Effects Of Accounting Information System On Profitability Of A Company

Project and Seminar Material for Accountancy / Accounting

Effects Of Accounting Information System On Profitability Of A Company


Abstract


The study examined effects of accounting information system on profitability of manufacturing company, a case study of Cadbury Nigeria PLC.

The study employed the survey design and the purposive sampling technique to select 450 staff across management, senior and junior level. The data obtained through the administration of the questionnaires was analyzed using the Pearson correlation analysis.

The results showed that there is positive and significant relationship between Total Accounting Information System sub-variables and Profitability (r=.896; p<0.05).

The study concluded that accounting information system has a significant effect on profitability in Nigeria manufacturing companies.

Based on the findings of the study, the study recommended that; Sales Volume (SV) should be employed as an indicator by the management of every manufacturing company, to ensure that boost of sales is guaranteed; Accounting department should be the one in charge of all financial and assets aspect, which should be headed by a qualified accountant; Expenses should only be made when necessary and should be minimize so profits can be maximize in manufacturing companies; Standard accounting information system should be formulated and maintained.


Chapter One


Introduction

1.1 Background of the Study

Currently, most organizations continue to increase spending on information system and their budgets continue to rise. However, economic conditions and competition create pressures about costs of information.

The main goal or objective of any business organization as stated by Lucey (1993) is to make and maximize profit while other objectives include going concern, growth, corporate social responsibility, benefits to employees and so on. Although other objectives are also considered very important as listed above, but profit maximization is usually consider first because it maximizes the shareholders wealth which is the ultimate aim of investing in a business (Oyerogba, Olaleye & Solomon, 2014). But, it is however saddens to observe that the profitability objective of many companies has suffered a setback in recent time. This setback in the profitability of companies was characterized to the aftermath of the global economic downtown of 2008 which has lingered up to the present moment (Osisioma, 2010).

The utilization of accounting information system (AIS) effectiveness is extensive spread of information required by various users of the organization. It has an effect on the decision making and assists organization administrative co-ordination in the organization. It is thus founded that effective decision making is important to organizational performance thereby increasing profit. This basically describes the link in between the utilization of Accounting information system and organizational performance. Taking into consideration the Situation in Jordanian banking sector, current issue are the adaptable investment trend as well as the adopting of electronic technologies in the banking sector (Al-Majali, 2011)

It is good to mention that the use of information is not limited to a particular manager or a department, but all administrative levels need to use information, which increases the importance of management information systems in the organization. Accounting information is known as a system for collecting and recording, storing, and processing data to produce information for the decision makers (Romney & Steinbart, 2009).

Accounting information is an information provided by the accountants and accounting systems. The information are usually presented in financial statements such as the income statement and the statement of financial position of the firm. It also includes any financial ratios extracted from these financial statements. Accounting systems of a firms are responsible for analyzing and monitoring the financial situation of firms, preparation of documents that are necessary for tax purposes, providing information to support many other organizational functions such as production, marketing, human resource management, and strategic planning of the firm. Without such a systems, the companies will find it very difficult to determine performance, identify customer and supplier account balances and forecast future performance of the organization. The main purpose of an accounting information system is the collection and recording of data and information concerning an events that have an economic impact upon organizations and the maintenance, processing and communication of such information to internal and external stakeholders for proper decision making (Stefanou, 2006).


1.2 Statement of the Problem

Generally, information system is developed using information technology to help an individual from performing their task. Therefore, most companies focuses on developing information system in order to support decision system, communication, knowledge management, as well as many others. The key part of this information system needed for decision making in companies is accounting information system.

Today, information technology and an increasingly transparent financial sectors have become key deriving forces in business operations, strategies, structures, ownership and profit making. This forces cut across many industries to force changes that, in turn, have had significant economic and social impacts on the organizational effectiveness. Structurally, the emerging information technology industry is uncharacteristic of typical traditional process which has gradually gone out of the need to increase efficiency and cut on operations costs there by increasing profit in companies. Therefore, the study seeks to examine the effects of accounting information system on profitability of a company.


1.3 Objective of the Study

The main objectives of this study is to examine the effects of accounting information system on the profitability of the company.

The specific objectives are

  1. To examine the effect of accounting information system on profitability
  2. To ascertain the effect of sales volume on profitability
  3. To determine the effect of capital structure on profitability
  4. To examine the effect of expenses on profitability

1.4 Research Questions

  1. What are the effects of accounting information system on profitability
  2. What are the effects sales volume on profitability
  3. What are the effect of capital structure on profitability
  4. What are the effects of expenses on profitability

1.5 Research Hypothesis

Hypothesis one
  • H0: There is no relationship between Total accounting information system sub-variables and profitability.
  • H1: There is relationship between Total accounting information system sub-variables and profitability.

1.6 Operationalization of Variables

In terms of variable scope, the study will cover two groups of variables, the dependent variable and the independent variables. The dependent variable for the study for the study is profitability. The study also focuses on independent variable accounting information system, expenses, sales volume and asset combination.

Functional equation; Generally, y= f(x)

Where: y= dependent variable

x= independent variable

y=f(x)

y= Profitability (P)

x= Accounting Information System(AIS)

x1= Sales Volume (SV)

x2= Capital Structure(CS)

x3= Expenses(Ex)

P= f(AIS) ——-equ 1

P= f(SV) ——-equ 2

P= f(CS) ——equ 3

P=f(Ex)——-equ4


1.7 Significance of the Study

This study will be significance to companies in Nigeria in terms of determining the benefit accruing due to the integration of accounting information system in their operations.

Accounting information system provide information about the financial resources, obligation and activities of an enterprise that is intend for use primarily external decision makers (investors and creditors). This study provide useful information in making investment and credit decision.

Lastly, the study will also be useful to other researchers interested in the problem under investigation as the study has laid a platform on which furthers studies related to the subject can be undertaken.


1.8 Scope of the Study

This study focuses on the “effects of accounting information system on profitability of companies”.


1.9 Definitions of Operational Terms

Accounting:

Is the systematic process of recording, communicating, summarizing, analyzing and reporting of financial information.

Accounting Information:

This refers to the system of storing, processing of financial and accounting data that are used by decision makers.

Accounting Information System:

Is defined as a computer based system that increases the control and enhance the cooperation in the companies.

Profit:

This is the sum in which the company made after the deduction of all the expenses and it can be withdrawn from a business while maintaining the capital that existed at the beginning of the business.

Sales:

These are operating revenue earned by a company for selling its products or redering its services. Also referred to as revenue, they are reported directly on the income statement as sales or net sales.

Sales Volume:

This is the number of units sold within the reporting period. this figure is mentioned by investors to see if a business is expanding or contracting.

Assets:

These are things that are owned by a company and which have future economic value that can be measured. Examples include cash, investment, account receivables, inventory, land, buildings, equipment, and vehicles.

Capital Structure:

This is how a firm finances its overall operations and growth by using different sources of funds. Debt comes in the form of bond issues or long-term notes payable, while equity is classified as common stock, preferred stock or retained earnings. Short-term debt such as working capital requirements is also considered to be part of the capital structure.

Expenses:

This is money spent or cost incurred in entity’s efforts to generate revenue. Expenses represent the cost of doing business, where doing business is the sum total of the activities directed towards making profit.


Chapter Five


Summary, Conclusion and Recommendations

5.1 Summary

Accounting is as old as the work business itself resuming a new dimension as changes in business world are taking place.

Though accounting is not totally conceived as an information system by some people, it will continue to be the major information system to be relied upon by management of any organization and schools in its decision making process. Accounting has gone beyond the conventional score keeping function. It has extended to attention of directing and problem solving, which are to aid management in its function of planning, controlling and decision making. Accounting information is to aid management in making relevant decision making and assist in hard situation. Apart form this, the information should timely accurate concise and objective. There has been a transitional stage from manual data processing to electronic data processing in many modern businesses.

However, the findings reveal the important of accounting information system in management decision making as well as its important to country at large. This will encourage organizations, schools and government to use information of accounting sector in making her decision.


5.2 Conclusions

Having carefully conducted this research, it is the researcher candid opinion that study of this kind should be encouraged especially at this period of technological advancement within the institution/school. Accounting information system has lapses that can easily be identified. We feel not satisfied to have delved into this area of specialization and prospective scholars to see accounting information system as an interesting field of study.
It is advisable that every institution/school need to have its own accounting information center, so that records of previous accounting programmed could easily be retrieved from the accounting department. It is unequivocal therefore, that proper identification of accounting needs of every staff can be handicapped due to the inadequacy of accounting information and to the complete absence of qualified and competent accounting specialist to the job.

The study revealed that accounting performance a crucial role on management decision and organization performance which has been shown to be major force in the decision making. This is achieved by implementing the best fundamental concept of accounting suitable for each institution.

Studies have shown that successful utilization of accounting information requires a fit between three factors: first, a fit must be achieved with dominance view in the perception or origination of the situation. Second, the accounting system must fit when problems are normally solved, i.e. the technology of the organization. Finally, the accounting information must fit with the culture i.e. the norms and value system that characterized the institution.


5.3 Recommendations.

  1. For the school/institutions to set high qualities information from the system, it requires software for optimal application of accounting information system.
  2. The school/institution should depend on accounting information systems to make financial decision.
  3. Efforts should be made to measure the effect of currently employed accounting concept on management decision making.
  4. School/Institution should always keep records of past events in case of future purpose; this can be possible with the use of computer or by fully automating the institutions operations.
  5. A professional accountant should be employed by the school/institution in order to provide valuable information and keep accurate records of the institution’s account.
  6. Employees should be encouraged to develop themselves by becoming professionals in their chosen career; this will affect the institution to grow positively.
  7. Regular meeting with staff should be organized to disseminate information about the institution and also elicit feedback that helps to improve the institution.
  8. Lastly, Government should also encourage the use of accounting information to makes its financial decision and economic decision as well.

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