CHAPTER ONE
INTRODUCTION
1.1
Background Of The Study
Accounting system
according to an Italian monk, Luca Pacioli (1491), is the combination of personnel records and
procedures that a business uses to meet its need for financial data. Financial
accounting also encompasses the summary of information and presentation of
periodic reports such as profit and loss statement and balance sheet. The
historical firms of accounting were of different degree of sophistication
according to the need and techniques of the time. This is why modern accounting
is based on the double entry system and the recognition of the dual nature of
each transaction and this gives a co-ordinate support for the control of all
the transaction of a business.
Accounting system
according to business dictionary is an organized set of manual and computerized
accounting methods, procedures and controls established to gather, record,
classify, analyze, summarize, interpret and present accurate and timely
financial data for management decisions. In spite of this, there are policies
for reporting on an organization performance and current conditions. These
policies increase the usefulness of report including their reliability and
comparability. The policy that makes up acceptable
accounting practices are determined by many individuals and groups and those
policies are referred to as generally accepted accounting principles
(GAAP). Since
accounting is a service needs and not only on those of accountants. The
financial Accounting standard Board (FASB) is another body or group that is
seen as an independent group of seven full-time members with a large staff.
This body has issued six statements of accounting concepts which help in
guiding accounting standard setting. Many companies and organizations involve
themselves in setting accounting rules/policies. They include investors,
government agencies, politicians, unions, lenders and other business and
non-business organizations.
Furthermore, there are
two major types of methods used in recording accounting information, such
methods are manual accounting system and software accounting system or
computerized accounting system.
Manual accounting
system extends and includes the method of processing, recording, journalizing
transactions posting to the ledgers and preparing the financial statements
which provide decision makers with useful information in making decisions.
These decisions relate to the allocation and use of scarce economic resources
such as money, land, labour and capital. These manual accounting systems are
wholly used for preparing income tax returns, reports to managers, bills to
customers and other forms of providing accounting information.
In
addition, with manual accounting system, accountants and managers usually
inspect the documents, journal ledgers and reports in the performance of
testing and verification. Transaction can be traced from source documents to
journals, general ledgers, printed report etc. Subsidiary ledgers can be posted
and the total can be compared with control accounts. It is visually observed by
the auditors or accountants to determine whether proper books of accounts or is
being followed.
Technology is a main
part of our modern society and business practices. It also plays a major
important in accounting as it help in reducing the time, effort and cost of
record keeping while improving clerical accuracy. Technology has distinct the
way we store, process and summarize large masses of data which makes accounting
free to increase its field.
The origin of software
could be dated back to early 1960s. Historically, emphasis in computer industry
was on programming and was seen as the biggest single problem in the
implementation of a computer system. Computer has the ability to add and
subtract, but frequently not to multiply or divide, the computer run with
relatively simple software routines. However, this study tends to analyze the
comparison between manual accounting and software accounting which are the two
types of accounting system used by various organizations and companies.
In recent times, most companies and organizations have been
using the manual form of operations in their accounting systems. Primarily,
this manual accounting systems used to meet the organizational information
requirement but this has been on consistent failure in recent times as a result
of growth and diversification of business and technological advancement
complexities in information technology to meet the current business demands.
Thus, companies and
organizations had usually been faced with a number of problems in the use of
this manual accounting system which involve lack of ability to handle
sufficient volume of data in terms of speed and accuracy, insufficient data
storage and retrieval system often resulting in loss of vital records,
incorporating final updates, rampant report of frauds and forgeries in the use
of the system, unseemliness of information which implies that information
needed for effective decision making . This is repeatedly, as a result of poor
retrieval and inability to collect large volume of data within the required
time. All these problems include consequence in great loss of scarce resources
and impeded organization growth, steadiness and advancement.
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