Question

In Vogue, a T-shirt business, is growing fast and needs a better accounting information system. Consider the features of an effective system. Which features are most important? Why? Which feature must you consider if your financial resources are limited?

Short answer

Features of an effective accounting information system are – control, compatibility, flexibility, relevance, and cost/benefit relationship. The cost/benefit relationship is the most important feature.

Step-by-step solution

Accounting Information System

An accounting information system is a system of collecting, recording, storing, and processing accounting data in such a way that a report can be produced for investors, creditors, managers, and other parties to make decisions.

Features of an effective accounting information system

An effective accounting information system has the following features –

a) Control – Control is one of the important features of an effective accounting information system. An effective control ensures transparency and safeguarding of the business assets from the likelihood of fraud and errors.

b) Compatibility – Compatibility brings smoothness for the employees and organizational structure. The accounting information system should be in line with the size of the business. For a small business, an entry-level package can be effective but for a big organization, customized accounting software must be implemented for making an effective system.

c) Flexibility – Flexibility is necessary to accommodate changes in the business over time. An effective accounting information system should be complicated and flexible as per the requirement.

d) Relevance – An effective accounting information system should be such that it provides useful information and reduces uncertainty for better decision-making.

e) Cost/benefit relationship – Above all an effective accounting information system should be such that it must be relatively economical for the business.

Most important feature  

The most important feature of an accounting information system is the cost/benefit relationship. All other features can be expensive to implement. An effective accounting information system should be such that provides the most benefits for the least cost.

In the given case, if the financial resources are limited, then the cost/benefit relationship would be the most important feature of an effective accounting information system.