Measuring Economic Development

1 / 90

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

The importance of accounting in any business be it private or public cannot be overemphasized. It is a process of communicating economic information to permit judgments and decisions by users of the information. A proper study of accounting must start with an examination of the needs of decision makers. The distinction between financial and management accounting is a convenient one to make, but it must be regarded as one which divides the two areas of study into a watertight compartments. It would be better if the phrases "financial and management" accounting were replaced by external and internal accounting as management accounting has financial implication while managers have more than a passing interest in financial accounting. Management accounting as an integral part of management is concerned with identifying, presenting mad interpreting information used for formulating strategy; planning and control activities, decision-making, optimizing the use of resources disclosure to shareholders and other external parties to the entity; disclosure to shareholders and other external parties to the entity; disclosure to employees and safe guarding assets and these helps to ensure that there is strategic planning, budgeting/profit planning, financial and cost accounting, financial

2 / 90

management, financial control, internal audit and management audit. Lewis and Pendrill (2004), Agara (2005).

It is a key to successful transportation business when it is applied properly. For a service oriented company such as transportation business managerial accounting is employed in managing certain function costs. The company must determine the vehicle utilization, the number of kilometer runs per vehicle or rail per day, indicate the use of vehicle per day and also the occupation ration which is the extent of actual utilization of the seat kilometers viz the passengers and consequently the size of the revenue collected as against the revenue expected. This will in measuring profit which is the main purpose of Accounting and also measure capital which is invested in a range of different types of assets, some of which are long term and also short term. Accounting also keeps a record of all the different types of assets a business owns, as well as what business owes, which are termed liabilities. Owen (2003), Snigh (1998).

It is important to have the proper books of account like account payable, account receivables, general ledger, cashbook and ensuring cash management, budgeting, report writing is carried out as it would help in keeping of accurate record of the cost factor including crew utilization, conservation of fuel and timely maintenance

...