The purpose of the study was to examine the effect of accounting systems on financial performance of SMES in Uganda. Specifically, the study sought to establish the influence of accounting system on financial spending, understand the effect of accounting system on stock control and determine the relationship between the accounting system and trading practices of selected SMEs in Matugga Town Council.

Using a cross-sectional and correlation research design, the study collected data from a sample of 104 respondents. The respondents, who were SME operators and owners, cashiers, 4 internal and external auditors and customers, were selected from SMEs operating in Matugga Town Council. A self-administered five-likert scale of closed items questionnaire was used to collect the data, which was analyzed using SPSS.

The results reveal that there is a positive relationship between accounting system and financial spending of calculated Pearson correlation coefficient value of r=0.692 and a moderate relationship between accounting system and stock control of calculated Pearson correlation coefficient value ofr=.454. Accounting system and trading practices also had a strong positive relationship of calculated Pearson correlation coefficient value of r=0.639.

The findings reveal that accounting system always monitors the progress and assesses the firm’s financial health. This is because accounting systems ensure that information on stock control, transaction updates and other necessary reporting issues are available to alternative managers in the firms. Therefore, the study recommends that accounts department in these SME units should utilize the utmost benefit of related knowledge based on accounting system so that relevant financial reports to the informational needs of each authorized sections should aid the trading practiceswithin the set time lines.