PAMANTASAN NG LUNGSOD NG MAYNILA

COLLEGE OF ACCOUNTANCY AND FINANCE

BACHELOR OF SCIENCE IN ACCOUNTANCY

A Comparative Analysis
of Automated and Manual Accounting System of
Micro, Small and Medium Enterprises involved in Wholesale / Retail Industry in Divisoria,
Binondo

In Partial Fulfillment of the Course Requirements in Methods of Research and Accounting Thesis

Presented to:
Prof. Josephine P. Yopo, CPA, MBA

Presented By:

Cabral, Jonnalene Charlone D.

Carlos, Jon Venydick L.
Ferreras, Elison Brax
Gorospe, Maria Christine B.
Usison, Ricah Ella A.

BSA IV-2

December 14, 2015

 CHAPTER 1
INTRODUCTION

1.0 Introduction

This chapter contains the background, purpose, objectives, questions, hypothesis, significance and scope
of the study.

1.1 Background of the study

Micro, Small and Medium Enterprises (MSMEs) sector is considered as one of the major economic
growth driver of all countries at any rate of development. For instance, about 80% of the labor force in
Japan and 50% of workers in Germany are employed in the MSME sector, while here in the Philippines,
As per shown in the most recent survey of Department of Trade and Industry, MSMEs contributes almost
64.97% of the total jobs generated by all types of business establishments in all sectors and which also
accounts for almost 99.6 % of total registered enterprises. But like in any other industry, the MSME
sector is not without challenges.

Apart from adding value to the national economy, MSMEs also strive towards sustainability. Through
enhancing their profitability, efficient utilization of available resources and reliable decision making
based on correct and accurate information in a timely manner, has increased the importance of accounting
information systems.

The effectiveness and efficiency of accounting information system deployed is known to be one of the
economic factors which are critical to the overall sustainability of MSMEs. According to preceding
researches, accounting information systems that provide relevant, reliable and recent information to an
organization’s management will allow such an organization to be more sustainable (Allah, et al., 2013,
pp. 262). Thus, it is believed that accounting information systems adopted inside an organization should
add value, ultimately resulting in the organization to become more sustainable.

In the Philippine setting, scholarly works about the adoption of accounting information system are scanty
and thus motivated the researchers to pursue this study in MSMEs particularly in Manila City.
1.2 Statement of the Problem

This study aims to determine the efficiency and effectiveness of automated accounting system as
compared to manual accounting system gathered solely on company’s perception of its accounting
performance.

Specifically, the following questions will be answered:

 Do the MSMEs in Manila view automated accounting system as a significant factor in being
competitive with other companies in the same industry?
 Does the use of automated accounting system bring opportunities for the MSMEs to progress
towards a paperless community?
 Does the use of automated accounting system promote better performance and add value to the
sustainability of MSMEs?

1.3 Hypothesis

H1: Is automated accounting system a better accounting system compared to manual accounting system
for MSMes in Manila? (Or vice versa) *need changes*

H0: There is no significant difference between automated and manual accounting system for MSMes in
Manila.

1.4 Objective of the Study

The main objective of the study is to evaluate the efficiency of Automated Accounting as compared to the
manual system used by the selected micro, small and medium enterprises (MSMEs) involved in Retail /
Wholesale industry in Manila. To achieve this objective, the researchers has selected and analyzed some
indicators of efficiency of a system such as existence of effective internal control system, cost
effectiveness, existence of security measure, good documentation, and separation of operation and
accounting. If the aforesaid indicators are prevalent in an Accounting System as compared to the Manual
system or vice versa, then it is considered and recommended to be more reliable for business operation.
1.6 Significance of the Study

The researchers are inspired to conduct this study for the significance and vitality that lies in the subject
matter especially in discovering the most appropriate accounting system, whether Manual or Automated.

More specifically, the study aims:

 To increase awareness among various firms about the use of automated accounting system.
 To determine the efficiency and effectiveness of automated accounting system in contrast to
manual accounting system.
 To determine the performance of using manual and automated accounting system.
 To contribute to the advancement of paperless community in the country

1.7 Scope of the Study

This study focuses on determining the performance of automated accounting system over manual
accounting system of micro, small and medium enterprises (MSMEs). The respondents to whom the
study is anchored on include users of accounting systems in any business activity or enterprise, engaged
in industry, agri-business and/or services, whether single proprietorship, partnership, cooperative or
corporation in Manila city. This study is to be conducted from the month of November 2015 until the
month of March 2016.
 CHAPTER II
THEORETICAL AND CONCEPTUAL FRAMEWORK

2.0 Introduction

This Chapter contains the review of related literature, theoretical review, synthesis, conceptual framework
and the definition of terms.

2.1 Review of Related Literature

Foreign Literature

Today, all organizations are operating and competing in a globalized information age where information
systems are widely adapted by businesses to increase the existing operating condition of the company.
Accounting Information System has risen as one of the fundamental components of a modern information
system. As defined by Investopedia, Accounting Information System (AIS) is a system that collects and
processes data, which is measured in terms of monetary value and is essential for decision making,
Accounting Information Systems process accounting transactions and supplies information for the
interested users to help management for performing business activities properly and finally to measure the
performance of the company and are anchored on Luca Pacioli’s double entry bookkeeping concept, and
are further diversified with recent accounting concepts such as responsibility accounting and activity
based costing. Accounting Information Systems are a combination of the study and practice of accounting
with the design, implementation and monitoring of information systems (Neogy, 2014).

In Taposh Kushmar Neogy’s study (2014), it is stated that the efficient Accounting Information System is
essential because it ensures that all levels of management get sufficient, adequate, relevant and true
information for planning and controlling activities of the business organization. Because an Accounting
Information System stores and provides such valuable business information, reliability is vitally
important. The American Institute of CPAs (AICPA) and Canadian Institute of Chartered Accountants
(CICA) has defined an efficient and effective accounting information system as a system that ensures the
access to the system and its data is controlled and limited only to those authorized, the protection of
sensitive information from unauthorized disclosure, the collection, use, and disclosure of personal
information about customers is done in an appropriate manner, accurate, complete, and timely processing
of data done with proper authorization and finally, the system is available to meet operational and
contractual obligations.

Accounting information systems maintain and produce the data (e.g., financial statements containing
information about accounts and their balances) used by organizations to plan, evaluate, and diagnose
operations and financial position. In addition to their internal use, the data produced by these systems are
reported to external stakeholders (e.g., stockholders, government agencies), (Brad, 2005). According to
Hatteu (2012), the accounting system provides information for making decisions about small business.
Hatteu stressed the importance of understanding which entry system should be used and how accounting
equations work. Hatteu also advocates that accounting system should be easy to use, accurate, timely,
consistent, understandable, dependable and complete. The accounting record of small businesses needs to
follow the standard of generally accepted accounting principles (GAAP). In addition, a good accounting
system is not only judged by how well records are kept but also by how well it is able to meet the
information needs of both internal and external decision – makers (Mbroh and Attom, 2011; Hussein,
1983).

An Accounting Information system is a set of interrelated subsystems, which collect, record and process
data to information that is used to make quality decisions. The AIS has changed the way accountants
perform their tasks and introduced efficiency and effectiveness in their various fields of study e.g.
Auditing, Management Consultants and others, (Nkundabanyanga, 2004). The following are the
components of Accounting Information System:

Accounts Receivables and Sales Ledgers

The purpose of the sales ledger is to maintain customer accounts. These ledgers are targeted to reflect
accurate and up to date information about the transactions made with the customers. A sales ledger is
expected to keep the sales up to date and also should be able to produce certain out puts like statements,
management reports, preparation of customer invoices, and maintenance of the accounts receivable. A
receivables ledger control account should be prepared regularly and reconciled with individual sales
ledger balances by an independent official and customer invoices plus periodic monthly statements should
be prepared and sent regularly to customers where by their dispatch should be safeguarded (Brad, 2005).
Payroll

The payroll system ensures salary calculations and also maintenance of salary deductions of the national
insurance, pay as you earn, savings, loan payments in relations to all employees linked to the payroll and
enhance the salary budgeting functions of the institution, the Association further observes. This
streamlines the entire budgeting process of the institution. Payroll preparation, Payroll authorization,
Payment of wages/salaries and personnel duties should be segregated, (Nkundabanyanga 2004). On
addition, payment should only be made for work done employing the correct rates of pay and accurate
deduction like to URA and NSSF should be made.

Nominal (General Ledger)

Impersonal accounts are kept in this nominal ledger. Recording of sales or purchases details of nominal
accounts and producing trial balances for individual accounts is done using the nominal ledger, (Wood
and Sangster, 2002). Further more, journals and ledgers for recording and classifying the traditional
financial transactions should be maintained and the general ledger revenues account should work as a
control account supported by revenues subsidiary ledger accounts. He went further to indicator that,
nominal ledger figures should be posted accurately in order to extract trial balances and formal financial
statements.

Spread sheets

Spread sheet packages are based on an electronic work sheet and have a vast range of applicability in
accounting because of both alphabetic data and numeric data that can be stored and manipulated on that
work sheet hence flexible and versatile to be used for man tasks and applications than those designed to
deal with specific applications. Examples include VisiCalc, Super calc, Multi plan and lotus 2-2-3,
(Lucey, 1996).
The budget system

This relates to the tracking of the budget. That is comparison between actual and operating data. It may
extend to the accumulation and processing of data in support of the preparation of the budget. A budget
was defined as the quantitative expression of a plan of action prepared in advance of the period to which
it relates. It has to show the income and expenditure, (Brad, 2005).

Purchasing subsystem

Purchasing subsystem relates to the issuance of purchase orders for the procurement of materials. It may
extend to the procurement of services and the placement of subcontractors. All these subsystems are
interlinked and one piece of input data can affect many different subsystems. This means that in designing
an accounting system, provision must be made for sharing data among the various subsystems (Glautier
& Underdown, 1997).

The continuous and undeniable progress of SMEs in the country encourages the Philippine government to
embark upon a comprehensive and integrated strategy that ensures sustainable growth and rapid
development of SMEs. The strategy encompasses all critical factors - technology, product development,
finance, training marketing, and so on (Leano, 2006). In line with this, the Magna Carta of Small
Enterprises (Republic Act 6977) was enacted into law by the Government of the Philippines to guide and
to further strengthen the advancement of SMEs. This law outlines the general policies that shape the
development of SMEs, which is why it is worth considering up to what extent these MSMEs follow
established accounting principles. Accounting forms a vital element of any business. It plays a critical
role in the success or failure of contemporary business institutions (Smirat, 2013). Accounting systems
are responsible for recording, analyzing, monitoring and evaluating the financial condition of companies,
preparation of documents necessary for tax purposes, and providing information support to many other
organizational functions. In the context of small and medium enterprises (SMEs), accounting information
is important as it can help the firms manage their short-term problems in critical areas like costing,
expenditure and cash flow (Mitchell et al., 2000).

The researchers focused on the two types of Accounting Information system, the Manual Accounting
System, and the Automated Accounting System. The Manual Accounting System as defined by Max
Weber, is a system that requires the employees to perform the whole accounting cycle manually on a
periodic basis, they calculate trial balances, journalize transactions, prepare financial statement reports
and other routines. This process can be completed by either using actual paper journal and ledger sheets
or by creating these sheets in a computer program such as Excel. It is considered manual because each
transaction is entered into the system individually. On the other hand, the Automated Accounting System
can be referred to as an accounting information system that processes the financial transactions and events
to produce accurate accounting results as per the user requirements or guidelines (Adjei, 2013). An
Automated accounting system involves the use of computer hardware and software to perform the
reporting and recording functions that would otherwise have been done manually by the staff. Every
proper accounting system, be it manual or automated must follow the generally accepted accounting
principles and also the framework for maintenance of records and generations of reports must be well
defined and easily understood. Prior to technological advancement, accounting records were being kept
only on a manual basis whereby the bookkeeper needed to complete a manual basis document for each
sale or receipt, and then spend all day or better still a week in writing the records of the day or week into
special journals, stock cards, as well as debtors and creditors records. Carol Cook’s article entitled “How
Computers Have Simplified Accounting” narrates that in the later years, an accounting machine which
was capable of performing normal bookkeeping functions such as tabulating in vertical columns,
performing arithmetic functions and typing horizontal rows was used. The billing machine, which was
designed to typewrite names, addresses, and descriptions, to multiply and extend, to compute discounts
and to add net total, posting the requisite data to the proper accounts, and so to prepare a customer’s bill
automatically once the operator has entered necessary information, was used. It was indeed a tedious and
wearisome process. However, even with the latest technology at our fingertips many businesses
particularly the Micro, Small and Medium-sized Enterprises/MSME’s still maintain the manual books of
accounts. It must be noted that in practice, actual manual recording in the books is no longer done since
accounting records are usually maintained and generated in some sort of electronic format, like Excel.
Printouts of the accounting records are simply pasted onto the registered manual books of account and are
then used to prepare the company’s financial statements. These same books are also presented to external
auditors which the latter use for their audit. An AIS invented by esteemed Professor Karen is the system
of records a firm keeps to maintain its accounting system. This includes the purchase, sales, and other
financial processes of the business.

The purpose of AIS is to accumulate data and provide decision makers (investors, creditors, and
managers) with information to make decision While this was previously a paper-based process, most
modern businesses now use accounting software such as UBS, MYOB, Quick books, Tally, Sage, Sun
and Pastel among others etc. In Uganda, the most commonly used accounting software are Tally, Sage,
Pastel, QuickBooks and Sun. However, Yason (2014) believed that SMEs, despite having different
products, services and business strategies, have a common and immediate need for an adequate
accounting infrastructure that will provide them with timely and accurate financial statements. According
to Yason, many SMEs do not prioritize their finance and accounting infrastructure due to cost
considerations and the way they are structured. Yason also stated that SMEs have insufficient finance
personnel who are knowledgeable about the latest accounting standards and fast-changing tax regulations.

The manual accounting system, although outdated still features a few advantages when it comes to using
it. When compared to an automated accounting system, a manual accounting system employs a cheaper
workforce and resources, easier to set up, is more flexible and reliable while an automated system boasts
high speed and mobility of reporting, reliability, no routine work, increased accuracy, internal control
system of increased productivity, easy back up and restoration of records. However, there are also
disadvantages in using both accounting systems. A manual accounting system operates with reduced
speed, increased effort of accountants, relatively slower internal control reporting, routine work and some
others while an automated accounting system has extremely high costs on developing, introducing and
using the system, special trainings for personnel, increased personnel costs, dependence on machines etc.

Thus, even with the persistence of modernization when it comes to accounting information systems, some
small and medium businesses still employ manual accounting system with the belief of no detriment to
the quality of their company performance. The studies of Dyt and Halabi (2007) and Zhour (2010)
concluded that the main problem of business owner and managers of micro enterprises is mostly in their
inability to keep sufficient records to aid them in their decision-making. Another problem is their
difficulty in preparing proper financial statements because of poor or insufficient records. Results of their
studies show that majority of micro businesses rely more heavily on manual methods, while small
businesses are more likely to use computerized systems. Amoako (2013) conducted a case study on
SMEs in Kumasi Metropolis in Ghana to look at their record keeping strategies. Based on the results
obtained, the author concluded that SMEs do not maintain proper books of accounts because owners do
not appreciate the need to keep accounting records, lack accounting knowledge and find the cost of hiring
professionals prohibitive. He recommends specific guidelines for SMEs to be designed by the authorities.
He suggests that accounting records in SMEs be mandatory and that the government should institute a
regulatory body to ensure SMEs keep proper accounting books. He also suggests accounting training
programs for SMEs that need further education to be initiated by the Ministry responsible for Trade and
Industry.
Local Literature

The flourishing status and growing importance of Micro, Small, and Medium Enterprises (MSMEs) in the
Philippines is undeniable. The Department of Trade and Industry defines MSMEs as any business
activity/enterprise engaged in industry, agri-business/services, whether single proprietorship,
cooperative, partnership, or corporation whose total assets, inclusive of those arising from loans but
exclusive of the land on which the particular business entity's office, plant and equipment are situated.
Recently, the Republic act no. 9178, otherwise known as the Barangay Micro Business Enterprise
(BMBE) Act of 2002 has defined the following categories as the present structure mandated by the law:

By Asset Size

Micro: Below P 3 Million

Small: P3,00,000,001 – P15,000,000

Medium: P15,000,001- P100,000,000

Large: Above P100,000,000

According to the Senate Economic Planning Office of the Philippines (SEPO), Micro, small and medium
enterprises (MSMEs) have a very important role in developing the Philippine economy. They help reduce
poverty by creating jobs for the country’s growing labor force, they stimulate economic development in
rural and far-flung areas, they serve as valuable partners to large enterprises as suppliers and providers of
support services, and they serve as breeding ground for new entrepreneurs and large corporations. A
vibrant MSME sector is thus an indication of a thriving and growing economy. In 2011, Philippine SMEs
also accounted for 32 percent of the country’s GDP, according to former Sen. Edgardo Angara, who
lauded their invaluable contributions in his keynote address at the Philippine Home-Based Business and
Career Summit Expo, saying that “MSMEs (micro, small and medium entrepreneurs) are the real
backbone of our economy. People do not realize that (their) businesses have greater direct impact on
Filipinos’ lives than do big players. But more than this, (they) provide opportunities to those who could
not have started businesses otherwise.” Small and medium enterprises (SMEs) are also said to “stimulate
domestic demand through job creation, innovation, and competition,” making them “a driving force
behind a resilient national economy,” according to a report from the Asian Development Bank. The report
said this sector has the “potential to encourage international trade” and that “prioritizing SME
development is therefore critical for promoting inclusive economic growth in most economies in Asia.”
MSMEs also play a big role in the country’s employment and job generation. With 3.872 million jobs
created in 2011, the sector accounted for 61 percent of the local workforce. This was more than the 2.473
million employment opportunities generated by large enterprises.

In its May 2013 report titled “Philippine Economic Update: Accelerating Reforms to Meet the Jobs
Challenge,” the World Bank asserted that “to create more and better jobs, the government will need to
urgently accelerate comprehensive reforms across a range of sectors to create a business environment
conducive to private sector job creation, in particular job creation by small and medium enterprises.”
(Camposano, 2014).

As of 2012, the Department of Trade and Industry has gathered the statistical data that there are 944,897
business enterprises operating in the Philippines. Of these, 99.58% (940,886) are micro, small, and
medium enterprises (MSMEs) and the remaining 0.42% (4,011) are large enterprises. Of the total number
of MSMEs, 89.78% (844,764) are micro enterprises, 9.78% (92,027) are small enterprises, and 0.44%
(4,095) are medium enterprises, majority of the 940,886 MSMEs in operation in 2012 are in the
wholesale and retail trade, repair of motor vehicles and motorcycle industries with 436,809 business
establishments; information and communication, financial and insurance activities, and other service
activities with 133,157; accommodation and food services with 126,108; followed by manufacturing with
117,601; human health and social services, professional scientific and technical, education, administrative
and support services, arts, entertainment and recreation industries, and real estate  with 105,927. These
industries accounted for about 97.74% of the total number of MSME establishments. Majority of the
MSMEs in operation in 2012 can be found in the National Capital Region (NCR), with 210,576 business
establishments; Region 4-A  (CALABARZON) with 144,811; Region 3 (Central Luzon) with 105,331;
Region 7 (Central Visayas) with 65,637; and Region 6 (Western Visayas) with 53,746. These top five (5)
locations accounted for about 61.65% of the total number of MSME establishments in the country.

Due to the constant expansion of globalization and information age, technology is available to many
countries worldwide including the Philippines. Numerous businesses most especially MSMEs may still
maintain the use of manual books of accounts. In practice, actual manual recording in the books is no
longer done since accounting records are usually maintained and generated in electric format, an example
of these is Microsoft Excel. Printouts of the accounting records are simply pasted onto the registered
manual books of account and are then used to prepare the company’s financial statements. These same
books are also presented to external auditors which the latter use for their audit. In 1982, in response to
the clamor of multinational companies doing business in the Philippines to allow them to adopt the global
accounting system of their foreign parent companies, the BIR issued Revenue Memorandum Circular
(RMC) No. 13-82 which authorized the use of loose leaf books of accounts, records, invoices and receipts
for recording business transactions. MSMEs keeping manual books of account may not be able to afford
pricey software systems that handle accounting functions. In order to keep up with the changing times and
maintain efficiency, they often use simple computer programs such as Excel spreadsheets to record and
store their transactions. In managing sizable chunks of data, manual jotting down of entries no longer
proves to be a practical and effective mode of bookkeeping. Recently, the BIR ordered the mandatory
implementation of the Electronic BIR Forms or eBIRForms by issuing RR No. 6-2014. The eBIRForms
system was developed to provide taxpayers, particularly the Non-Electronic Filing and Payment System
(Non-eFPS) filers, with accessible and convenient service through easy preparation and filing of tax
returns. The use of eBIRForms improves the BIR’s tax return data capture and storage, thereby enhancing
efficiency and accuracy in the filing of tax returns. The efforts of the BIR to embrace technology and
continuously look into efficient measures for easy preparation and filing of tax returns have been
commendable. Given the constant influx of technology in business, the BIR should be flexible and
consider computer-generated spreadsheets as compliant with RMC 13-82. In essence, computer-generated
printouts function in the same manner as manual or registered loose-leaf records, thus conforming to the
BIR’s objectives of efficiency and accuracy (Rabaja, 2015).

Even though keeping book of accounts and records in manual or hard copy formats spanning for almost a
decade will require a relatively large physical space for storage, there are still many organizations that
continue to employ manual accounting system. In a regular BIR audit, examiners require the submission
of printed originals of documents for review. While electronic copies of books of accounts may be
inspected during a field audit, proof of transactions such as voucher registers and supporting invoices and
receipts, contracts, and the like have to be turned over for BIR perusal. Under Republic Act No. 8792 or
the E-Commerce Act of 2000, an electronic document shall be the functional equivalent of a written
document under existing laws for evidentiary purposes. The law specifically provides that electronic
documents shall have the “legal effect, validity or enforceability as any other document or legal writing.”
However, full faith in electronic documents has yet to be adopted by the BIR, although there have been
some strides towards the use and recognition of e-documents. For example, RR No. 16-2006 dated Aug.
15, 2006, allows the submission of electronic format of books of accounts and records for purposes of a
tax audit or investigation that will have the legal effect, validity or enforceability as any other document
or legal writing subject, consistent with RA No. 8792. Taxpayers must be able to maintain the integrity
and reliability of these documents through time and these can be authenticated for subsequent reference.
However, the rules require that these same documents must be retained in original form (Adlawan-
Bulagsak, 2013).
In Philippine setting, efficiency and effectiveness are two different things. As defined by
the Glossary of MSME Terminologies by the Department of Trade and Industry,
Effectiveness is the capability of bringing about an effect or accomplishing a purpose, sometimes
without regard to the quantity of resources consumed in the process while Efficiency is the capability of
producing desired results with a minimum of energy, time, money, materials, or other costly inputs.

Mendoza (2014) aimed to look at the accountancy services that MSMEs commonly require from the
public accountancy firms and/or individual CPA in public practice in the Philippines. The study noted
that taxation service was the most commonly outsourced while internal audit was the least. The study also
showed that micro and small enterprises differ from medium enterprises in terms of the level of
complexity of accountancy services; the former having simpler ways of doing their tasks and are not into
exploring the other relatively complex methods and processes. The business profile attributes of the
MSMEs, specifically asset size, nature of business, form of business organizations, and employment had
something to do with the type and extent of services they undertake and outsource to practicing CPAs.
The study of Cynthia Cudia (2008) in the Philippines revealed that 76% of her SME respondents used the
accrual method while 6% used the cash method for record keeping and regularly converted to the accrual
method for purposes of reporting to regulatory bodies. The remaining 18% used the cash method and their
external auditors were tasked to prepare year-end adjustments using accrual method in accordance with
GAAP. The accounting method used by SMEs is based on the following factors: nature of their business,
convenience of the method, complexity of accounting, tax compliance, cost, usefulness in decision-
making, and other factors such as method required by Bureau of Internal Revenue (BIR), to support
revenue during the period.

According to a study regarding the accounting knowledge, practices and controls of MSMEs in Metro
Manila cities and in several towns in Quezon province conducted by Ibarra and Velasco (2012), MSMEs
between MSMEs in Metro Manila and in Quezon Province have significant differences on their
knowledge of accounting principles, accounting practices and controls. The study reveals that MSMEs are
knowledgeable on accounting principles and concepts; some of the most common practices being used by
MSMEs are cash basis accounting method, bad debt estimation based percent of credit sales, straight-line
method of depreciation, net receivable estimation based on allowance for sales returns, official receipt as
business document and cash payment method; and the commonly practiced accounting controls are daily
deposit of cash, daily recording of expenses and regular budget preparation. Adding to the significant
differences in the level of accounting knowledge, accounting practices and accounting controls of the
MSMEs in Metro Manila and Quezon Province is the constantly rising numbers of accounting graduates
seeking for higher remuneration which greatly affects the level of accounting knowledge due to the large
number of new accounting professionals. Also, cost efficiency measures of rural entrepreneurs tend to
neglect the fact that accounting data and reports are necessary for the reliability of the results of
operations.

2.2 Synthesis

The researchers presented on the Related Literature that the use of manual accounting system in this day
and age is still persistent, even though most of the business organizations now employ the use of
automated accounting system to compete on a global scale. The studies and related literature cited by the
researchers have discussed the importance of using accounting systems to increase the existing operating
condition of the company, as long as it is in accordance with the set standards of accountants. This
research is similar to Juan-Pierre Bruwer and Yolande Smit’s research entitled “Accounting Information
Systems – A Value-Adding Phenomenin or a Mere Trend? The Situation in Small and Medium Financial
Service Organizations in the Cape Metropolis” because both studies tackle the importance of accounting
information system to companies. However, Bruwer and Smit’s research failed to delve deeper as to
which accounting system is more efficient and effective for Micro, Small and Medium enterprises
specifically in the areas of existence of effective internal control system, cost effectiveness, existence of
security measure, good documentation, and separation of operation and accounting which the researchers
consider important and vital for business organizations in the Philippines.

The researchers also discerned a lack of studies and researchers for this specific topic in the Philippine
setting, which the researchers aim to contribute to upon the conclusion of this research. All the literature
and studies cited in this research provided the researchers with insights that helped them formulate the
conceptual framework.

2.3 Conceptual Framework

INPUT PROCESS OUTPUT

COMPANY PROFILES QUESTIONNAIRE ACCOUNTING
(SURVEY) SYSTEM SUITABLE
- type of MSME based on FOR MSMES IN
capital INTERVIEW MANILA
- type of accounting system
(manual or automated)
TABULATION
- form of business
organization
- nature of business
- utilization of accounting
system (by years)
 FACTORS TO DETERMINE
THE PERFORMANCEOF AN
ACCOUNTING SYSTEM

- existence of effective
control system
- cost effectiveness
- existence of security
The figure
measureabove shows the conceptual framework of the study. Based on the illustration the company
- good documentation
profiles and theoffactors
- separation operationto determine the performance of an accounting system were used as sources to
and accounts
obtain the output of recommending a suitable accounting system for MSMEs in Manila.

The method used is to provide a questionnaire to the respondents then the researchers will tabulate and
analyze the results. An interview with a particular respondent was an option to get his/her opinion about
the performance of their accounting system. These respondents were a reliable source of information
because they have experienced using their accounting system.

The output of recommending a better accounting system for MSMEs will be a great help for future
business owners for they can make better decisions in choosing their type of accounting system for their
businesses.
2.4 Conceptual Paradigm

INDEPENDENT DEPENDENT
VARIABLE VARIABLE
Performance of automated Accounting system's
and manual accounting efficiency and effectiveness
system on MSMes in Manila

FACTORS TO TEST THE A better accounting system

EFFICIENCY AND for MSMes in Manila
EFFECTIVENESS OF
ACCOUNTUNF SYTEM
- No. of finished documents
- No. of working hours
- No. of errors
- No. of employees

The figure above shows the relationship between independent and dependent variables of the study. The
researchers test the performance of automated and manual accounting system by evaluating several
factors to determine its efficiency and effectiveness and to provide a recommendation on which is a better
accounting system for MSMes in Manila.
2.4 Definition of Terms

1. Accounting Information System – (AIS) is responsible for providing timely and accurate
financial reports for internal management decision-making, and for external parties such as creditors,
investors, and regulatory taxation authorities.

2. Automated Accounting Information System – an accounting information system that utilizes

database-oriented applications wherein the transaction data is stored in a well-organized database.

3. Efficient – the span of time it takes to accomplish a set objective.

4. Effective – the level of results from the actions of employees and managers.

5. Industry – a classification that refers to a group of companies that are related in terms of their
primary business activities.

6. Manual Accounting Information System – an accounting information system that uses actual
paper journal and ledger or by creating these sheets in a computer programs such as excel. It is the
process of entering transactions individually.

7. Micro, Small, and Medium Enterprises – any business activity or enterprise, engaged in industry,
agri-business and/or services, whether single proprietorship, partnership, cooperative or corporation
whose total assets, inclusive of those arising from loans but exclusive of the land on which the particular
business entity’s office, plant and equipment are situated.

The Republic Act No. 9178, otherwise known as the Barangay Micro Business Enterprise (BMBE) Act of
2002 has redefined the categories of MSME by asset size as follows:
 Micro: Below P 3,000,00.00
 Small: P 3,000,001.00 – P 15,000,000
 Medium: P 15,000,001.00 – P 100,000,000.00

8. Sustainability – a long-term continuation of an organization through means of attaining relevant

business objectives

CHAPTER III
METHODOLOGY

1.0 Introduction

This chapter outlines the manner in which the study was conducted. The key components are the research
design, population, sample size and sampling technique, research instruments, validity and reliability,
procedure and data analysis.

1.1 Research Design

Saunders and Philip (2012) states that research design is the general plan of how you will go about
answering your research questions. It will contain clear objectives derived from your research questions,
the sources from which you intend to collect data, and how you propose to collect and analyze them. This
study is anchored using the causal comparative research design because the study is intended to compare
the variables or conditions of two significant components of the study.

According to Salkind (2010), a causal-comparative design is a research design that seeks to find
relationships between independent and dependent variables after an action or event has already occurred.
The researcher's goal is to determine whether the independent variable affected the outcome, or dependent
variable, by comparing two or more groups of individuals or schemes. The study also took the qualitative
approach of research which is ideal approach in obtaining an in-depth understanding of a certain area to
be explored and that is best suit for the goal of this study.

1.2 Research Locale

This study is to be conducted in the city of Manila which is located in the middle of National Capital
Region with a current population of 1.71 million as of the latest survey during 2014 (World Population
Review, 2015). Manila City is the second largest city and is the capital of the Philippines where most of
the political, educational, financial, cultural and research institutions can be located and hence, ideal to be
the primary site of data collection.

Specifically, all data obtained from this study were gathered in Juan Luna St., Binondo which is known to
house most of the MSMEs in Manila engaging in wholesale and retail industry.

1.3 Sample Size and Sampling Technique

Population is the totality of people or object being considered (Ozo, 2007) while sample is a finite part of
the population whose properties are studied to gain information about the whole (Webster, 1985). The
inputs of this study are to be gathered from the totality of 57 MSMEs in Juan Luna St., Binondo engaging
in wholesale and retail industry which is the target population of this study. This study also employed
purposive sampling technique specifically the homogenous sampling which is a non-probability sampling
technique that brings together respondents with similar backgrounds, characteristics, or experiences and
which relies on the judgment of the researchers in selecting the units to be studied. The main goal of this
sampling technique is to focus on the particular characteristic/s of the population that are of interest,
which will best enable the researchers to answer the research questions. In addition, former researches
also suggest purposive sampling as the best technique in selecting information rich cases for in-depth
study (Mugo, 2002).

The population of this study, the 57 MSMEs, selected were according to their geographical location, asset
size, and area of industry specifically using the following qualifications:

1. The respondents should belong in the MSMEs sector.

2. The respondents should be engaging in Wholesale / Retail Industry.
3. The respondents’ locale domain should be in Binondo, Manila particularly in Juan Luna St.

The researchers opted to use MSME sector as the respondents of this study for its significance to the
national economy and for the thriving numbers of entities in the said sector during this time period.
Wholesale / Retail Industry is the biggest sector in all industry of MSMEs and thus makes it ideal to be
the pool of the research. This study is also limited only in the city of Manila which is aside from being the
capital of the country, is also convenient for the researchers because of the time constraint to explore any
other places. The respondents should also be adopting either manual or automated accounting information
system which is the area to be explored.

The target population of the study was then sorted out using the sample size formula and only 32
enterprises are needed to be the sample of the study.

1.4 Research Instruments

All the respondents will be asked to fill in structured questionnaires which are the main method of data
collection (Sarantakos, 1997). This structured questionnaire was developed from existing and prior
instruments to enhance the reliability and validity of questions and measures. The researchers opted to use
this method of collecting data because the perceived respondents are literate and the time available for
data collection is very limited. Aside from basic and demographic information of the business, the
questionnaire mostly consists of close-ended questions and is divided into three parts delineating the
company profile, assessment of accounting performance and problem encountered in the adopted
information system.
1.5 Validity of Research Instruments

The variables of the questionnaire were adopted from the previous research “Computerization in the
accounting office of Batelec 1: Basis for enhancement” by Maligaya and Catena (2014). Since the scope
to be explored corresponds fairly on the topic presented in said study, it is believed that the instrument
could also be used in study comparing the manual and automated information system. However, because
there are certain differences in the business environment of the respondents compared with the company
studied in the previous research (Batelec 1), the applicability of the minor changes made in the
questionnaire were first consulted to two professors expose in the area of Information Systems for the
validation of the final questionnaire.
1.6 Reliability of Research Instruments

In designing the questionnaire to be used in this study, several factors were taken into consideration,
particularly, the time needed to finish the survey, the appropriate and target person to answer the
questions and the wording used in the questionnaire to be able to formulate closed-ended questions that
are answerable in an acceptable time period. As suggested by Brewer & Kubn (2010), closed-ended
questions provide a suitable list of responses that produces mainly quantitative data that are very efficient
for the study which goal is to determine whether the independent variable affected the outcome, or
dependent variable, by comparing two groups of scheme. Also, the time taken to complete a questionnaire
should be less than 20 minutes in order for the respondents to maintain interest and motivation (Smith,
2003).

1.7 Procedure

It was November 2015, that the professor in methods of research and accounting thesis announced the
requirement of the subject, a thesis research that will serve as an output at the end of the semester.

Chapter one (1) of the thesis study was submitted last November 25, 2015. The papers, provided with
comments and suggestions by the professor, were given back to the researchers after a week. On the later
date, November 28, the researchers' prepared a questionnaire to be validated by selected professionals /
professors.

The researchers headed to the Securities and Exchange Commission Office last December 2, 2015 to
request for the list of Micro, Small and Medium Enterprises engage in Wholesale and Retail Industry and
to the National Library to obtain a few readings and gather related articles that will further help the
researchers in finding a suitable method to be used for the conduct of the study.

After sorting the list of Micro, Small and Medium Enterprises engaged in Retail and Wholesale based on
the qualifications formulated, 57 enterprises passed to be the target population of the study. By then, the
survey questionnaire was also revised according to the comments and suggestions of the consulted
professionals and was approved to be administered last December 8, 2015.

Submission of Introduction, Review of Related Literature, and Methodology (Chapters 1, 2 and 3) is

dated on December 14, 2015.
1.8 Statistical Analysis of Data

The data to be collected / used are to be analyzed using the following descriptive and illustrative statistics:

1. To determine the sample size to be used in this study, the sample size formula is used to treat the
data.
Sample size formula: Ss’ = (z2) p (1 – p) 1+ (z2) p (1 – p)
e2 e2N

Where: Z-score table:

N = Population Size
e = Margin of error
z = Z-score
p = percentage of distribution

The researchers used 90% confidence level, 10% margin

of error and 50% percentage of distribution which is the
advisable percentage for research purposes.

2. To determine the demographic profile of the respondents in terms of position, and their respective
business enterprise in terms of type (micro, small, or medium enterprise), number of members,
 years of existence and total assets, frequency distribution, percentage and ranking will be used to
treat the data.

Frequency is to be used to find out the actual number of observations that falls in each category
given, percentage will be used to show the representation of the category in the whole
distribution, and ranking is to be used to grade the position of the observations for easier
interpretation of data.

Percentage of Distribution:
f
%= x 100% Where: n = respondents
n
% = percentage
f = frequency

3. To determine the effectiveness and efficiency of the information system of the selected
companies, data will be summarized using the mode which is the most suitable for easy
interpretation. The mode is the number that is most repeated in the distribution.

4. To determine the significant difference on the effectiveness and efficiency of the accounting
information system adopted by the respondents, analysis of variance (ANOVA) is to be employed
in order to know whether differences exist between population means.
MSB
FORMULA: F = Where: MSB = Mean Square between Groups
MSW
MSW = Mean Square within Groups

Statistical decision for hypothesis testing

If Fcomputed < Fcritical, do not reject the null hypothesis
If Fcomputed > Fcritical, reject the null hypothesis and accept alternative hypothesis (H1)
 5. To measure the degree of answers prosed by the respondents, the Likert Scale will be used using
the four-point method:

SCALE VERBAL DECRIPTION

4.00 Always (A) / Strongly Agree (SA)
3.00 Often (O) / Agree (A)
2.00 Sometimes (S) / Disagree (D)
1.00 Never (N) / Strongly Disagree (SD)

Likert Scale questions use psychometric testing to measure beliefs, attitudes and opinion. The
questions use statements and a respondent then indicates how much they agree or disagree with that
statement. Usually, a scale of 0-10 is provided with Likert Scale questions, although shorter scales
may also be possible. In this case, the researchers opted to use the four-point system.

The main advantage of Likert Scale questions is that they use a universal method of collecting data,
which means it is easy to understand, to draw conclusions, reports, results and graphs from the
responses. Furthermore, because Likert Scale questions use a scale, respondents are not forced to
express an either-or opinion, rather allowing them to be neutral should they so choose. Last but not
least, it is very quick and easy to run this type of survey and it can be sent out through all modes of
communication, including even text messages.
 CHAPTER IV
RESULTS AND DISCUSSION OF DATA

2.0 Introduction

This chapter contains the tabular presentation, analysis and discussion of the respondents’
background, the dependent variables and the verification of hypotheses.

2.1 Determination of the Sample Size

Formula: Ss’ = (z2) p (1 – p) 1+ (z2) p (1 – p)

e2 ÷ e2N

Where: z = 1.65 (from the z-score table with 90% confidence level)
p = 0.50 / 50 % distribution
e = 0.10 / 10% margin of error
N = Population

= (1.65)2 x 0.50 (1-0.50) 1+ (1.65)2 x 0.50 (1-0.50)

(0.10)2 ÷ (0.10)2 (57)

= 68.0625__
 2.19407947

= 32

4.2 Background of the respondents

This section shows the background of the respondents according to asset size, type of system used in
the business, form of business organization, nature of business, and years of use of adopted
accounting system as per section I of the questionnaire. (Appendix A)

4.3 Respondents by asset size

Table 1 shows the distribution of respondents by asset size.

Table 1: Respondents by Asset size

Asset Size Frequency Percentage
Micro Enterprise
Small Enterprise
Medium Enterprise
Total 100.0

Explanation

4.4 Respondents by the type of system used in the business

Table 2 shows the distribution of respondents by the type of system used in their business.

Table 2: Respondents by Type of System

Type of System Frequency Percentage
 Manual System
Automated System
Total

Explanation

4.5 Respondents by form of business organization

Table 3 shows the distribution of respondents by form of business organization.

Table 3: Respondents by form of business organization

Form of organization Frequency Percentage
Sole Proprietorship
Partnership
Corporation
Total

Explanation

4.6 Respondents by nature of business

Table 4 shows the distribution of respondents by nature of business

Table 4: Respondents by nature of business

Nature of Business Frequency Percentage
Wholesale
Retail
Others
Total

Explanation
4.7 Respondents by years of use of adopted accounting system

Table 5 shows the distribution of respondents by years of use of their adopted accounting system.

Table 5: Respondents by Years of Use of Adopted System

Years of use Frequency Percentage
1 – 5 years
6 -10 years
11 – 15 years
16- 20 years
21 years and above
Total

Explanation

6.7 Description of the dependent variable (DV)

Explanation
Arithmetic Mean Frequecy Std Deviation
Variantion per class *by respondents

6.8 Verification of Hypothesis

This section gives the verification of the two study hypotheses.
 APPENDIX A
Questionnaire used in data collection

Pamantasan ng Lungsod ng Maynila

University of the city of manila
Intramuros, manila, Philippines

INSTRUMENT:

The researchers adopted a survey questionnaire from “Computerization in the accounting office of
Batelec 1: Basis for enhancement” by Maligaya and Catena (2014) as its major data gathering instrument
that will be used in this study. The said questionnaire consists of 3 parts; the first part asks about the
profile of the business; the second part is about the accounting system performance; and the third part
contains items asking about the problems that the entities usually encounter in using their accounting
system. A scale of 1 to 4 is used as a measure where 1 is the lowest and 4 is the highest.

Good day Madam/Sir:

You are invited to participate in our professional survey regarding accounting systems adopted by
Micro, Small, and Medium Enterprises (MSMEs) involved in Wholesale/Retail Industry in Manila City.
The main objective of this study is to evaluate the efficiency of Automated Accounting System as
compared to the Manual Accounting System. This study is to be conducted from the month of November
2015 until the month of March 2016. Upon accomplishment of the study, the researchers would be able to
know which kind of accounting system is more reliable for business operations.
 In this survey, you will be asked to complete a questionnaire that pose questions about your
business’ basic profile, adopted accounting system, and problems encountered in using your system
during the normal course of business. For this survey, the term ‘accounting system' is used to only
incorporate manual or automated accounting systems. Completion of this survey will take approximately
5-10 minutes.

Your participation in this study is completely voluntary. There are no foreseeable risks associated
with this project. However, if you feel uncomfortable answering any questions, you can withdraw from
the survey at any point. It is very important for us to learn your opinions.

Your survey responses will be strictly confidential and data from this research will be reported
only in aggregate. If you have questions at any time about the survey or the procedures, you may ask the
researcher/s attending the said survey.

Thank you so much for your time and support!

Name: ____________________________________________________

Position: __________________________________________________

Company’s Name: __________________________________________

Company’s Address: ________________________________________

INSTRUCTIONS: Please check the box that corresponds with your answer.

I. Business Profile
1. Type of system used in the business:

 Manual Accounting System – a way of keeping business financial records using physical
books. Companies that merely encode transactions using Microsoft Excel is considered
as manual accounting system.
a. Do you plan to shift to automated accounting system?

 Yes

 No

b. Reason for answer: ___________________________________

  Automated Accounting System – approach to maintaining up-to-date accounting records
with the aid of accounting software.
a. Accounting Software being used:

 ACCPAC (Accounts Package)

 SAP Business One

 Book Keeper

 QuickBooks Pro

 ERP

 Others, please specify: ______________________

2. Form of business organization:

 Sole Proprietorship

 Partnership

 Corporation

3. Nature of business:

 Retail

 Wholesale

4. Manual or Automated Accounting System utilization:

 1 – 5 years

 6 – 10 years

 11 – 15 years

 16 – 20 years

 21 years and above

II. Assessment of Accounting Performance

 Use legend: 3.50 – 4.00 = Strongly Agree (SA)
2.50 – 3.49 = Agree (A)
1.50 – 2.49 = Disagree (D)
1.00 – 1.49 = Strongly Disagree (SD)

1. Our accounting system is easier to set up.

Answer: _________________
2. Our accounting system makes our job easy and simple.
Answer: _________________
3. Our accounting system is easier to manage.
Answer: _________________
4. Our accounting system is more secure.
Answer: _________________
5. Our accounting system is accurate in recording business transactions.
Answer: _________________
6. Our accounting system has the ability to reliably update data and take action.
Answer: _________________
7. Summarizing, analyzing, and reporting is often much easier when using our accounting system.
Answer: _________________

8. Through the use of our accounting system, we enhanced and increased the quality and quantity of
our work.
Answer: _________________
9. Through the use of our accounting system, we have been able to finish our assigned job.
Answer: _________________
10. Our accounting system affects decision-making.
Answer: _________________

III. Problems encountered in using the Accounting System

Use legend: 3.50 – 4.00 = Always (A)
2.50 – 3.49 = Often (O)
1.50 – 2.49 = Sometimes (S)
1.00 – 1.49 = Never (N)
1. Assigned task is not finished on time.
Answer: _________________
2. Reports are delayed.
Answer: _________________
3. Inaccurate data.
Answer: _________________
4. Higher cost.
Answer: _________________
5. Prone to error.
Answer: _________________
6. Data appear to be time consuming.
Answer: _________________
7. Difficult to assess.
Answer: _________________
8. Protection against data loss.
Answer: _________________
9. Problems of security and confidentiality.
Answer: _________________
10. Data manipulation.
Answer: _________________