Knowing all of these allow the financial statements that were previously collected to serve as the basis for future budgets.

Despite financial statements having numerous advantages and uses, they are not perfect and also have their limitations. One limitation is that the management process of the business cannot be determined from a financial statement and if they are using their assets efficiently since it is only a summary of transactions. This may be remedied by including financial ratios (mathematical computations based on the financial statement data which show a detailed representation of the management status of the business) or obtaining both the detailed record of journalization of transactions and the goals set by the management during that period, so that both of these will show how the money is exactly earned and spent, not just a summary of transactions. Another limitation is that it is not a perfect basis for future predictions since there are other factors outside the business such as an economic crisis. This can be remedied by taking into account external factors and not just making predictions purely on financial statements.

Financial information is essential to business owners and managers in order for them to monitor their financial status and business performance. Financial statements provide vital information in the company’s financial condition and is a significant in the management of a business. The details in financial statements may serve as one of the factors to be considered in the decision-making process regarding different financial-related strategies or choices. Investors base their investments in the competence of a company which can be evaluated using financial statements. Availing credit also utilizes financial statements to determine the company’s financial position through its current assets and liabilities.

One of the limitations of using financial statements is that the effects of non-monetary factors are usually overlooked. These variables have an impact in the financial condition of a business, but cannot be calculated in monetary terms, hence, they are not reflected in the financial statements. An example of non-monetary factor is the credibility and competence of the management of the company. Decision making should not be based solely on the company’s financial statements, but should also take into account such factors. Another limitation of financial statements is that it is formulated based on historical costs. Fluctuations in the value of assets occur over time due to economic influences, however, these market shifts are not taken into consideration.

The importance of financial information particularly from financial statements to business owners and managers is the ability to give information of the current performance, financial position and progress of the business. Financial information can give business owners and managers an analysis and overview of the business for which they can draw a meaningful conclusion as regard to growth of the business and contemplate on their next plan of actions for improvements in the business or to fix any problems that have surfaced in the course of the business operations (e.g. low profit, negative net income, etc.). However, there is a possibility of incomplete or incorrect financial information provided and it could lead to false conclusions on the stand or financial position of the business, making this one of its limitations. Financial information are based on past data, it cannot be used as a basis for future estimation, forecasting, budgeting and planning because business operations vary. Moreover, conclusions about the business made using financial information are subjective and are based on personal bias. Financial statements are more of quantitative information rather than qualitative information. These limitations cannot be fully avoided but can be remedied. The business owners and managers must always double check when putting entries in their financial statements and when a transaction occurs, they should record it right away. When creating conclusions on the financial position of the business, owners and managers must keep in mind that financial information are not constant. For example, the business was able to gain a huge profit for the year 2020, however, the owners and managers should not concluded that the profit will be the same for the following year. We want to avoid any wrong decisions, the owners and managers might want to add more to their inventory, however, there is uncertainty if the sales made for one year will happen again in the following year. Like what I said, financial information is just quantitative rather than qualitative.

Financial statements are important because it tells the owners and managers if their business is doing well financially. They also help the managers make informed decisions in running the business.
The limitations of the financial statements are they can not necessarily predict the future standing of the business and they can be subject to fraud. To remedy these limitations, the managers must make good decisions based on past financial statements to help the company do better and have someone audit the financial statements.

Financial statements allow business owners and managers to make predictions on the outcomes of their company. It shows whether the company is doing well, if it's going to fail (due to high credit, for instance), or what measures can be taken to further improve its operations or if it should instead cease them and undertake different ventures. These are all obtained by analyzing its revenue, expenses, and debts, among other related, quantifiable measures.

There are, however, limitations to financial statements. These are, but not limited to, exclusion of non-financial issues, difficulties in making comparisons between other companies, reporting errors, and fraud. Of course, it's also difficult to tell how certain losses will affect the company, as for instance the loss of major customers. In general, factors that go beyond finances are not considered in financial statements, which is why it's difficult to make assumptions based on these alone, and it would normally take numerous financial statements to obtain a trend that could be used for predictions.

To settle these problems, a number of analytical tools that instead assess a company's performance, and the focus on other divisions (like Human Resources) have been employed by numerous companies. It goes without saying that openly mentioning one's plans in a company could also show prospective investors or buyers that it's possible that a company will be successful in the future even if financial statements or analyses alone may suggest otherwise.

Financial information is important to business owners and managers since this is the way on how to monitor the financial activities of the business. With this, the progress of the business if it gains profit or losses can be documented. It can also monitor the flow of cash in the business. Also, it can assess how much the business costs and how much it has to cover. It can also contribute to future business decisions to be made by the management.

A limitation with this would be the comparability with other companies. Not all companies have the same accounting practices. Also, one company may be larger than another. A possible remedy to this limitation would be the use of vertical analysis in comparing financial statement of two different companies.