ASSESSMENT OF ACCOUNTING AND

REPORTING PRACTICE (CASE STUDY OF

BAHIR DAR TEXTILES SHARE COMPANY)
Senior essay submitted to the partial fulfillment of BA
degree in Accounting and Finance

Prepared By;

STUDENTS, NAME ID NO
1. HAYMANOT MEZGEBU………………………………..……0403393
2. KBRUYSFA DAMTIE…………………………………………0403401
3. KIDANE BIRATU……………………………………………..0403403
4. MISRACH YAKOB……………………………………………0403421

Advisor: Instructor
Fentahun.L

ACOUNTING AND FINANCE DEPARTMENT

COLLEGE OF BUSINESS AND ECONOMICS

BAHIR DAR UNIVERSITY

June
2014

BAHIR
DAR ETHIOPIA

[i]
DECLARATION OF ORGINALITY

We, the researchers, conform that the senior essay titled “ASSESSESMENT OF
ACCOUNTING AND REPORTING PRACTICE (case study of Bahir dar textile Share
Company) “is our original work and is being submitted in partial fulfillment for the award
of the BA Degree in accounting and finance in Bahir Dar University. This report has not
been submitted either to this University or to any other University/Institution for the
fulfillment of the requirement of a course of study.

Name of students Signature Date

1. Haymanot mezgebu ………………… ……………

2. Kbruysfa damtie …………………… ……………
3. Kidane biratu …………………… …………..
4. Misrach yakob ………………… ……………

APPROVAL BY ADVISOR

……………………………......... …………………… ……………….

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ACKNNOWLEDGMANET

 First of all we would like to praise the almighty of God who helped us from the
inception to this end.
 Second and for most, sincere gratitude and appreciation goes to our adviser Ato
Fentahun (instructor in Bahir Dar University) for this detailed, thoughtful comment and
suggestion in developing the paper.
 Last but not least, we would like to thanks the Bahir dar textile share company employees
who help us for this study.
 We would like to thanks our family for their ideas, and financial support.
 We would like to tanks our friend Getnet Dagne for his support.
 Finally we would like to tanks everyone who supported us at the preparation of this
study.

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 List of table

TABEL PAGE

TABEL1. Company’s major transaction…………………………………………….………19

TABEL2. Assessing company’s transaction…………………………………………………20

TABEL3. Companies financial statement …………………………………………………….20

TABEL4. Accounting method of the company …………………………………….…………21

TABEL5. Financial report by evidence………………………………………………………..22

TABEL6.Periodic revenue match with periodic expense………………………………………23

Tabel7. Accounting practice improvement.......................................................................24

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Abstract

Accounting provides financial statements that provide the means of performance evaluation.
Same financial statements are used for decision making of all departments by management
board: a case study of Bahir dar textile Share Company. The objectives of the study, to assess the
accounting practices used in Bahir dar textile share company, to establish whether the
organization keeps proper accounting records, to relate the accounting practices used by the
organization and their impact to the organization performance. The researcher used purposive or
non-probability sampling methods. Using purposive sampling, a sample of (18) people was
selected for the study. The research findings indicate that there is a strong positive relationship
between accounting practices and organization performance. This implies that increase in the use
of accounting practices improves or increases the efficiency of organization performance.

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Chapter 1
1.1 BACK GROUND OF THE STUDY 1
1.2 Statement of the problem 2
1.3 Objective of the study 3
1.3.1 General objective................................................................................................................3
1.3.2 Specific objective.................................................................................................................3
1.4 Research question 3
1.5 Significance of the study 3
1.6 Scope of the study 4
1.7 Limitation of the study 4
1.8 Organization of the study 4
chapter two
2.1. Conceptual review 5
2.1.1 Fundamental accounting practices, concepts and their relevance....................................6
2.1.1.1 Consistency concept.....................................................................................................6
2.1.1.2 The prudence concept..................................................................................................6
2.1.1.3 Depreciation.................................................................................................................6
2.1.1.4 The going concern principle.........................................................................................7
2.1.1.5 Realization of revenue..................................................................................................7
2.1.1.6 Disclosure.....................................................................................................................7
2.1.1.7 Accrual concept............................................................................................................7
2.1.2 Types of Accounting Practices............................................................................................7
2.1.2.1 Purchasing system........................................................................................................7
2.1.2.2 Sales accounting system...............................................................................................8
2.1.2.3 Inventory and stock practice........................................................................................9
2.1.2.4 Payroll system..............................................................................................................9
2.1.2.5 Accounts receivable system.......................................................................................10
2.1.2.6 Accounts payable system...........................................................................................10
2.1.2.7 General ledger............................................................................................................11

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 2.1.3 Accounting practices procedures and their effectiveness................................................12
2.1.3.1 Effectiveness of accounting practice..........................................................................12
2.2 Empirical literature review 13
CHAPTER THREE

3.1 Research design 16

3.2 Target population 16
3.3 Sample techniques 17
3.4 Sample size 17
3.5 Data type 17
3.6 Data source 18
3.7 Methods of data analysis 18
CHAPTER FOUR
4.1 Asses accounting and reporting practice of Bahir dar textile Share Company 19
4.1.1 The major transaction of the company:...........................................................................19
4.1.2 Assessing of the company transaction.............................................................................19
4.1.3 The company prepares financial statement.....................................................................20
4.1.4 When the financial statement is prepared.......................................................................21
4.1.5 Before the current period the company changed its accounting method:......................21
4.1.6 The company’s financial report supported by evidence:.................................................22
4.1.7 What kind evidence the company use.............................................................................23
4.1.8 The Company’s periodic revenue coincides with periodic expense:................................23
4.1.9. The company’s accounting practice improvement.........................................................24
CHAPTER FIVE
5.1. Conclusion 26
5.2 Recommendation 27

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[viii]
CHAPTER ONE

1.1 BACK GROUND OF THE STUDY

Accounting plays an important role in our economic and social system, sound decisions made by
individuals, business, governments, and other entities are essential for the efficient distribution
and use of the nations scare resources. To make such decisions, these groups must have reliable
information provided by the accounting system, the objective of accounting, therefore, is to
record, summarized, report, and interpret economic data for use by many groups within our
economic and social system, (warren, 1999)

Financial Reporting is the process of supplying general-purpose financial information to people

through published financial statements to outside the Organization including shareholder,
creditors, Government agencies and the public (Meigs R. F., Meigs, W. B., & Meigs, M. A.,
1995).

In order to know the resources are effective utilized an institution should prepare reliable
financial reports , these reliable financial reports are the results of practicing accounting and
reporting system as per GAAP and conventions.

According to (Patricia, 1995), Governmental financial reporting should provide information to

assist user in assessing accounting and making economic, Social and political decision, a report
show the overall performance of an institution, by means of a financial report government ,
donors , creditors and other stock holders communications, with an institution so that they make
their own decision, however, if financial report is not prepared according to the principles or
GAAPs it mislead the users.

This research assessed accounting and reporting practice in Bahir dar textile Share Company.

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1.2 Statement of the problem
Manufacturing companies are producing financial statements as the final end product of their
accounting process. These financial statements provide relevant financial information both to
those inside the company management and outside the company creditor, stockholder, and other
interested parties (Hermanson, 1989).

The use of monetary unit for recording and reporting the activity of the business has two major
limitations. First it limits the scope of accounting reports, second, it assume stable units of
measurement. Many factors affecting the activities and feature prospects of business cannot be
expressed in monetary terms. In general accounting cannot attempt to such factors. Such as,
information regarding the ability of management, the fairness of an employee health program,
strength and weakness of competitor cannot be expressed in monetary term (Warren, 1999).
Several researchers and organization have done a lot of work on the accounting practice adopted
by business organization in Ethiopia and abroad. For example, (Gouws, D. G. Cronjé, C. J, 2008)
state that, the accounting practices generate accounting information and corporate annual reports
reflect these practices. It shows that an interdependent relationship between traditional
accounting practices and contextual accounting practices and therefore, the contextual
accounting practices have the potential to evolve into GAAP. And (Wu, 2004)state that,
corporate sector as the main source of corruption problems in Asia, with particular emphasis on
the impact that firm accounting practices have on the level of bribery. (Wu, 2004) suggest that
better accounting practices can help reduce both the incidence of bribery activities and the
amount of bribe payments, but conforming to high quality accounting standard alone will not
necessarily enhance the quality of accounting practices and thus will not automatically bring
down the level of bribery.

In those studies the researcher try to show the effects of bribery activities on accounting and
reporting practices and also they show the interdependency relationship between traditional
accounting practices and contextual accounting practices.

In this study the researcher assessed some aspects of accounting and reporting practices of Bahir
dar textile share company, such as accounting treatment of transactions, methods of recording,
reporting and disclosure of asset, liability and capital, and the current financial accounting
methods of the company.

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The company (Bahir dar textile Share Company) prepares financial statement at the end of each
year. At the time of purchase, when the company purchase raw material from suppliers or
vendors the company paid cash before receiving the raw material and at the time of sales the
company delivered its product for its customer before receiving the cash. It leads the company’s
financial report to have a problem. In this research, the researcher assessed accounting and
reporting practice in Bahir dar textile Share Company.

1.3 Objective of the study

1.3.1 General objective

The general objective of the study is to assess the accounting and reporting practices of Bahir
dar textile Share Company.

1.3.2 Specific objective

 To assess the accounting treatment of financial transaction
 To assess how assets, liabilities, and capital are recorded, reported and disclosure.
 To assess the current financial accounting methods of the company

1.4 Research question

 Is the company prepared financial reports for all assets that can be measure in monetary
term?
 To what extent the company uses the principles at the time of preparing financial
reports?
 Is the company keeping proper accounting records?

1.5 Significance of the study

This study expected to benefit for the company in many aspects, it enables the management of an
organization to realize the potential of practicing accounting and reporting system for decision-
making. It also enables the accountant to realize the significance of adhering to accounting
principles and conventions at the time of prepare reliable financial statement. It could also serve
as a reference regarding the accounting and reporting practices of the Company.

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Moreover, it also used to guide for other similar companies to develop the accounting and
reporting system. In addition, it may help other researchers who want to conduct a research on
similar topics or area.

1.6 Scope of the study

The study focused on the accounting and reporting practice in Bahir dar textile Share Company.
The study would not assess the detail of the other accounting aspects of the company unless it
related to accounting and reporting implications. In addition, the study covered some important
aspects such as, accounting treatment of financial transaction and how assets, liabilities and
capitals are recorded and reported.

1.7 Limitation of the study

The research study is not free from limitation there are some issues which has hindered the
attainment of the study objectives some limitation that the research couldn’t asses’ application of
accounting information system, and directly observe the branch company accounting and
reporting practice, because of time and financial constraint.

1.8 Organization of the study

This study organized in to five chapters, which consist of different categories. The first chapter
includes background, statement of the problem, objectives of the study, significance, delimitation
of the study, and limitation of the study. The second chapter deals with review of related
literature. The third chapter is about research methodology. The forth chapter will presents the
data collection and analysis. The last fifth chapter is about the conclusion, and recommendation
of the research.

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CHAPTER TWO

2. Literature review

The previous chapter discusses background of the study, research problem, and objectives, and
research questions, scope of the study and limitations of the study. This literature review aims at
providing necessary theoretical background of the topic as well as the empirical facts about
accounting and reporting practice. Therefore, it structured as follows; conceptual framework,
empirical framework, and theoretical framework.

2.1. Conceptual review

Even as not complicated as today, accounting has been part of human life since the first
beginning. It is a well-known fact that there were accounting records in Ancient Greeks &
Roman Empire in 3600 BC within context of accounting principles. According to the accounting
historians, the first book concerning accounting was LucaPacioli’s Summa de Arithmetica,
Geometria, in1494

Accounting practices have been use for thousands of years. As business grew, people to keep
track of costs and profitability invent accounting practices. Modern accounting measures
communicate financial information about an entity. This information used to plan, control,
evaluate and make decisions about a business. The process begins with bookkeeping, with record
transactions such as checks and invoices, and summarizes these transactions in financial
statements. Financial managers use the financial statements to raise and spend cash and make
intelligent financial decisions (down, 1997)

Accounting practices are the major quantitative information system in almost every organization.
They should provide information for three broad purposes, internal reporting to managers for use
in planning and controlling routine operation, internal reporting to managers for use in making
routine decisions formulating major plans and policies and external reporting to stake holders,
government and other outside parties for use in investment decision, income tax collection and a
variety of other application (Horngren, 1973)

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The form of accounting information reputed to decision makers depends on accounting practices
adopted. These practices imposed by accounting policy makers who, having knowledge of
accounting theories, have the responsibility of responding to the needs of users of accounting
information. However, it is evident that deficiencies in accounting theory, policy making,
accounting practice and the use of accounting information, impair the usefulness of an
accounting information service (Glautierand Underdown, 1997).

2.1.1 Fundamental accounting practices, concepts and their relevance

According to statements of standard accounting practices, the fundamental practices include the
following:

2.1.1.1 Consistency concept.

The purpose of the consistency concept is to assure that financial statements can be easily
compared period to period, and therefore to encourage that the same accounting principles be
used from year to year. When changes in accounting methods are necessary, such changes should
be disclosed and the reasoning explained in notes to financial statements. If businesses were
allowed to change accounting principles whenever they wished, the amount of net income
reported could continuously be manipulated. Different accounting methods may be used for
different business segments (Petroff, 1989).

2.1.1.2 The prudence concept.

This concept in accounting governs the recording and reporting of financial transactions, "such
that the assets or income are not overstated and liabilities or expenses understated. Prudence in
accounting is about exercising due caution in preparing financial statements to reflect the least
favorable position, particularly as accounting depends on estimates even for simpler transactions.
It is, therefore, one of the fundamental principles of financial accounting and is considered very
important by the IAS (International Accounting Standard). (vector, 2011)
2.1.1.3 Depreciation.
It is defined as a portion of the cost that reflects the use of a fixed asset during an accounting
period. A fixed asset is an item that has a useful life of over one year (John, 2005).

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2.1.1.4 The going concern principle
Is the assumption ,that an entity will remain in business for the foreseeable future. Conversely,
this means the entity will not be forced to halt operations and liquidate its assets in the near term.
By making this assumption, the accountant is justified in deferring the recognition of some
expenses until a later period, when the entity will presumably still be in business and using its
assets (Wiley GAAP, 2012).

2.1.1.5 Realization of revenue.

It refers to the timing of its recognition in the accounting records, in other words, when the
increase in value of the goods and services “really happened”, that value was “recorded”
(recognized) in the company’s books. (John, 2005).

2.1.1.6 Disclosure.
This principle states that the accounting methods adopted should be disclosed in the accounts and
in particular any changes in those methods. The conclusion to be drawn is that methods should
be consistently applied and disclosed but if for any reason a change is deemed to be appropriate
then attention should be drawn to the fact (Blackwood, 1995).

2.1.1.7 Accrual concept.

According to this concept, income is recorded as earned even though it might have not been
received cash provided there is right to income the portion of income that has not been received
cash is recorded as asset (j.Omunuk, 1999).

2.1.2 Types of Accounting Practices

The accounting practice is an information system that enables us to make some important
deduction. It has sub- systems (Glautier & underdown, 1997), the main ones being:

2.1.2.1 Purchasing system

This relates to the procurement of raw materials or merchandize inventories. It is carried out by
the purchasing department, each request is made on a requisition form stating the nature and the
quantity required which is signed by an authorized person.
The purchasing system involves ordering, receiving and payment for goods and services required
by the organization. It consists of the following stages. Identification of the need for the
acquisition of goods and services (Kokand, 2003).

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  Placement of an order - Requisition notes for purchases should be authorized by a
responsible official in the user department. All orders should be recorded on official
documents showing suppliers names, quantities ordered and the price.

 Receipt of the goods and services -There should be a separate department or personnel
to deal with receipt of all goods. All goods should be checked for quantity and quality
and goods received notes should be raised for all the goods accepted should be
sequentially pre-numbered.
 Financing and returns - The invoices should be signed and approved for payment by a
responsible official independent of the ordering and receipt of goods. All invoices should
then be entered in the purchases day book and posted to the purchases ledger. A record of
goods returned should be kept and checked to the credited notes received from suppliers.
 Disbursement of cash- Checks should be prepared with supporting documentation by a
responsible official independent of the purchases department. Checks should be signed by
more than one person. Checks should then be entered in the cash book.
 Recording of the transaction involved- A creditor’s ledger control account should be
maintained and regularly checked against balances in the ledger by an independent
person. Creditor’s ledger records should be kept by personnel independent of receiving
goods, invoice authorization and payment.
2.1.2.2 Sales accounting system.
This includes; order taking, establishment of credit terms, the preparation of paper work,
recording tax data and sometimes determination of sales representatives commission, It is carried
out by the sales department.
The sales invoice states the nature, quantity and price of the goods ordered and the amount due to
the firm by the customer. Customers are normally required to pay within one or more months,
depending on the agreed credit terms. On that note, the sales invoice is the source document
which provides the data which will be recorded in the financial accounting system. The sales
order is used for the following purposes; as a means of confirmation of sale, means of initiating a
procedure for checking the credit- worthiness of a customer prior to proceeding with the
completion of the order, as a document authorizing the release of the goods from stock, as a

[8]
means of checking and dispatching the right goods to the right customer and a means of
preparing the sales invoice which will state the amount due from the customer.

2.1.2.3 Inventory and stock practice.

This system relates to raw materials, finished goods and merchandise inventories.
Inventories are stocks kept for manufacturing or sell and the components that make up a finished
product. The inventory cycle arises only when a firm holds inventory. Effective inventory
should; ensure continuous supply of raw materials to avoid production interruption, maintain
sufficient raw materials stock in product of short supply and increasing prices, maintain
sufficient finished goods for smooth operation and customer service and keep optimum
investment in inventories.
However, (Ntege., 2003)says that in most organizations. Balance sheets have got a big figure for
stock, in manufacturers companies, inventory or stock stretches from raw materia1s, work in
progress, finished goods and any other maintenance or service items. Each of the above type of
inventory smoothens out the business activity so that firms enjoy flexibility in purchasing, in
operations, and in maintaining. Inventory prevents organization from purchase from expensive
sources, idleness of fixed assets and labor force and inability to meet customer demands whether
seen or not.

2.1.2.4 Payroll system

This relates to payment of wages and salaries, commissions, withholding tax and other
deductions. Manipu1ation of the wages record is probably one of the easiest ways of concealing
substantial misappropriation of cash and therefore the most commonly resorted to. It is therefore
imperative that wage recording and payments are dealt with by the business in a systematic
manner that adequate checks are in place. Payroll management should involve; the maintenance
of a permanent record for each employee, recording of time worked the calculation and
recording of wages and authorized deductions, disbursements to employees and allocations in the
books of account (Arora, 1995).
further notes objectives of payroll system as the computation of wages and salaries are only in
respect of the firm’s employees, wages and salaries are in accordance with the salary scales or
with records of work performed in terms of time, output, commissions on sales, the payment is
calculated accurately, payment is made to the correct employees including unclaimed wages;
payroll deductions are correctly and accounted for and paid to appropriate parties at the correct

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time, cash in the office and the money in the banks is safe guarded and all payroll transactions
are accurately recorded and processed in the accounting records.

2.1.2.5 Accounts receivable system.

This involves the preparation of customer invoices and periodic statements for goods and
services sold on credit. It also involves the maintenance of accounts receivable records.
According to (Ntege, 2003) selling goods or services on credit results in costs being incurred by
a business. These costs include credit administration costs, bad debts and opportunities foregone
in using the funds for more profitable purposes. However these costs must be weighed against
the benefits of increased sales resulting from the opportunity for customers to delay payment.
When a business offers to sell its goods or services on credit, it must have clear policies
concerning which customers should receive credit.
However, (Puttick, 1982)states that, a business must determine what credit terms it is prepared
to offer its customers. The length of credit offered to customers can vary significantly between
businesses. The length of credit may be influenced by various factors which include; the typical
credit terms operating within the industry, the degree of competition within the industry, the
bargaining power of particular customers, the risk of nonpayment, the capacity of the business to
offer credit and the marketing, strategy of the business.

2.1.2.6 Accounts payable system.

This involves the preparation of invoices received from suppliers and preparation of payment
vouchers for subsequent disbursement of cash for purchases made. The major transactions of the
accounts payable system are those between the firm and creditors. Creditors are individuals and
financial institutions that extend credit to their customers or clients. Trade creditors or suppliers
are interested in getting paid for goods and services that they extend on credit.
Financial institutions like banks that extend loans to customers are interested in making sure that
the loans are serviced and do not become nonperforming. Before loans or any credit is granted,
the credit worthiness of the applicant is analyzed. Credit analysis can only be possible if
accounting information in form of financial statement exists (J.Omunuk, 1999).

Notes that, for businesses selling goods on credit, the system has four main areas with the
following objectives;

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  Dispatch and invoicing- Goods are dispatched to the correct customer, all dispatches are
recorded correctly, all dispatches are invoiced and goods returned and claims by
customers are authorized and appropriate credit notes issued.

 Order processing- Credit sales are only made to authorized customers who are credit
worthy and orders are recorded correctly regarding price, quantity, item and customer
details.
 Payments by customers- All customers promptly, pay for the goods and services and all
bad and doubtful receivables are identified and appropriate allowances made.
All the above objectives minimize the risks associated with credit sales which include: risk of
bad debts, thus financial loss leading to low profitability levels.
 Recording/Accounting- Sales invoices and credit notes are appropriately checked and
authorized before they are entered in the accounting records and only invoices that relate
to the goods supplied are accurately entered in the accounting records.

2.1.2.7 General ledger

It involves maintenance of journals and ledgers for recording and classifying the traditional
financial transactions. It usually extends to the preparation of the trial balance and the formal
financial statement.
The general ledger is the main ledger of an organization. It is supposed to contain all the ledger
accounts of the organization. In case there are too many accounts in the organization, it is only
the control accounts that should appear in the general or main ledger and others are recorded in
the subsidiary ledgers. In manual accounting system, the general ledger is a big bound book with
hard covers. Each page in the book represents an account. As observed, the general ledger is
supposed to contain all accounts of that organization (J.Omunuk, 1999)

In addition firms large enough to divide its journal into day books and cash books will probably
also need to divide its ledger. The sales ledger contains all the personal accounts of the firm’s
customers. The creditor’s ledger contains the personal accounts of the firm’s suppliers. The main
reason for dividing the ledger is that it allows several people to be engaged in the recording
process and permits section of the work around these groups of accounts (Glautierand
Underdown, 1997)

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2.1.3 Accounting practices procedures and their effectiveness.
Proper accounting practices are one of the essential elements for efficient and effective
management of an organization. They act as policy tools as well as a procedure established to
provide management with reasonable assurance that everything is functioning. It is the primary
responsibility of management to determine the purpose and content of the accounting procedures
appropriated for the organization (Meigs R. F., Meigs, W. B., & Meigs, M. A., 1995)
Furthermore where management is able to maintain an adequate accounting system such as on a
resource use and incorporate well various internal controls then it will be able to delegate
authority and assign responsibilities for such functions (Shirin, 2001).

According to (M.Hall, 2009)effective accounting systems establishes a policy framework and

procedures that provide management with reasonable assurance that the business is running
effectively and efficiently. Because of this assurance, management will have faith in the system
of accounting procedures, as the system will be able to re-organize, calculate, classify post,
summarize and report transactions as they occur. This will also enable the organization to make
dependable decisions that are feasible in the future.
In addition, decisions made by top management usually become company policies.
These policies are meant to maintain strong internal controls over resource use and other
activities in general. Management should review the adequacy of accounting procedures on a
regular basis so as to ensure that all significant controls are operating effectively and consistently
followed having been well communicated throughout the company (Charles, 1980).
Furthermore the quality of accounting procedures in place determines the extent and nature of
dependability stakeholders like auditors can rely on such controls. If the accounting procedures
are effective then resources will be safeguarded against misuse, outlined internal controls as an
element of the accounting practices.

2.1.3.1 Effectiveness of accounting practice

It enables firms to control their various units (Moilanen, 2008), such as financial reporting
present asset values, incomes, taxation expenses (XIAO,Z.Z., Dyson,J.R., and Powell, , 1996).
Thus, the view of accounting is a tool for administering resources efficiently, supporting to
rational decision making (Quattrone, 2009), and support administrator to strategic planning, task

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processing improvement, and performance evaluation. Further, (M.Hall, 2009)argued that the
role of accounting information can support manager to knowledge development, managerial
work, and form of communication.

Accounting practice is the accounting process to collect, transform process, report, and
disseminate reporting to users. Generally, accounting practice presents accounting information to
organization for management and it is a tool for efficient resource administration, and support
appropriate decision making (Quattrone, 2009)

Accounting approach has disciplinary and calculative practice (Quattrone, 2009)such as assess
cost, resource and expense allocation method, and budgets have been implemented to support
effective decision making and performance measuring (Chandler and Daems, , 1979 )accounting
practice has an important role in establishing financial reporting and accounting information that
external and internal users use to assess the firm's financial status and performance.

It enables firms to control their various units (Moilanen, 2008)such as financial reporting present
asset values, incomes, taxation expenses (XIAO,Z.Z., Dyson,J.R., and Powell, , 1996)Thus, the
view accounting is a tool for administering resources efficiently, supporting to rational decision.

2.2 Empirical literature review

In Australia, there have been a large number of empirical studies conducted on manufacture
companies such as (McMahon and Davies., 1994)

These studies investigate the types of financial reports produced by manufacture companies the
frequency of their preparation and their perceived usefulness for management purposes. The
findings indicate that financial reports for manufacture companies are prepared predominantly by
internal accountants at annual intervals, and they normally comprise just the balance sheet and
the profit and loss statement. The content and presentation of financial reports appear to be
greatly influenced by taxation and corporate statutory reporting requirements.

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Other Studies were conducted in various countries to examine the usefulness of accounting
reports within the context of manufacture companies for examples (McMahon, 1998) in
Australia (Jarvis, 2002)Gorton (1999) and (Greenfield, 1994)in the UK; and Hopper, (1999) on
Australia, Collis and Jarvis (2002), Gorton (1999) and Nayak and (Greenfield, 1994) in the UK;
and Hopper (1999), on manufacture companies in Japan. These studies found evidence that
financial reports are not considered particularly useful for decision making purposes by
manufacture companies owner or managers. These studies also found that there is limited usage
of financial and management accounting reports by manufacture companies. In addition, it has
been argued that accounting reports produced by manufacture companies are usually limited to a
few types of simple reports comprising mainly profit and loss account and balance sheet.

Voluntary disclosures are the focus of an increasing amount of attention by accounting

researchers. Voluntary disclosures - disclosures in excess of requirements- represent free choices
on the part of company managements to provide accounting and other information deemed
relevant to the decision needs of users of their annual reports. Firms have incentives to provide
voluntary disclosures. For example,

(FOSTER, 1986) Summarizes the influence of capital markets on financial reporting. Companies
compete with each other in capital markets on the types of securities offered and on the terms
and expected returns promised. There is also uncertainty about the quality of firms (e.g., in terms
of the nature of their assets and riskiness of cash flows) and their securities. Investors demand
information to assess the timing and uncertainty of current and future cash flows so that they
may value firms and make other investment decisions such as choosing a portfolio of securities.
Companies satisfy this demand in part by supplying voluntary accounting information, thereby
enabling them to raise capital on the best available terms.
As discussed more generally by (FOSTER, 1986)Accounting and reporting are influenced by a
diverse and complex set of supply and demand forces. Employees, customers, and regulatory
agencies demand information in addition to that demanded by investors. Supply is affected by
existing regulations and by the costs associated with disclosure, such as information collection
and processing costs, litigation costs, and proprietary (i.e., competitive disadvantage and
political)costs. The latter appear to be particularly important in decisions about voluntary

[14]
disclosures. Proprietary costs arise when information is revealed that potentially damages the
firm, such as if it results in increased competition or government regulation.

In those studies McMahon and Davies (1986) stated that the usefulness of financial report in
manufacturing company for management purpose and the influence of taxation and corporate
statutory reporting on the financial report of the company.
And also the other researcher McMahon (1998) Collis and Jarvis (2002), Gorton (1999) and
Nayak and Greenfield (1994) and Hopper, (1999) , argue that financial report are not considered
particularly useful for decision making purpose by manufacturing companies owner or manager
and limited usage financial and management accounting report in manufacturing company.
Foster (1986) summarizing the influence of capital market on financial reporting and accounting
and reporting practice influenced by diverse and complex set of supply and demand force.

In this study the researcher will assess the accounting treatment of financial transaction and its
influence on financial report, assess how asset, liability and capital recorded and report in the
financial report and assess the current financial accounting method of Bahir dar textile Share
Company.

CHAPTER THREE

[15]
3. RESEARCH METHODOLOGY
This chapter describes the methods and procedures that will follow in conducting the research. It
describes the research design, sampling design, Target population, sampling method, sample
size. It goes on to explain the data collection procedure, the data collection instruments and the
data analysis techniques that will involve in the research.

3.1 Research design

A research design is the conceptual structure within which research is conducted; it constitutes
the blueprint for the collection, measurement and analysis of data. As such the design includes an
outline of what the researcher will do from writing the hypothesis and its operational
implications to the final analysis of data (Kothari., 2004)In order to achieve the main research
objectives this study used a mixed methods approach (both quantitative and qualitative).
Because, the purpose of using such a mixed methods approach is to gather data that could not be
obtained by adopting a single method and for triangulation, so that the finding with a single
approach could be substantiated with others wherever possible, and also data collection involve
both closed and open ended questions.
This study used a survey research design because it is used: “to answer questions that have
been raised, to solve problems that have been posed or observed, to assess needs and set goals, to
determine whether or not specific objectives have been met, to establish baselines against which
future comparisons can be made, to analyze trends across time, and generally, to describe what
exists, in what amount, and in what context, (Isaac and Michael, 1997) And the cross sectional
time period this study asks questioners one- time only.

3.2 Target population

Target population refers to the totality of all conceivable elements or subjects relating to a
particular phenomenon of interest to the researcher. The subjects or elements are the individual
items that make up the population, which may be observed or physically counted. The study
includes the staff of accounting department, general manager, internal auditor, and the board of
directors of Bahir dar textile Share Company.

[16]
3.3 Sample techniques
Sample selection depends on the population size, its homogeneity, the sample media and its cost
of use, and the degree of precision required (Salant and Dillman, 1994). This study use purposive
sampling techniques which means non-probabilistic sampling. The research use non-probabilistic
sampling methods because, non-probability sampling does not guarantee randomness, although
randomness may occur by chance. However, the existence of randomness by chance does not
matter since every element is not deliberately given an equal and independent chance of being
included in the sample. The researcher used non probabilistic sampling because the sample can
saves time and money.

3.4 Sample size

Sample size is the number of items to be selected from the universe to constitute sample
(Kothari., 2004). The researcher used a sample size of (18) employees from the total target
population of 35. It used cross sectional study. The respondents are mainly staff of accounts
department, general manager, internal auditor, and the board of directors of Bahir dar textile
Share Company.

3.5 Data type

The study used quantitative and qualitative data type because Quantitative research focuses on
numbers or quantities. Quantitative studies have results that are based on numeric analysis and
statistics. Qualitative research studies are focused on differences in quality, rather than
differences in quantity. Results are in words or pictures rather than numbers (Elaine,
2009)Quantitative data can conduct in a number of groups, allowing for comparison, allows
generalizing to broader population, and provides numerical or rating information. Qualitative
data can provide a deeper understanding of mechanisms Provides and verbal information that
may sometimes be converted to numerical form. So the researcher used both quantitative and
qualitative data.

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3.6 Data source
The study used both primary and secondary sources of data. The primary data collect from
respondents through questionnaires. The secondary data sources were obtained from the
companies’ records, accounting manuals, reports, journals, related websites in the internet, and
other documents.

3.7 Methods of data analysis

Data analysis is an effective presentation of results as important elements of a credible and
successful survey (Isaac and Michael, 1997)This study use descriptive statistics of data analysis
and measure of frequency, percentage and to interpret and summarize the data use tabulation, bar
graph, and pie chart.

Chapter four

Data analysis and presentation

[18]
 4.1 Asses accounting and reporting practice of Bahir dar textile Share
Company.

4.1.1 The major transaction of the company:

Table 1: company’s major transaction

Response Frequency Percentage

Purchasing raw material and sales 18 100%
Purchasing and selling 0 0%
Borrowing and payment of liability 0 0%
Selling 0 0%
Total 18 100%
Source: Questioner survey outcome 2014

The purchasing system involves ordering, receiving and payment for goods and services required
by the organization and identification of the need for the acquisition of goods and services. and
also sales includes, order taking, establishment of credit terms, recording tax data and sometimes
determination of sales representatives commission, It is carried out by the sales department.
(Kokand, 2003)
The above table shows the responses of employees at Bahir dar textile Share Company.
According to the finding the major transaction of the company is purchasing raw material and
sales products.

4.1.2 Assessing of the company transaction

Table2: assessing company’s transaction

List of possible Strongly Agree Neutral Disagree Strongly median Standard

consideration agree (2)% 3% 4% disagree deviation
(1)% 5%

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The company has professional 11 67 22 0 0 2 0.600925
employee to do the major
transaction
The company record its 17 50 33 0 0 2 0.687184
transaction timely
Because of the incremental of 0 39 50 11 0 3 0.628539
salary the company is
unwillingness to hire
professional employee
Source: Questioner survey outcome 2014

Business transaction is the occurrence of an event of a condition that must be recorded. All
business transaction from the simplest to the most complex can be stated in terms of the result
change in three basic elements of the accounting equation. The effects of these changes on the
accounting equation can be demonstrated by studying some typical transaction. (warren, 1999).
The above table shows the response of employees of Bahir dar textile Share Company. As to
whether the organization has professional employees to do the major transaction of the company,
and record the company’s transaction timely. Based on the above data the employee agree that
the company has professional employee to do major transaction and record the companies
transaction timely. And also the data shows 50% and above of respondent have neutral answer
for the company’s unwillingness to hire professional employees because of incremental of salary

4.1.3 The company prepares financial statement

Table 3: company’s financial statement

Response Frequency Percentage

Yes 18 100%
No 0 0%
Total 18 100%
Source: Questioner survey outcome 2014

[20]
Financial managers use the financial statements to raise and spend cash and make intelligent
financial decisions (Glautierand Underdown, 1997). The above table shows the response of
employee of Bahir dar textile Share Company. According to their response the company
prepares financial statement. This means the company use financial statements for decision
making.

4.1.4 When the financial statement is prepared

Source: Questioner survey outcome 2014

After the effect of individual transaction has been determine, the essential information is
communicated to users. The accounting statements that communicate this information are known
as financial statements. The principal financial statements are income statement, the owner’s
equity and statement of cash flow. The above pie chart shows these financial statements are
prepared annually according to respondents of the Bahir Dar textile share company.

4.1.5 Before the current period the company changed its accounting method:
Table4: accounting method of the company

Response Frequency Percentage

Yes 3 17%
No 15 83%
Total 18 100%

Source: Questioner survey outcome 2014

When changes in accounting methods are necessary, such changes should be disclosed and the
reasoning explained in notes to financial statements. If businesses were allowed to change
[21]
accounting principles whenever they wished, the amount of net income reported could
continuously be manipulated. Different accounting methods may be used for different business
segments (Petroff, 1989).
The above table shows the responses of employees of Bahir dar textile Share Company.
Whether the company changes its accounting method before the current period, based on the data
the company did not change its accounting method before the current period.

4.1.6 The company’s financial report supported by evidence:

Table5: financial report supported by evidence

Response Frequency Percentage

No 1 6%
Yes 17 94%
Total 18 100%
Source: Questioner survey outcome 2014

If there is deficiencies of evidence in accounting theory, policy making, accounting practice and
the use of accounting information, impair the usefulness of an accounting information service
(Glautier & underdown, 1997)

The above table show the response of employees of the company as to whether the company’
financial report supported by evidence or not, based on the data the major respondent said YES,
which means the company financial report supported by evidence.

[22]
4.1.7 what kind evidence the company use

Source: Questioner survey outcome 2014

The above graph shows According to the respondent answer the company use as evidence like
sales invoice, voucher, and bills.

4.1.8 The Company’s periodic revenue coincides with periodic expense:

Table 6: periodic revenue match with periodic expense

Response Frequency Percentage

No 2 11%
Yes 16 89%
Total 18 100%
Source: survey

Matching principle is requires a company to match expenses with related revenues in order to
report a company's profitability during a specified time interval. Ideally, the matching is based on
a cause and effect relationship: sales cause the cost of goods sold expense and the sales
commission’s expense. If no cause and effect relationship exists, accountants will show an
expense in the accounting period when a cost is used up or has expired. (AVERKAMP,
2003)The above table show the response of employees of the company as to whether the
company’s periodic revenue coincide with periodic expense, most of the respondent (89%)
assure that the company periodic revenue is match with periodic expense.

[23]
4.1.9. The company’s accounting practice improvement
Table 7: accounting practice improvement

List of possible Strongl Agree Neutra Disagre Strongly Media Standar

consideration y agree (2)% l e disagree n d
(1)% 3% 4% 5% deviation
The internal auditor of 17 77 6 0 0 2 0.52411
the company has its own
contribution to improve
the financial report
Accounting practice
enable the company 17 77 6 0 0 2 0.458123
improve its performance
The financial report of
the company addressed
the accurate information 17 72 11 0 0 2 0.52411
for its customer
The company gives
training about the rule
and regulation of 11 28 44 11 6 3 0.881917
accounting and reporting
practice for the new
employee
Source: Questioner survey outcome 2014

effective accounting systems establishes a policy framework and procedures that provide
management with reasonable assurance that the business is running effectively and efficiently
and this will also enable the organization to make dependable decisions that are feasible in the
future (Panny, 1997)The survey indicates that the internal auditor of the company has its own
contribution to improve the performance of the financial report and also the respondent assure
that the accounting practice of the company improve its performance.

[24]
Accounting practice has an important role in establishing financial reporting and accounting
information that external and internal users use to assess the firm's financial status and
performance (Chandler and Daems , 1979)According to the survey data most of the respondent
(72%) states that the financial report of the company addressed accurate information for its
customer.
Finally as a survey indicates that the company does not give training for a new employee with
the good manner.

[25]
Chapter five

5. Conclusion and recommendation

5.1. Conclusion
The researcher has tried to study and explain accounting and reporting practice of Bahir dar
textile Share Company. So in order to generalize of the study the company employees or member
have clear understanding of accounting practice and financial reports covering all funds and
financial transactions. The researcher try to assess if there is proper accounting and reporting
practice are applied in order to address accurate information and enable to make correct decision.
The form of accounting information reputed to decision makers depends on accounting practices
adopted. These practices are imposed by accounting policy makers who, having knowledge of
accounting theories, have the responsibility of responding to the needs of users of accounting
information (Glautier & underdown, 1997).The research data shows Bahir Dar textile share
company applies good accounting and reporting practice to improve the company’s performance
and to maintained its continuity and profitability for the coming years. Use of complete
accounting system from the original books of entry to the financial statement will ensure that the
books of accounts are properly maintained. Financial statements are prepared to meet financial
users and financial reports are prepared annually. The company confirms that the accounting
practice used by the organization is effective in preparation of financial reports. These financial
reports addressed accurate accounting information for the internal and external users of the
company.

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5.2 Recommendation
The study recommended that the Bahir dar textile Share Company as a huge institution, it should
have increase the salary and willing to hire professional employees to perform a good financial
report as well. The study further recommended that the company financial transaction are
recorded timely and it is useful for reducing the occurrence of fraud, mistakes and other errors so
the organization should have continue applying this practice. Finally the study recommended that
the company should have give training for the new employee about the rule and regulation of
accounting and reporting practice.

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 REFERENCE

Blackwood, T. (1995). Accounting for Business. columbia: Columbia Business school publisher
1st edition.

down, G. a. (1997). Accounting system. USA.

Glautier & underdown. (1997). ACCOUNTING SYSTEM.

Gouws, D. G. Cronjé, C. J. (2008). Corporate annual reports accounting practices in transition,.

Southern.

Hermanson, R. H. (1989.). USA: 45-67.

Horngren, .. (1973). COST ACCOUNTING.

Isaac and Michael. (1997). SURVEY RESERCH DESIGN.

j.Omunuk. (1999). Fundamental Accounting for Business. Makerere University Business School.

J.Omunuk. (1999). Fundamental Accounting for Business. KAMPALA: Makerere University

Business School.

John. (2005). Accounting II concepts ACCT 211 23RD Edition.

Kothari. (2004). RESEARCH DESIGN AND METHODOLOGY.

M.Hall. (2009). Accounting information and managerial work.

M.S, C. (1980). a journal on effective accounting procedures

Meigs R. F., Meigs, W. B., & Meigs, M. A. (1995). Financial Accounting (8th edition). USA:
McGraw- Hill, INC.

Moilanen, S. “. (2008). The role of accounting and an intermediate subsidiary in the management
control system” . Management accounting research.

Ntege. (2003). Debtors Cycle handout. KAMPLA: Makerere University Business School
Kampala.

Patricia, D. (1995). Governmental and nonprofit accounting 2nd Ed. Harcourt Branch College.

Petroff, J. (1989). Article not published long horn publisher 2nd edition.

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Quattrone, P. (2009). the power of the visual, and the success of accounting. Accounting,
Organizations and Society .

Salant and Dillman. (1994).

Shirin, R. (2001). International accounting eastern economy edition. INDIA: Prentice Hall of
India .

vector, D. (2011). International Accounting Standard. USA.

Warren, f. (1999). Accounting 18th ed. south western. USA.

warren, F. (1999). Warren, rev and fess Accounting 18th ed. . south western. USA.

Wiley GAAP, .. (2012). application of Generally Accepted Accounting Principles Interpretation.

Blackwell publishing.

Wu, X. (2004). Accounting Reform & Corruption in, Accounting Review. Asia.

XIAO,Z.Z., Dyson,J.R., and Powell, . (1996). The impact of information technology on

corporate financial reporting. British Accounting Review.

Appendix

Respondent profile

Description Response Frequency Percentage

Male 13 72

Gender Female 5 28

18-28 5 28

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 29-39 6 33

Age 40-50 6 33

51 and above 1 6

Certificate 2 11

Diploma 7 39

Education level Degree 9 50

Master 0 0

Less than 1 year 1 6

1-2 years 7 39

Work experience 2-3 years 2 11

4 and above 8 44

Questioner

Bahir Dar University

College of business and economics

Department of accounting and finance

Dear respondent,

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We are the student of Bahir Dar University College of business and economics department of
accounting and finance; the purpose of this study is to assess the accounting and reporting
practice in the case of Bahir Dar textile Share Company. The study needs to gather
information to achieve the central objective. So your response is very crucial and hence you are
kindly requested to respond genuinely. The question that you answer may take 10 munities to
complete. The information shall be used as a primary data and the researcher wants to assure you
that it will be used only for academic purpose and to be kept confidential. Please do not write
your name anywhere on the questionnaire. We appreciate your cooperation in this study.

If you have any questions please call 0913056577.

Thank you in advance!!!

Respondent background

1. Gender
Male female
2. Please indicate your age in year
18-28 29-39 40-50 51 and above
3. Work experience at Bahir dar textile Share Company?
Less than 1 year 1-2years 2-3years 4 and above
4. Level of education
Certificate diploma degree masters other

Questioner on accounting and reporting practice

5. What is the major transaction of the company?

Purchasing raw material and sales of product

Purchasing and selling

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 Borrowing and payment of liability

Selling

6. The company has professional employees to do those transactions.

Strongly agree agree neutral disagree strongly disagree

7. Bahir dar textile share company record transaction timely.

Strongly agree agree neutral disagree strongly disagree

8. Because of the incremental of salary the company is unwillingness to hire professional

employees

Strongly agree agree neutral disagree strongly disagree

9. Does the company prepare financial statement?

Yes No

10. If your answer for question number 9 is YES when it is prepared?

Monthly quarterly semi annually annually

11. If your answer for question number 9 is NO, why?

Lack of professional employee Because of not required to do

Due to un obliged to do so other

12. Is the company change its accounting methods before the current period?
Yes NO
13. If your answer is YES for question 12 what was the change?
From FIFO to LIFO
From LIFO to FIFO

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 From Weighted average to LIFO
From weighted average to FIFO
From LIFO to weighted average
From FIFO to weighted average

14. Is the company’s financial report supported by evidence?

Yes No

15. If your answer is YES for question number 14 what kind of evidence is used?

Sales invoice vouchers bills all other

16. Does the company’s periodic revenue coincide with periodic expense?
Yes No

17. If your answer NO for question 16 what is the reason?

Knowledge gap lack of evidence
Time constraint other
18. The internal auditor of the company has its own contribution to improve the financial
report.
Strongly agree agree neutral disagree strongly disagree

19. Accounting practices enable the Company improve its performance.

Strongly agree Agree neutral Disagree Strongly disagree

20. The financial report of Company addressed the accurate information for its customer.

Strongly agree Agree neutral Disagree Strongly disagree

21. This Company gives training about the rule and regulation of accounting and reporting
practice for new employees.

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 Strongly agree Agree neutral Disagree Strongly disagree

General question:

22. If there is a challenge during the applying of accounting and reporting practice please
specify
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
23. What is your over all opinion about the accounting and reporting practice of the
Company?
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
Thank you for your cooperation!!!

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[35]