Question

You are the CEO of a newly incorporated retail firm that will sell DKNY® and Tommy Hilfiger® along with other designer clothing. Your job is to set up an accounting information system to maintain appropriate records needed in the eventual preparation of financial statements. Certain principles should be followed in the development of an accounting information system. Identify and explain each of the principles.

Answer 1

Answer)

An accounting information system is system that collects and processes accounting transactions data in order to come up with financial output for interested parties. To come up with an effective and efficient accounting information system, the following principles apply:

Cost effectiveness: the system should be effective in the sense that the benefits outweigh the costs. The value of financial reports which is output from the system should exceed the cost of producing them.

Usefulness: the output from the system must be accurate, relevant, timely and reliable in order to meet the needs of the interested parties.

Flexibility: the system should accommodate dynamic information needs, changing user’s needs. The business environment is ever changing due to factors like technological changes, organizational growth, competition, government regulation and changes in accounting principle. The system should thus in corporate all these changes in order to provide the most reliable output.