ADAMA UNIVERSITY

SCHOOL OF BUSINESS ADMINISTRATION,MANAGEMENT AND TRADE

DEPARTMENT OF BUSINESS ADMINISTRATION AND ACCOUNTING

RESEARCH PROPOSAL ON

'THE CONTRIBUTION OF COMPUTERIZED ACCOUNTING SYSTEM IN THE

PERFORMANCE OF FINANCIAL STATEMENTS'

Case Study Dejenna Endowment

SUBMITTED TO: SOLOMON ALEMU (PhD.)

SUBMITTED BY: NIGUS G/GEORGIS

ID.02025676

JANUARY, 2010
ADAMA UNIVERSITY
 Abstract

This paper is based on a research project which will design to investigate business usage of a

computerized accounting system (CAS) to ascertain if there are obstacles that prevent businesses

from migrating to such a system. Two groups of businesses will be surveyed. Those that currently

use a CAS and those that do not. The purpose of this comparison is to determine what will the major

influences in their decision to use or not use accounting software for their business. A secondary

objective was to learn more about the influence and role (if any) played by their accountant in their

decision. The development of an understanding of the obstacles that inhibit the use of a CAS will be

useful in the building of strategies to encourage greater efficiency in business record keeping.
 Table of content
Content Page
Abstract..........................................................................................................................I
1. Introduction...............................................................................................................1
1.1.Background of the study.....................................................................2-3
1.2.Statement of the Problem.....................................................................4
1.3.Objectives of The Study........................................................................5
1..3.1.General objectives.............................................................................5
1.3.2.Specific Objectives.............................................................................5
1.4.Material and methodology of The Study...............................................5
1.4.1.Method of Sampling.........................................................................5-6
1.4.2.Method of data Analysis.....................................................................6
1.5.Scope of the study..................................................................................6
1.6.Significance of the study........................................................................6
1.7.Limitation of the Study...........................................................................7
1.8.Time budget............................................................................................8
1.9.Cost budget.............................................................................................9
1.10.Out line of The paper.............................................................................10
References..................................................................................................................II
 1. Introduction

The traditional view of business record keeping suggests that it is paper based and filed
in a shoe

box until such time that it is placed in the hands of the accountant for the preparation of
the annual

taxation return. Over the years the accounting profession and business training providers
have

been trying to change the approach to record keeping adopted by small business
operators, with a view

to them holding better records and ultimately improving the management of their
business. With the

introduction of lower-cost and more user-friendly computerized accounting systems

(CAS) there

appears to be fewer obstacles to improved record keeping practices. This paper will
report on the findings of a study that investigated business usage of CAS. It begins with
a review of the literature on

the adoption of Information Technology (IT) and then considers the findings of the study
in the

context of the adoption factors identified. It concludes with a discussion of the issues
that are

associated with the usage of CAS and provides some direction for those organizations
involved in advising business operators about their record keeping.( 16th Annual
Conference of Small Enterprise Association of Australia and New Zealand,28 September
– 1 October 2003)

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 1.1 Background of the study

The primary objectives of the accounting function in an organization are to process

financial information and to prepare financial statements at the end of the accounting
period. Companies must systematically process financial information and must have
staff who prepare financial statements on a monthly, quarterly, and/or annual basis. To
meet these primary objectives, a series of steps is required.(Walter Henson,2006)
A computerized accounting system saves a great deal of time and effort, considerably
reduces (if not eliminates) mathematical errors, and allows for much more timely
information than does a manual system. In a real-time environment, accounts are
accessed and updated immediately to reflect activity, thus combining steps 2 and 3 as
discussed in the preceding section. The need to test for equality of debits and credits
through trial balances is usually not required in a computerized system accounting since
most systems test for equality of debit and credit amounts as they are entered. If
someone were to attempt to input data containing an inequality, the system would not
accept the input. Since the computer is programmed to post amounts to the various
accounts and calculate the new balances as new entries are made, the possibility of
mathematical error is markedly reduced.(Ms.A. Indira,2007)
Computers may also be programmed to record some adjustments automatically at the
end of the period. Most software programs are also able to prepare the financial
statement once it has been determined the account balances are correct. The closing
process at the end of the period can also be done automatically by the computer. Human
judgment is still required to analyze the data for entry into the computer system
correctly. Additionally, the accountant’s knowledge and judgment are frequently
required to determine the adjustments that are needed at the end of the reporting period.
The mechanics of the system, however, can easily be handled by the computer.
(experience.com by Max Weber)
Manual accounting implies that employees perform the whole accounting cycle
manually on a periodic basis: they calculate trial balances, journalize transactions,
prepare financial statement reports and other routines. Of course it takes much time,
resources and effort in large organizations. Computerized accounting implies that the
only thing that employees do is recording transactions into the computer which
processes the other steps of accounting cycle automatically or by a request. But this is a
very simplified view on the computerized accounting because transaction is a complex
category which includes not only sales or acquisitions, but depreciation, premiums and
wages calculation, dividends etc. So computers provide accurate calculations and smart
reports but it takes much time, resources and effort too and it's difficult to assess which
accounting type is more fast and economic.
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If manual accounting requires qualified accountants to keep a record of business
transactions, computerized requires accountants which can use specific software and
thus they cost more. Computer software calculates faster but it does not know what you
need until you can clearly explain what exactly you need. In addition good computerized
accounting system can cost thousands and even millions dollars, depending on the
complexity and the size of organization. Computerized accounting provides better
internal control report system for any given period of time (computer can control
thousands indicators simultaneously and create notifications to the appropriate
departments or workers if some indicators do not correspond to the normal state), while
manual control takes more time.(www.tution.com.hk/computerized -accounting.html).

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 1.2. Statement of the Problem
Every company applies accounting because it is generally accepted that companies have
to reveal certain financial and management information to the government and public
users and of course because accounting is indispensable tool in business decision-
making process. With the development of information technologies there were
developed many computer products (software) that make accounting as easy as ABC for
those who uses them. From this point accounting can be divided into two basic
categories: those which apply manual accounting and those which prefer computerized
accounting systems.(Max Weber experience.com). This paper will target on
the main features of manual and computerized accounting, their benefits and
shortcomings, and their comparison. Even though accounting system is very
important in producing relevant financial statements they have the following problems.
 The problem of manual accounting system includes:reduced speed, increased
effort of accountants, relatively slower internal control reporting, routine work
and some others.
 Computerized accounting system also have problems like: extremely high costs
on developing, introducing and using the system, special trainings for personnel,
increased personnel costs, dependence on machines etc.
 Another problem of computer systems is the fact that there can be
difficulty in determining who entered the data. In a manual system the identity of
the person entering the data can be identified possibly by the person's
handwriting. This cannot be done in a computerized system. This makes it very
difficult to determine who is responsible for errors or fraud.(experience.com by
Max Weber)
 Since the computers do all calculations and processing errors can
occur due to bad design of the program. This can be difficult to detect
especially if the error does not occur frequently and only does so under
particular conditions.
 Computer systems also offer new opportunities for fraud. If a
computerized system is not set up properly and certain checks not put in then the
computer system can be used to defraud the company. The fact that it is difficult
to trace who enters the data only adds to the magnitude of this.
 In a manual system there is a paper trail for the internal auditor to
follow. All records and transactions are kept on paper and so an auditor has
difficulty to examine them.

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 1.3.Objectives of The Study
The objectives of the study has two categories:General and specific objectives:

1.3.1.General objectives
To examine the over all contribution of computerized accounting system in the
performance of financial statements and its usefulness in decision-making.

1.3.2.Specific Objectives
 To analyze the advantages and disadvantages of manual accounting system.
 To examine the negative and positive side of computerized accounting system.
 To assess the trend of changing from manual to computerized accounting system.
 To evaluate the effectiveness of computerized accounting system in preparing
financial reports.
 To understand the role of financial statements in making a difference in decision-
making and its helpfulness to external and internal users of information.
 To compare the manual and computerized accounting system and to select the
best.

1.4. Material and methodology of The Study

To achieve the objectives mentioned earlier,the researcher will mainly employ both
primary and secondary data sources. primary data will be gathered through
questionnaire,observation,discussion with accounting information users
like,auditors,managers,finance heads and accountants who are involved in preparing and
using of financial statements.
Secondary data will be collected through an examination of business records and
reports. the performance of the reports and records will be compared after and before
introducing computerized accounting system.
The manual systems the non-users of computerized accounting system will be assessed.
this study will be expected to complete with in 4 months.

1.4.1.Method of Sampling
This study involved a telephone-based interview of both users of computerized
accounting systems
(CAS) and non-users. Two separate questionnaires were developed, one for CAS users
and the other
for non-users. The questionnaire for CAS users focused on the motivation for using a
CAS to
perform the accounting function. The non-user’s questionnaire concentrated on the
impediments to CAS use and the incentives that would encourage CAS use.

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From the users of computerized accounting system out of Corporate Dejenna
Endowment companies(has 7 private limited companies) in Mekelle town,Tigray region.
three(3) companies will be selected randomly and questionnaire will distribute to
managers,Finance heads,auditors and accountants of each company. And the same thing
is true for the Enderta union from the non-users of computerized accounting system.

1.4.2.Method of data Analysis

In this study a simple quantitative analytical tools like
tabulation,Percentages,Diagrams,Graphs etc will be used to analyze the data collected
through primary and secondary sources.also the researcher can use qualitative
description.
1.5. Scope of the study
Although all business organizations of our country need to asses their accounting
system,this paper is limited to Dejenna Endowment companies to evaluate the
effectiveness of their computerized system and the Enderta union to encourage in order
to change from manual to computerized accounting system in Mekelle,the capital city of
Tigray.

1.6.Significance of the study

Above all,this research will serve for academic purposes enriching the theoretical
knowledge with more practical and real world problems. it is significant not only for
local investigation to help bring the issue in to focus but also as a reference to
researchers as a source of secondary data.
The study will able to generate awareness for all levels of management decision
makers,non-governmental organizations and users of accounting information for
rethinking the specific issues to address and take necessary actions.
Incorporated with other similar studies,this paper will help to the formulation of relevant
information for decision making at local and regional levels.
Also it will pave the way for conducting similar study by others in much more detail and
deeper analysis.
It will also help as a partial requirement for the masters degree in accounting and
finance.

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 1.7. Limitation of the Study

In conducting this paper the researcher may face many constraints like;lack of
availability of enough secondary data and it may be inconsistent with the study. It may
cost more to collect necessary data (information)concerning with the study objectives
and asking information about the accounting system may so difficult because the employ
can not be willing to give the right evidence. but the researcher will try to keep the
quality of the research at its bet level as much as possible.

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1.8. Time Budget
Activity Time in Days
February March April May June
Proposal(ch-1) 1-30
Literature 1-18
review(ch-2)
Organizational 19-30
profile(ch-3)
Discussion and 1-30 1-15
Analysis
Conclusion and 16-28
recommendatio
ns
Final paper June-5
submission

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 1.9. Cost Budget
S/N Items Unit of Quantity (Q) Unit Cost(UC) Total cost(TC)
measurement(U
N)
1 Stationery items:
Disk Pc 5 4 20
CD-R pc 4 4 16
CD-RW pc 3 20 60
Computer paper pkt 2 67 134
Photo copy(questinnaire& page 300 0.30 90
other related materials)
2 Supportive services
secretary page 100 3.5 350
Internet Hours 20 10 200
3 Transportation KM 1000 2000
4 Data collection costs
Training(5 persons 1week 3500
100 per day)
service payment(birr200 1000
each)
Travel expense 300
Contingencies(10%) 767
Total cost 8,437

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 1.10. Out line of The paper

This paper will organize and categorize in to five chapters. the first chapter will
introduce the study with its background of the study,statement of the
problem,objectives,significance of the study,scope of the study and methodology.

The second chapter will deal with review of the literature,which is viewed as a basic of
or point of references to the discussion and analysis of the study.

The third chapter will involve the organizational profile of the host organization.
organizational structure and other necessary information will be stated here.

The fourth chapter will cover the main framework of the study,that is discussion and
analysis concerning the data obtained.

The last fifth chapter will wind up with the already stated theme the study through
conclusions and recommendations to the investigated problems.

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 References

1. Ms. A.Indira,Compuetrized Accounting System, 2007,www.indian.mba.com)

2.Advantage of using computerized Accounting package,www.tuition.com.hk)

3.Walter Henson;Steps of accounting cycle and computerized accounting

systems,article published:2006,Month 8)

4.Max Weber,Experience.com

5.The use of Computerized Accounting system in small business. ( 16th Annual

Conference of Small Enterprise Association of Australia and New Zealand,28
September – 1 October 2003)

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