Financial Information System

FINANCIAL
INFORMATION
SYSTEM
ASSIGNMENT
MOBASHREEN M I S
MBA II YEAR
1913323036024
MANAGEMENT INFORMATION SYSTEM

FINANCIAL INFORMATION SYSTEM
Financial Information System is a system that accumulates and analyses financial data in
order to make good financial management decisions in running the business.
Financial information systems are the software programs that can be set up to keep track of
banking, accounts payable and accounts receivable; to generate standard financial reports
such as a profit-and-loss statement; and to report the information in various formats.
The basic objective of the financial information system is to meet the firm's financial
obligations as they come due, using the minimal amount of financial resources consistent
with an established margin of safety. Outputs generated by the system include accounting
reports, operating and capital budgets, working capital reports, cash flow forecast, and
various what – if analysis reports. The evaluation of financial data may be performed
through ratio analysis, trend evaluation, and financial planning modeling
FIS must have the following capabilities:
 Collect accurate, timely, complete, reliable information.
 Provide adequate management reporting.
 Support budget preparation and execution.
 Facilitate financial statement preparation.
 Support government-wide and agency policy decision.
 Provide complete audit trail to facilitate audits.
An FIS will consist of several elements with different functions. The core of an FIS could be
expected to include the following modules and systems:
 General ledger
 Budgetary accounting
 Accounts payable
 Accounts receivable
The noncore or other modules
 Payroll system
 Budget development
 Procurement
 Project ledger
 Asset module.
Advantages of FIS
There are many advantages of implementing an FIS. A few of them are listed below:
 Integrated financial information
 Flexibility of reporting and additional control over expenditure
 Tighter views of budgets versus actual
 Less administration required within the business
Features of Financial Information System
a) Clarity/Understandability
b) Reliability
c) Relevance
d) Presentation
e) Security
f) Cost Effective
g) Comparability
h) Availability
i) Robust in terms of producing information
j) Verifiability
The applications of FIS in financial analysis are:
a) Cash flow analysis
b) Budget analysis
c) Ratio analysis and management norms
d) Sources and uses of funds
e) Maintenance cost analysis
Components of Financial Information System

Financial Information System generally consists of six main components: people,
procedures, data, software, information technology infrastructure and internal control.
People: These are the users of the FIS. Internal users include accountants and other financial
officers of the company. Then there are also users outside the organization that can be
given access to the AIS. Some such external users are auditors, consultants, tax authorities
etc.
Procedures: These are the procedures the system follows to collect and process data. The
database for such a process can be internal (like employee names, sales figures) or external
databases (like customer orders, tax slabs etc). The feeding of the data can be both manual
as well as automated.
Data: FIS mainly deals with all kinds of financial and commercial data. Any data that is
pertinent to the financial of the firm will be input data for an FIS. Care must be taken that
the data entered is accurate and complete. Examples of such data include general ledger,
invoices, orders, payroll, bills etc.
Software: FIS software performs all the functions of storing, processing, analysing, retrieving
financial data of a company. The software can be generalized software that is available in
the market or can be specialized software created specifically for a particular company and
its accounting needs. Some of this software has an inbuilt internal control and audit options.
They even help in tax management.
Information Technology Infrastructure: Information technology infrastructure is just a fancy
name for the hardware used to operate the financial information system. These can include
computers, laptops, servers, printers, scanners, secondary storage hardware etc. Perhaps
most importantly, the hardware selected for an FIS must be compatible with the intended
software.
Internal Controls: Internal controls of a FIS are the security measures it contains to protect
sensitive data. These can be as simple as passwords or as complex as biometric
identification. FIS must have internal controls to protect against unauthorized computer
access and to limit access to authorized users which includes some users inside the
company.
Examples
1.If a business has:
Cash = $15 million
Marketable securities = $20 million
Inventory = $25 million
Short-term Debt = $15 million
Accounts Payables = $15 million
Current assets = 15 + 20 + 25 = 60 million
Current liabilities = 15 + 15 = 30 million
Current ratio = 60 million / 30 million = 2.0
2. Alpha Inc. has the following information
Cost of Goods Sold – $600,000
Beginning inventory – $110,000
Ending inventory – $130,000
Find out the inventory turnover ratios
Average inventory of Alpha Inc. would be = (The beginning inventory + the ending
inventory)/2
= ($110,000 + $130,000)/2 = $240,000/2 = $120,000.
Using the inventory ratio, we get:
Inventory Turnover ratio = Cost of Goods Sold / Average Inventories
OR
Inventory Turnover ratio= $600,000 / $120,000 = 5
3. IF a company has an average accounts receivable balance of $200,000 and annual sales of
$1,200,000 then its DSO figure is:
Days Sales Outstanding=
$ 200,000
$ 1,200,000
X 365
= 60.8 days
The company requires 60.8 days to collect a typical invoice.

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FINANCIAL

MANAGEMENT INFORMATION SYSTEM

Components of Financial Information System

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