Financial and Accounting Information Systems

A Financial & Accounting Information System(AIS) is an functional information system which helps in the financial and accounting functions of an organization. The objectives of the AIS are listed below

Primary objective – to meet financial need of business

Secondary objective – to meet statutory compliance

Tools used

Typically every finance department will have some ratios and tools, the financial and accounting system also uses these tools based on data collected in the organization.

• Break even analysis
• Cost analysis
• Cash flow projections
• Ratio analysis
• Capital budgeting and ROI
• Financial modelling
• Management accounting
• Expense analysis, auditing and control

Query

The typical  query  will be from the sales and marketing team about

• Invoices 
• Payments
• Credit Notes  
• Debit notes

The corporate office might similarly enquire about

• Contract Payments
• Statutory Payments
•  Certified bills

The HR department might raise queries about payments made to employees

Decision analysis

There are various kinds of analysis which can be made from financial and accounting data, they are listed below. Each of these analysis is used to help in various decisions.

• Cash flow analysis
• Sources and uses of funds
• Debtors analysis
• Creditor analysis
• Budget analysis
• Capital budgeting
• Cost analysis

Controls:

Control is exercised, based on the exceptions found in the business operations. Some exceptions are as follows

• Accounts receivables – outstanding beyond acceptable norms

• Advances to creditors and non realisation of obligations
• Valuation of non-moving inventory for disposal
• Analysis of non-moving accounts and legal actions.
• Shortage of funds in excess of planned and rescheduling of activities
• Cost overruns beyond norms and action on alternatives
• Performance analysis of  lines of business showing adverse performance

Reports:

Statutory  compliance report- these are reports that will be generated due to government or regulatory agencies stipulations.

 Tax returns

• Registers – sales tax, excise tax, TDS,GST 
• Declaration of certain results to finacial institution, SEBI
•  Declaration of financial result to the public every six months,  NSE, BSE
• Declaration of annual results to the board, shareholders and public

Operations update:

These are internal reports which are generated to update the managers about important updates from  various activities in the accounting and finance department. Some examples are given below.

•  Filing of statutory returns and reports
•  Statutory payments
•  Transactions executed and accounted in the system
•  Reports on finished goods, dispatches and invoicing
•  Reports on material receipts and payments to suppliers
•  Obligatory payments- rents, insurance premium, membership fees, dividend

Information updates:

In addition to the operation updates the AIS should also frequently update the central data base about the current valuations ,outstanding bills and stock.

 Monthly trial balance, balance sheet and P&L account

 Stock valuation

 Accounts receivable

 Accounts payable

 Expenses on major accounts

 Cash position

Payments and receipts which are statutory obligations

Sales, purchase of assets by certain classification

Overall business acheivements in major lines of business.

Decision analysis:

The AIS also helps the managers take some decisions, the various types of decision support is as follows

 Break even analysis for cost and price decision

 ROI for choice of investment

 Trend analysis on price of  crucial commodities for changes and alternatives

 Cash flow, sources and uses of funds for selection of alternate source of funding

 Analysis of current and fixed assets in terms of use and decision on alternate use or disposal

 Analysis of current liabilities and decision on liquidation on priority basis

 Analysis of overdue receivables and decision on the revision of terms or commercial and legal actions.

Action update

AIS is the nerve centre for financial operations, so it should keep track of various exceptions and make sure all money owed to the company is collected for this it has to make various reminders to managers and officers, these are called Action updates, some of these are listed below.

1. Overdue receivables

1.Legal action

2.Termination of business association

2.Non supply of goods and services but advance paid

1.Legal action

2.Revision of terms

3.Termination of business association

3.Payments to creditors, where penalties are involved

4.Poor usage of fixed assets and disposal

5.Non-moving inventory and its disposal

6. Evolving new systems and procedures to control expenses and implementation

Conclusion:

If a company wants to be truly paper free and operate succesfully in an digital society, then it has to embrace Information systems, The Financial & Accounting Information System will help in various forms. Lets take the example of India, we have GST , if an organization operating in India has digitized all the process, then all the required documents for GST and TDS for employees can be done easily, eliminating the need for paper documents. This resonates with the push for DIGITAL INDIA by the government. Tally is one popular application used by many organisations in India for managing their accounts systems.