Many business owners starting a new business choose to operate their company as sole proprietorship. Sole proprietorship is the most simple stand common form of business structure, with all assets owned and operated by a single individual and all liabilities incurred are the responsibility of the owner himself. This type of business organization is best suited for small business operation.The primary advantage of the sole proprietorship is the simplicity of its organization and operation wherein all decision-making capability is under the control of a single individual in terms of tax issues and preparation, the owner pays on the profits as part of their personal income.(Business Structures: Sole Proprietorship 2014)However the sole proprietorship is not a separate legal entity under the law. The owner is solely and totally responsible for all debts of the business organization which can include the owner’s personal assets and properties in the event that the business cannot fulfill its obligations to creditors. This means that the owner has the possible to face personal bankruptcy if the business falls into significant debt.
As a result, a single individual starting up a business using sole proprietorship should carefully consider the potential liability issues involved with the type of business activity before settling on this type of structure.Most businesses began as sole proprietorships which eventually turned into a more complex business forms as the entity continues to develop. The reason for this is because sole proprietorship is the easiest and least expensive type of business structure to operate.
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Activities that are suited for sole proprietorships are home retail and service businesses. A service business sells services or intangible products directly to consumers as per their demand. An example of this business activity is a printing service.Printing is an appealing business that goes back to 175AD, where in China and Korea practiced printing on such woods. Thereafter, Johann Guttenberg of Mainz, Germany, invented a way to cast separate type pieces in an alloy of mainly lead.
These were hand set into pages of text for printing and next made a letterpress where typeface was inked. The paper was then put over the type and the handle of the press pulled to make the impression.In the brief history of printing, it took until about 1800 for printing to really evolve. A man called Earl Stanhope made the first iron press. It was the same method of printing as that of wooden presses, but they used a larger sheet could be printed due to the rigidity of the iron. Subsequently, a Columbian iron press invented by George Clymer began to be reproduced. Earlier platens or the roller of a printer were treadle and hand fed, but they were quicker because the rollers automatically applied the ink.
And then later platens had auto feeders driven by motors. Then turn out to the invention of laser printer by Gary Starkweather in 1969 and the birth of digital revolution originated from computer. (A Brief History of Printing 2014)Manual accounting systems, although less common today are still the primary choice of record keeping for some small businesses. In some cases, a manual bookkeeping regime may still be maintained in addition to a computerized system, hence providing an additional layer in the processes of internal control for the business. Bookkeeping systems and manual accounting are the traditional form of maintaining a business’ accounts and records. They involve safekeeping various ledgers and files which generally include a cash book, sales and purchase day books and petty cash sheets. The use of basic manual bookkeeping systems are still the preferred method of accounting because it requires little knowledge or skill in accounting for those who have used them in the past. (Manual Accounting System 2013)Small business commonly used manual accounting system since it is impractical that they must buy expensive accounting software and a computer with a lot of memory.
Manual accounting has advantages but also have disadvantages over computerized accounting.(Johnston 2017) In recording business transactions, manual accounting can teach you the ins and outs of balancing debits and credits and keeping up with things such as depreciation costs and overhead expenses. This direct practical experience helps in understanding accounting transactions one opted to computerize its accounting later. One of the disadvantages of manual accounting is the amount of time you must put into it.
It does not have a computer categorizing and total in figures, so there must be someone who would do this himself. It takes more time to do manual accounting than it does computerized accounting.Manual accounting can be more tiresome than computerized accounting.
Having to add columns accurately, double-checking work and physically write in numbers. These routine tasks are handled operatively and efficiently by computerized systems.One of the strongest benefits of manual accounting is cost savings. Accounting software can be expensive. If the business is just starting, it can save money by doing the accounting manually thus even saving the expense of having a bookkeeper. Also, the business would not have to worry about computer glitches and software crashes.
Nowadays the demand for real and valid data given by the accounting information system has risen. Their quality and feedback relies on the applied accounting software, the integrity of the database and the professional skills and flexibility of the accountants.(Toth 2012) In the business world those enterprises and firms can be successful which are ready and able to renew. An important element of this ability is application of modern software in the economic processes and connecting the modules supporting different areas for the sake of more efficient operation that naturally concerns the accounting information system as well.In the 20th century, the worldwide expansion of technology and informatics produced the potentiality of using the information obtained from the accounting information system consciously and efficiently.
The spread of informatics has given rise to an entirely new way of providing information. The evolution of information technology is a great assistance in accounting to manage the piles of data. Accounting software is a program that makes accounting work processes easier and faster as well as provides potential to meet the information demand of the management. Accounting software supports the accountants’ work and helps compile reports by recording and processing the transactions concerning the business in which, according to the law, states that accounting statements and reports must be published electronically since 30th of April, 2009. It also helps preparing tax return having a system of electronic tax returns introduced on 1st of January, 2007.
With some exceptions, since then statements on paper have been largely abolished.Besides the provision of the basic information, the accounting software should meet the demands for supplying data that management can depend its decisions and for informing different subsystems dealing mainly with planning. One of the areas requiring extra information within the business entity is management accounting. The effective operation of which needs the functioning of the accounting system at a high level where in its devices are the modern computing programs. Appropriate decisions made in proper time need accounting information which is produced by the information system supported by accounting software (Toth 2012). Accounting Information Systems as a part of company’s information systems are seen as facilitating decision making within organizations and should be tailored to an organization’s environment, requirements of task, and structure.
(Fontinelle n.d.) An accounting information system is a structure that a business uses to collect, store, manage, process, retrieve and report its financial data so that it can be used by accountants, consultants, business analysts, managers, chief financial officers, auditors and regulatory and tax agencies.
In particular, specially trained accountants work with AIS to ensure the highest level of accuracy in a company’s financial transactions and recordkeeping and to make financial data easily available to those who legitimately need access to it, all while keeping data intact and secure(Saeidi 2014).(Toth 2012) The accounting information system is the frame of practical accounting activity, as it tracks the events of the enterprise; supplies data for the managers’ decisions; and organically contributes to the reports for the managers, to the financial statements, to compiling the expense management systems, and last but not the least, to the controlling reports.(Tapos 2014) Qualitative characteristics of accounting information can also be maintained if there is sound internal control system in an organization. Internal controls are procedures set up to protect assets, ensure reliable accounting reports, promote efficiency and encourage adherence to company policies. Internal controls are necessary to accomplish some objectives like effectual and orderly conduct of accounting transactions, safeguarding the assets in accordance to management policy, prevention of error and detection of error, prevention of fraud and detection of fraud and ensuring accuracy, completeness, reliability and timely preparation of accounting data. If an effective internal control exists in any organization, management can apply information with greater reliance to sustain their business activities properly which provides accounting information system. However if internal control is weak, management cannot achieve its goal. (Tapos 2014) Also found that the following criteria or indicators are supposed to be present in any accounting information system for it to be efficient in any organization which is, cost effectiveness, good documentation, existence of proper security measures, independent internal and external audit, separation of other operation from accounting, and effective internal control.
(Romney and Steinbart 2015) Developing an internal control system requires a thorough understanding of information technology capabilities and risks as well as how to use information technology to achieve an organizational control objectives. Accountant and systems developers help management achieve their control objectives by designing effective internal control systems that take a proactive approach to detect, correct, and recover from threats when they occur. It is easier to build controls into systems at the initial design stage than to add them after the facts. The researchers alleged that internal control perform the following important functions:The first function is preventive controls that restrain problems to happen before they arise. This includes hiring qualified personnel, segregating employee duties, and controlling physical access to assets and information.
Another function that discovers problems that are not prevented is detective control. It includes duplicate checking of calculations and preparing bank reconciliations and monthly trial balances. Corrective control is the next functions which identifies and correct problems as well as correct and recover from the resulting errors. This involves maintaining backup’s copies of files, correcting data entry errors and resubmitting transactions for subsequent processing.Next would be the general control. This function controls designed to make sure an organization’s information system is stable and well managed.
Examples of this are security infrastructure, software acquisition, development and maintenance control. The last function is application control is which prevent, detect, and correct transaction error and fraud in application programs. It concerns with accuracy and authorization of data captured, entered, processed, stored, transmitted to other system and reported.(Idago 2013) Many small scale businesses do not use Accounting Information System which resulted in poor performance levels as a result of lack of business information records keeping. Furthermore, issues like fluctuation in demand or change in customer’s attitudes towards certain product or services cannot be easily forecasted or easily determined by management. (Muhindo, Kapute Mzuza and Zhou 2014) The major problem found was that, most small scale businesses do not have accounting information system which always results to low performance levels.
The research findings showed that accounting information plays a vital role in our economy especially in its management and works efficiently in facilitating management decision making process. They also found out that most small scale businesses do not apply accounting information systems resulted into low profit. Moreover, the study concludes that there is a positive relationship between accounting information system and profitability level of small scale businesses.
The researchers therefore suggest that the government should create policies and guidelines that will facilitate the implementation of these systems in the small scale business environment. In addition to that, policy makers should being put with information in assessing the relationship between the accounting information systems and profitability of small business, hence making better policies regarding information technology facilities. Accounting information system has a significant effect on organizational effectiveness. The study examined the effect of accounting information system on organizational effectiveness specifically on quality of financial report and decision making (Onaolapo and Odetayo 2012). The effectiveness of accounting information system has positive effect on performance and learning organization and organizational support are likely to have positive influences on effectiveness of accounting information system. Moreover the result can be especially necessary to improve learning organization and organization support ability and facilitate coping with effectiveness of accounting information system reliability, relevance and timeliness (Pornpandejwittaya 2012).
(Ruhayu 2012)Examined the influence of management commitment on data quality and accounting information system. He finds out that management commitment and quality of data together have adequate effect on the accounting information system, although he suggested that contribution of management commitment need to be improved and also to management adequacy training and funding of resource development need to be considered by organizations.Contradicting the study of (Al-Hiyari, et al. 2013), that showed no significant relation between data quality and accounting information quality, perhaps they perceived that even highly quality accounting data may be manipulated by management consistent with prior studies about earning management.(Hla and Teru 2015) Human resources affect organization performance for they are the main part of accounting information as they are involve in data entry, processing and output. Moreover, human resources are likely to be the sources of sustained competitive advantage. Therefore, the researchers recommend that the businesses should adopt the application of accounting information system in their business management. In anticipating their business to progress, businesses or firms that have already implemented these systems should train all their staff on the efficiency use of the system.
However, if companies have the ability to adjust their computerized techniques of internal control mechanism according to AIS, they will be able to ensure the reliability of financial information processing and boost the control measures of the effectiveness of the financial information.When the controls are applied properly in an entity, its effectivity and efficiency will result in better financial information reliability. Reasonable accounting information is essential for every effective decision making process and reasonable information is possible if accounting information systems run efficiently. Accounting information systems ensures that all levels of management get sufficient, adequate, relevant and true information for planning and controlling activities of the business organization.