Understanding Financial Information Systems: Key Concepts
Understanding Financial Information Systems
1. Nature and Characteristics
A financial information system includes the resources, procedures, and methods used by an entity to track financial activities and summarize them in a form useful for decision-making.
2. Elements of an Information System
- Computer equipment
- Staff team
- Data capture
- Programs or software
3. Lifecycle of Accounting Information
The lifecycle starts when a record of an operation is created and ends when the financial statements are finalized.
4. Information System Definition
An information system is a set of interrelated elements that collects, captures, processes, and stores data for decision-making.
5. Characteristics of an Information System
- It facilitates the task being performed.
- Offers control, compatibility, and flexibility.
- Analyzes data to be processed.
6. Definition of Control
Control gives the administration an organization over the operations and business records.
7. Qualities of a Financial System
A financial system should be understandable, clear, and easy to analyze.
8. Objectives of a System
- Predicting the future
- Supporting planning, organizing, and conducting business, making decisions on investment and credit.
- Assessing the management and administration of the organization.
- Exerting control over the operations of the company.
9. Definition of Balance Sheet
A balance sheet shows information on the resources and financial obligations of the entity, i.e., information relating to the assets in order of their availability, relieving their restrictions, liabilities based on their enforceability, revealing financial records, as well as the equity or equity accounting from that date.
10. Profit Definition
Profit is the richness that comes from an economic process and is therefore an indicator of wealth.
11. Statement of Origin and Use of Resources
This statement shows the origins of the resources and applying them to a company in a period or future period.
It is the financial statement that shows the changes that will suffer from working capital of a company as well as the causes of these changes in a period or future period.
12. Classification of Sources and Applications
Sources:
Sources are those items that increase the firm’s cash.
Example: Decrease in assets, liabilities increase, profit after tax, sale of shares.
Applications:
Applications are all those items that decrease cash.
Example: Increase in assets, decrease liabilities, loss, dividend payments.
13. Steps for the Implementation of Origins and Applications
- Using the earlier period as a basis, calculate changes in all balance sheet accounts and items.
- Sort the general balance changes in every game except for fixed assets and surplus, as a source and application.
- Calculate the change in the asset.
- Calculate the dividends paid, but appear in the output state.
- Calculate the change, if any, in the amount of shares outstanding.
14. Cash Flow Statement
Shows the cash inflows and outflows that represent the generation or application of resources for the period.
15. Cash Flow Statement Classifications
- Operation
- Investment
- Financing
16. Inflationary and Non-Inflationary Environments (Bulletin B-2)
The inflationary environment is expressed in monetary units of purchasing power at the close of the current period.
The non-inflationary environment is expressed in nominal terms.