CHAPTER ONE

Introduction

Background of study

The accounting system can be regarded as a universal phenomenon needs not only by individual but also by organization. For these reason bookkeeping and accounting records need to be properly scrutinized and analyzed. It can be truly said that the accounting system has become the foundation on which the whole fabric of modern commerce rest.Business transaction can only be carried out in the crudest forms and development for the modern credit system.

With it obvious advantages of convenience would have been totally impossible.

Accounting as a record keeping process has worked out gradually over many countries to save the changing and economics needs of society. As early as 300 B.C. clay table were used in Babylonian Empire to record various fact. Many of these records contain list of events as they occurred or list of good belonging to an individual or temple. Similar records have also been discovered describing business activities in ancients Greece, Egypt and Rome. While this early record contained most inventories of goods and debt, later record began a concern for compiling profit and loss for different ventures. Some addition advances in record keeping were made by church officials and government during the middle ages. Although these early record are interesting. They add little insight to the development of modern day accounting, which is based on the double entry method.

Modern day accounting has its origin in the double entry keeping method by Italian merchant during 12th and 13th century.Probably the most condition giving rise to this development was the rise in trade between medieval Italian cities and the east. The first complete description of the double entry  system included in a book called Sumade Arithmetica, Geometria, proportion et protionalita (1494) by Franciscan monk named Luca paciolo two  years after Columbia discover America.

Although, the Suma was essentially a treatise on mathematics, it contained records that have developed gradually over the preceding 2 or 3 countries. Paciolo’s description of the double process was included in other books and was used widely throughout Europe during the 15th, 16th and 17thcenturies. The double entry process becomes a basis for modern accounting procedures.

The industrial revolution in Europe during the 18th and 19th century produced many significant social and economic changes including a change from the hand craft production system to the factory system.

The factory system was based on the use of machinery and equipment to produce many identical products at low cost.

During the 19th and 20th century, corporations have become a dormant factor in financing, producing and distributing goods and services. These corporations are often large complex organization whose owners demand accounting system that can provide relevant and reliable information for use in evaluating the efficient of operations.

Government organization and income tax legislation have resulted in increased demand on accounting system. In both their record keeping communicating functions, The double entry system developed by the Italian merchants is essentially the same system used today to satisfy the increased demand for accounting information and the change of handicraft production system to factory system, helps in producing many identical product at low cost with the use of machineries which helps in Maximization profit.

1.2. STATEMENT OF PROBLEM

a)             Inefficient system of accounting, which leads an organization into several financial difficulties.

b)             Most organization fails to install a sound accounting system which makes transactions not properly recorded, thereby leading to deficiency and lack of progress in such an organization.

c)              Organization find it difficult to  ascertain whether  they are making profit or loss since as they produce they sell and use up the money without bothering to keep records.

d)            Inability of the organization to forecast, make decision about the future financial position and potential outcomes of various alternatives that are considered.

e)              Failure to determine the economic effect of past decisions on the organization which is actually communicated by means of periodic financial statement.

f)               Inability to keep track of a wide range of items to meet the financial system requirement and safeguarding the assets of the business as part of responsibilities of the company.

g)             Laxity or slackness on the record keeping process of the organization which definitely leads to fraud.

1.3         PURPOSE OF STUDY

a)             To ensure that there is an efficient system of accounting in place in the organization so as not to get into serious financial difficulties.

b)              To ensure that sound accounting system is installed in the organization to ensure proper recording of transactions thereby leading to visible progress in the organization.

c)               To ensure that the financial position of the organization can be determined at any point in time.

d)            To ensure management determine the economic effects of past decision on the organization.

e)              To ensure that there is a reliable record keeping process, so as to eradicate fraud completely in the organization.

f)               To ensure the organization keep track  of its wide range of items in other to meet the financial system requirement and safe guard the assets of the organization as parts of the responsibilities of the management of the company.

g)             To enable the management forecast and make decision about the future financial position and potential outcome of various alternatives that are considered.

1.4. RESEARCH QUESTIONS

i)                     Is there any relationship between accounting record and profit Maximization?

ii)                     Does the continuous use of accounting system tends to increase the proper recoding of transactions?

iii)                     Does a constant change in our economy increase the use of accounting system?

iv)                     Does the reliability of internal control lesson/ reduce the risk and facilitates the detection of fraud?

v)                     Does inadequate use of accounting system limit our ability to asses our financial position.

RESEARCH

1.5.      STATEMENT OF HYPOTHESIS

i)                     That the continues use of accounting records tends to increase the proper recording of transaction.

ii)                     That inadequate use of accounting system limits our ability to ascertain our financial position.

iii)                      That the more reliable the system of internal control the less the risk and the more it facilitates detection of errors and frauds.

iv)                      That constant changes in our economy facilitates increase in the use of accounting system.

DEFINITION OF TERMS

i)                Accounting Bases:- These are the method  for applying fundamental accounting  concepts to financial transactions which are Accrual base, cash base etc.

ii)             Revenue:- These are income benefit or resources earned or generated by the organization from Itself. In other word, they are derived from business or operational activities of the organization.

iii)           Expenses: Is the amount incurred or due for the benefit derived in commercial transactions; it is also any amount paid out as a result of goods, services or assets received, or amount exchanged for benefit received e.g. rents, electricity and purchase of goods for resale etc.

iv)           Bad dept:-   These are debt that are not recoverable from the debtors. This is as a result of inability to pay debt or disappearance of the debtors.

v)             Long term liabilities: - These are indebtedness of an organization that will take more than one year before being repaid. E.g. Debenture, Long-term loan etc.

vi)            Tangible Assets:- They are assets that have physical identity and also have futuristic benefit i.e. they are assets that can be seen, felt and touched e.g. Building, plants etc.

vii)        Waste assets:- These are the long lived resources of a business which can be exhausted or used up without replacement e.g. queries, oil well etc.

1.8. SIGNIFICANCE OF THE RESEARCH PROBLEM

a)             Accounting information helps the decision makers to make good decision in the business management.

b)              It helps the business management to have a permanent records for all transaction made.

c)              It helps organization to determine the profitability of a business concern.

d)             Accounting information helps in preventing the business management from fraudulent practice.

e)              It helps business management to know the economic important with any past decision. 

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