Financial systems and technology: formula sheet

Key formulas

Financial accounting

Purpose: report past performance and position to external users

Follows law and accounting standards. Covers the whole entity. Usually produced annually, with interim reports for some entities.

Management accounting

Purpose: give managers information for planning, control and decisions

No mandatory format. Can be past or future focused. Can be detailed by product, department or customer.

Treasury

Purpose: manage cash, funding, investments and financial risk

Includes liquidity, borrowing, surplus cash and interest and currency risk.

Internal control

Purpose: safeguard assets, keep records reliable, reduce fraud and error

Examples: authorisation limits, segregation of duties, reconciliations.

AIS data flow

Input → Processing → Storage → Output

Use this frame for any question asking how a system handles transactions.

Sales cycle documents

Order → Despatch note → Invoice → Receivable ledger → Receipt

Credit notes handle returns. The invoice triggers the accounting entry.

Purchases cycle documents

Requisition → Purchase order → Goods received note → Supplier invoice → Payment

Match the order, goods received note and invoice before paying.

Payroll cycle

Gross pay − deductions = net pay

Deductions include tax and employee social contributions. Employer costs sit on top of gross pay.

Processing modes

Batch = grouped, delayed; Real-time = immediate, current

Choose by how urgently up-to-date data is needed.

Operational level

TPS → detailed, current, internal data

Used for structured, routine decisions by operational staff.

Tactical level

MIS → summarised, regular, mostly internal reports

Includes exception reports and budget comparisons for middle managers.

Semi-structured decisions

DSS → models + what-if analysis + internal and external data

Used where judgement is needed and the user interacts with the system.

Strategic level

EIS → highly summarised, external and future focus, drill-down

Designed for senior managers, often with graphical dashboards.

Expert system

Knowledge base + rules + inference engine + user interface

Gives specialist advice or diagnosis in a narrow area.

Data to information

Data + processing + context = Information

Information supports decisions. Raw data on its own does not.

Qualities of good information

ACCURATE = Accurate, Complete, Cost-beneficial, User-targeted, Relevant, Authoritative, Timely, Easy to use

One common mnemonic. Match the quality to the fault in the question.

Big data characteristics

Volume, Velocity, Variety (3Vs); sometimes also Veracity and Value

Know the three core Vs first. Mention extra Vs only if asked.

Types of analytics

Descriptive (what happened), Diagnostic (why), Predictive (what will happen), Prescriptive (what to do)

Questions often give a scenario and ask you to name the type.

Cost-benefit test for information

Value of information ≥ Cost of obtaining it

If the cost is higher than the benefit, the information is not worth producing.

General controls vs application controls

General = whole IT environment; Application = one specific program or process

Passwords, firewalls and backups are general. Input validation and control totals are application controls.

Control types

Preventive (stop it) | Detective (spot it) | Corrective (fix it)

Firewall = preventive. Intrusion detection or log review = detective. Restoring from backup = corrective.

Data protection principles (typical)

Lawful, fair and transparent | Purpose limitation | Data minimisation | Accuracy | Storage limitation | Integrity and confidentiality | Accountability

Exact wording varies by country. Learn the ideas, not a fixed legal text.

Information security aims (CIA)

Confidentiality | Integrity | Availability

Confidentiality: only authorised people see data. Integrity: data is accurate and complete. Availability: data is accessible when needed.

Input control examples

Validation checks: range, format, presence, check digit, reasonableness

These are application controls over input.

SDLC stages (typical order)

Feasibility → Analysis → Design → Development → Testing → Implementation → Maintenance and review

Stage names vary by textbook. Keep the order: decide, specify, build, test, go live, review.

Direct changeover

Old system stops, new system starts at once

Lowest cost, highest risk. No fallback if the new system fails.

Parallel changeover

Old and new run side by side, outputs compared

Lowest risk, highest cost and workload. Double processing.

Pilot changeover

New system live in one unit first, then roll out

Tests under real conditions with limited damage if it fails.

Phased changeover

New system introduced one module or stage at a time

Spreads the workload and risk. Takes longer overall.

Quick revision

• The finance function records, reports, controls and advises; it supports decisions as well as producing accounts.
• Data is raw facts; information is data processed into a form useful for a decision.
• Good information is accurate, complete, timely, relevant, understandable and cost-effective.
• Transaction processing systems capture routine transactions; they feed higher-level systems.
• Management information systems summarise data into reports; decision support systems help with less structured decisions.
• Big data is often described by volume, velocity and variety.
• Cloud computing provides computing resources over the internet, usually on a pay-for-use basis.
• AI and automation can speed up routine tasks but still need human oversight and sound data.
• Cyber security protects confidentiality, integrity and availability of data.
• Data protection rules concern how personal data is collected, used and kept.
• Systems development needs a clear requirement, testing, training and a planned changeover.
• In the exam, read the scenario, pick the best fit, and check how many answers are required.

Common mistakes

• Saying financial accounting is mainly for managers. Fix: Remember the main audience is external users. Management accounting is built for internal users.
• Saying management accounting must follow accounting standards. Fix: Management accounting has no mandatory format. Only external reporting is regulated by law and standards.
• Treating the despatch note as the trigger for the sales entry. Fix: The sales invoice is the document used to record the sale and receivable. The despatch note is evidence of delivery.
• Mixing up master files and transaction files. Fix: Master files hold standing data (customer names, pay rates). Transaction files hold current events (this month's invoices, hours worked).
• Saying an MIS is for senior managers. Fix: Link MIS to middle managers and routine, summarised reports. Link EIS to senior managers.
• Confusing DSS with MIS. Fix: An MIS gives fixed reports. A DSS is interactive and supports what-if analysis on less structured problems.
• Treating data and information as the same thing. Fix: Ask whether the item has been processed and put in context for a decision. If not, it is data.
• Naming the wrong quality of information, such as 'accurate' when the report is simply late. Fix: Identify the exact fault first, then match it using the mnemonic.
• Treating RPA and AI as the same thing. Fix: RPA follows fixed rules and cannot learn. AI learns from data and handles judgement-type tasks. Say this in one sentence.
• Listing only advantages of cloud computing. Fix: Always give both sides: scalability and lower upfront cost, against security and data protection concerns, internet dependence and reliance on the provider.

Exam tips

• Most questions are classification questions. Decide the user (external or internal) first.
• In multiple response questions, select exactly the stated number of options. Test each statement as true or false on its own.
• Watch absolute words such as always, only and all. Roles overlap in practice, so these words are often wrong.
• Learn one-line purposes for each role. They let you answer in seconds and leave time for Section B.
• Learn the document order for each cycle until you can write it from memory. Many questions are just sequencing.
• Always match the document to the cycle named: customers and invoices out for sales, suppliers and invoices in for purchases.
• In manual versus computerised comparisons, give a benefit and a risk for computers. Examiners reward balanced answers.
• For multiple response items, count how many answers are required before you select.