CHAPTER ONE
INTRODUCTION
1.1
BACKGROUND
OF THE STUDY
Accounting
system according to an Italian monk, Luca Pacioli (2001), 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
activity, these rules reflect our society’s 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.
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