Principle of Accounting System Dynamics – Modeling Corporate Financial Statements –

Understanding financial statements is imperative for better management of corporations, while system dynamics (SD) offers dynamic modeling and simulation skills for better strategies of management. This paper tries to present a consolidated principle of accounting system dynamics on the basis of simple principles from SD and accounting system. It is, then, specifically applied to model corporate financial statements (income statement, balance sheet and cash flow statement) described in the book [3]. It is shown that cash flow statement is indispensable for modeling financial statements. At the same time, a limitation of the current accounting system as a dynamic guidance for management strategies is pointed out. This demonstrates the importance of SD modeling in the field of accounting system.