Pharmacy Accounting Basics — P&L, Cash Flow, GST for Medical Store Owners
Most pharmacy owners focus on dispensing and operations — accounting is often left to a CA at year-end. But understanding your numbers monthly (or even weekly) is the difference between catching problems early and discovering them when it's too late. This guide covers the essential accounting concepts every medical store owner should understand.
The Pharmacy Profit and Loss Statement
A simple monthly P&L for a pharmacy looks like this:
| Line Item | Example (₹) | Notes |
|---|---|---|
| Total Sales (Revenue) | 10,00,000 | Sum of all invoices raised |
| Less: Cost of Goods Sold (COGS) | 8,00,000 | Purchase cost of medicines sold |
| = Gross Profit | 2,00,000 | 20% gross margin |
| Less: Rent | 40,000 | |
| Less: Staff Salaries | 45,000 | |
| Less: Electricity & Utilities | 8,000 | |
| Less: Expiry write-offs | 12,000 | Expired stock loss |
| Less: Miscellaneous | 5,000 | |
| = Net Profit | 90,000 | 9% net margin |
Understanding Cash Flow vs Profit
A pharmacy can show profit on paper but still face cash crunch. This happens because:
- You pay distributors on 30–60 day credit — cash goes out before all revenue is collected
- Stock sitting on shelves is cash locked in inventory
- Udhar (credit sales) to customers reduces cash available
Key metric — Days of Stock on Hand: If you carry 60 days of stock but pay distributors in 45 days, your cash is always under pressure. Aim to carry 25–30 days of stock for fast-movers and reduce slow-movers aggressively.
GST Reconciliation for Pharmacies
Pharmacies deal with multiple GST rates — 0%, 5%, and 12% on medicines, plus 18% on some non-pharmaceutical products. Monthly reconciliation involves:
- Output tax: GST collected from customers on sales
- Input tax credit (ITC): GST paid on purchases from distributors
- Net GST payable: Output tax minus ITC
Most pharmacies have net GST liability of 0.5–2% of sales since they collect 5–12% GST on sales but also claim ITC on purchases at the same rates.
Key Metrics to Track Monthly
| Metric | How to Calculate | Target |
|---|---|---|
| Gross Margin % | (Sales − COGS) ÷ Sales × 100 | 18–25% |
| Net Margin % | Net Profit ÷ Sales × 100 | 6–12% |
| Inventory Turnover | COGS ÷ Average Inventory Value | 8–12x per year |
| Expiry Loss % | Expired Stock Value ÷ Purchases × 100 | <1% |
| Outstanding Dues | Total unpaid customer credit | <30 days sales |
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