EFFECTS OF ACCOUNTING INFORMATION SYSTEM ON PROFITABILITY OF A COMPANY

EFFECTS OF ACCOUNTING INFORMATION SYSTEM ON PROFITABILITY OF A COMPANY

Abstract

This study explored the impact of accounting information systems on the profitability of a manufacturing company, a case study of Cadbury Nigeria PLC.

The study used a survey design and targeted sampling techniques to select 450 of his employees from management, upper and lower levels. Data obtained from administering questionnaires were analyzed using Pearson’s correlation analysis.

The results showed a positive and significant relationship between subvariables and profitability across accounting information systems (r=0.896; p<0.05).

The study concluded that accounting information systems have a significant impact on the profitability of manufacturing companies in Nigeria.

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 infomation 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’s sad to see so many companies’ revenue targets taking a hit these days. The company’s decline in profitability was marked by the aftermath of the 2008 global economic crisis, which continues to this day (Osisioma, 2010).

Regarding the use of the accounting information system “AIS” Effectiveness is the widespread dissemination of information required by various users in an organization. It influences decision-making and supports organizational and managerial coordination within an organization. Therefore, effective decision-making is critical to organizational performance, thereby increasing profits. This basically describes the relationship between the use of accounting information systems and organizational performance. Given the situation in Jordan’s banking sector, the current issue is the trend of adaptive investment and the introduction of electronic technology into the banking sector (Al-Majali, 2011).

The use of information is not restricted to specific managers or departments, but the need for use of information by managers at all levels increases the importance of management information systems within an organization. Accounting information is known as a system for collecting, recording, storing, and processing data to produce information for decision makers (Romney & Steinbart, 2009).

Accounting information is information provided by accountants and accounting systems. The information is usually displayed in financial statements such as the company’s income statement and balance sheet. It also includes all financial measures extracted from that financial statement. An enterprise’s accounting system analyzes and monitors the financial situation of an enterprise, prepares the necessary documents for tax purposes, and supports many other organizational functions such as production, marketing, personnel management, and strategic planning of enterprise festivals. It serves as a source of information for Without such a system, companies find it very difficult to measure performance and identify customers.

1.2 Problem

In general, information systems are developed using information technology to assist people in accomplishing tasks. Therefore, most companies focus on developing information systems that support decision-making systems, communication, knowledge management, etc. An important part of this information system required for business decision making is the accounting information system.

Today, information technology and an increasingly transparent financial sector are key forces in business operations, strategy, structure, ownership and profit generation. These forces have a transformative impact on many industries and have a significant economic and social impact on organizational effectiveness. Structurally, the emerging information technology industry is not characterized by typical traditional processes that slowly emerged from the need to increase efficiency, reduce operating costs, and increase corporate profits. Therefore, this study seeks to examine the impact of accounting information systems on corporate profitability.

1.3 Purpose of the survey

The primary purpose of this study is to examine the impact of accounting information systems on corporate profitability.

Specific goals are

Examining the Impact of Accounting Information Systems on Profitability
Determining the impact of sales volume on profitability
Determining the impact of capital structure on profitability
Exploring the impact of spending on profitability
1.4 Research question

What is the impact of accounting information systems on profitability?
How does sales volume affect profitability?
What is the impact of capital structure on profitability?
What is the impact of spending on profitability?
1.5 Research hypothesis

Hypothesis 1

H0:
There is no relationship between sub-variables and profitability across accounting information systems.

H1:
There is a relationship between subvariables and profitability across accounting information systems. 1.6 Operationalization of variables

Regarding the range of variables, this study covers two groups of variables: dependent variables and independent variables. The study’s dependent variable is profitability. The study also focuses on a combination of independent variables accounting information systems, costs, sales, and assets.

functional equation; in general, y= f(x)

From 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 (example)

P= f(AIS) ————————- equal to 1

P= f(SV) ———————Equation 2

P= f(CS) ——————————————– equal to 3

P=f(Ex) ——————————————– —–Formula 4

1.7 Validity of research

This study is relevant to determining the benefits that Nigerian companies will derive from integrating accounting information systems into their operations.

Accounting information systems provide information about a company’s financial resources, liabilities, and activities that are primarily available to external decision makers (investors and creditors). This study provides information useful for investment and credit decisions.

Finally, this research will also help other researchers interested in the problem under study. Because this study created a platform for conducting further research on this subject.

1.8 Scope of investigation

This research focuses on “the impact of accounting information systems on firm profitability”.

1.9 Definition of Operational Terms

Financial reporting is the systematic process of recording, transmitting, summarizing, analyzing and reporting financial information.

Accounting Information This refers to systems for storing and processing financial and accounting data used by decision makers.

Accounting information system:
is defined as a computerized system that enhances control and improves collaboration within an organization.

advantage:
This is the amount of money the company has earned after deducting all expenses, from which it can withdraw while retaining the capital that existed at the start of the business. Sale:
This is the operating profit that a company makes from selling its products or providing services. Also known as revenue, it is reported directly on the income statement as earnings or net income.

Sales Volume: The number of units sold during the period. This number is used by investors to see if the company is expanding or shrinking.

Financial assets; these are owned by a company with a measurable future economic value. Examples include cash, investments, accounts receivable, inventory, land, buildings, equipment, and vehicles.

Capital structure:
This is how companies use various funding sources to fund their overall operations and growth. Debt can come in the form of bond issuances or long-term debt obligations, while equity can be classified as common stock, preferred stock, or retained earnings. Current liabilities, such as working capital requirements, are also considered part of the capital structure.

cost:
These are the money spent or expenses incurred in the company’s revenue-generating endeavors. Expenses represent the cost of doing business. Doing business is the sum of activities aimed at making a profit.