THE EFFECT OF ACCOUNTING INFORMATION ON THE PROFITABILITY OF A COMPANY

1.1 Introduction

The financial accounting information system is one that is well designed to facilitate the smooth, efficient and uninterrupted flow of data from the point where a transaction occurs through the various stages of data processing to the final stage, thereby culminating in a report.

As a prelude to other parts of this study, this chapter will discuss the background upon which this study was initiated, the statement of problems that led to this study, the Aim and Objectives of the study. Others are Significance of the study, Scope of work, Limitations of the Study and Definition of technical terms.

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1.2 Background of 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).

Therefore, in Cadbury Nigeria Ltd where the research was carried out, the activities that was conducted is to know the Effect of Accounting Information on the Profitability of a Company.

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1.3 Statement of 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 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 thereby increasing profit in companies. Therefore, the study seeks to examine the effects of accounting information system on profitability of a company.

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1.4 Aim and Objectives of Study

The aim of the study is to examine the Effect of Accounting Information on the Profitability of a Company using Cadbury Nig Ltd as a case study. In achieving this aim, the following specific objectives were laid out as follows:

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

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1.5 Research Questions

The study came up with research questions so as to be able to ascertain the above stated objectives. The specific research questions for the study are stated below as follows:

• What are the effects of accounting information system on profitability?
• What are the effects sales volumes on profitability?
• What are the effects of capital structure on profitability?
• What are the effects of expenses on profitability?

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1.6 Research Hypothesis

In order to pursue the objective of this study, the following generalized statements have been designed to guide and aids in obtaining the result for the experiment to be conducted. For this work, the null hypothesis will be represented with H0 while the alternative hypothesis will be represented with hypothesis H1.

• 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.

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1.7 Significance of 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 provides 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.

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1.8 Scope of the Study

The study focuses on the Effect of Accounting Information on the Profitability of a Company using Cadbury Nig Ltd as a case study.

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1.9 Limitations of the Study

During the course of this study, many things militated against its completion, some of which are:

1. Time Constraint: The time frame given to accomplish this project was very short due to school academic calendar and it was carried out under pressure which made the researcher not to implement some necessary features.
2. Research material: availability of research material is a major setback to the scope of the study.
3. Frequent power failure: This made the researcher append more money on fuel to ensure sustainable power.
4. Financial Constraint: Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).

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1.10 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 enhances 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 rendering 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.

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1.11 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