THE EFFECT OF COMPUTERIZED ACCOUNTING SYSTEM ON THE FINANCIAL PERFORMANCE OF SMALL AND MEDIUM SIZE ENTERPRISE IN BUEA
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1.1 Background of the study
The American Accounting Association defines Accounting as the “process of identifying, measuring and communicating economic information to permit informed judgments and decisions by users of information”.
Accounting is also “the art of identifying, recording, classifying , summarizing and communicating through financial statements transactions which creates assets, liabilities, equities, revenues and expenses to its users .Accounting is necessary for every business operation be it a nonprofit making or a profit making organization.
Accounting initially originated from the book keeping system which was developed by Luca Paccioli in the 1440’s and as time had it, it was manually done and recorded on rocks and later to the usage of legers and computers as time evolved.
The manual system of accounting is a bookkeeping system in which records were done by hand. It was very satisfactory to use as it was less expensive to acquire or set up, the correcting entries could easily be done, and there is lesser risk of corrupted data.
The manual system of accounting existed for over a long period of time and may possibly exist today especially in small businesses as there is lesser paper works to be done. As time gradually evolved, the usage of manual system became obsolete and was replaced by the Computerized Accounting system (CAS).
This switch from the manual to computerized system is due to the shortcomings which the manual systems possess such as; possibility of error (human error) since work is done by hand and it could even go undetected for quite some time.
It was time consuming due to the fact that various accounts needs to be reconciled where the need be. The manual system was also easily susceptible to damages such as natural (floods) or manmade (fire) disasters. The manual system was as well stressful especially in cases of large day-to-day transactions.
Accounting is an essential part of any business, large or small owners, profit making or not for profit organizations. From experience it can be seen that many small enterprises do their accounting manually and there are satisfied. Others may be considering using a computerized system, since accounting software is much affordable.
Manual and computerized accounting system performs basically the same processes, the accounting principles and concepts are the same with differences lying in the technicalities of process. Although computerized accounting system is expensive, its advantages lie on speed and being able to store larger quantities of information in smaller spaces than with the manual system. According to kokan (1986), accountability refers to a condition under which a role model renders account to another so that judgment may be made about the adequacy of performance.
Lerner and tetlock (1999), equate accountability not only to reporting but also to the justification of performance, they continue to describe accountability as the implicit and explicit expectations that everyone may be called. According to Pandey (1998), financial performance to the company’s stakeholders for instance the Government, public, donors is a statutory obligation for every organization.
Saleemi (1981) defined financial reporting and performance as the process of supplying financial information which is reliable, accurate and complete to the various stakeholders for making economic decisions. This is always inform of financial statements such as statement of comprehensive income, statement of financial position and cash flow statement and other financial annually reports which provide an overview of the company’s current financial strength.
Computerized accounting system is the application of the computer based software used to input, process, store, and output accounting information (Millichamp 1995). The application is to support, advancing technologies that enable firms to use computer programs to perform tasks, which were previously done manually.
The need for computerization of the accounting system is due to increase in the number of transactions, as a result of the policy of continuous expansion of the business. It is noted that, business accounting records cannot be accurately maintained when the firm expands and when the system is not computerized.
It is the computer based system that the firm can use to post numerous transactions to the right ledgers and prepare proper financial statements. It is from this need that SMEs considers it very important to computerize its systems and different functions as it considers two mandatory rules that govern its operations.
These rules are: Technology must benefit your business and, if technology does not benefit your business then you don’t need it. For this reason, the accounting section which the institution considers very important is highly computerized for the purpose of improving on record keeping, proper maintenance of different loss of cash or loss of accounting records.
Computerized accounting system in commercial organization, which will help to integrate, simplify and streamline all the business processes and transaction cost effectively and easily (Indira 2008).
Business organization should adopt a suitable accounting package in order to derive benefits from it (Mike et al 2006) for instance for a small business, personal finance organizer like sage 100, Microsoft excel and quick books are usually good enough to handle accounts of small businesses.
It’s however noted that the way accounting data is entered, processed and stored has considerably changed. It is no longer necessary to have a huge room full of ledgers and records; there is accuracy and efficiency in keeping records, low case of omission and loss of accounting records using computers.
These changes in performance might be due to several factors.
In Cameroon many SMEs have adopted the use of computers in many sections of their activities such as recording of daily collections, recording of customer’s savings (account details), preparation and presentation of their yearend financial reports etc.
Therefore the researcher focuses on investigating the Effect of computerized accounting on the performance of SMEs.
Computerized Accounting Systems in commercial organizations would help to integrate, simplify and streamline all the business processes and transactions cost effectively and efficiently (Indira 2008). It is for this reason that Institutions find it very essential to possess a sound and good computerized accounting system hence, in Cameroon today, many SMEs have adopted and implemented the use of Computers in most sectors of their business activities such as recording of day-to-day transactions, recording of customer’s savings, preparation and presentation of year-end financial reports such as Statement of Comprehensive Income(Profit and Loss statements),Statement of Financial Position(Balance sheet),Cash Flow Statements and Notes for the purpose of improving on record keeping, proper maintenance of data, mitigate the difference in cash balances and loss in accounting records or information. In this light, the researcher seeks to examine the effect of Computerized Accounting System on the Performance of SMEs.
1.2 Statement of the Problem