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“A COMPARATIVE STUDY OF COMPUTERIZED AND NON-

COMPUTERIZED ACCOUNTING SYSTEMS IN SMALL AND MEDIUM

ENTERPRISES (SME’s)”

In Partial Fulfillment of the Course Requirement in Accounting Research Method

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Chapter 1

THE PROBLEM AND ITS BACKGROUND

Introduction

The swift evolution of technology has revolutionized global operations, enabling

individuals to communicate across vast distances and expand social connections

through the internet. In the realm of business, the traditional manual accounting

methods have given way to computerized systems, marking a significant shift towards

efficiency and accuracy in financial management. The introduction of computerized

accounting systems, as highlighted by Marivic (2009) and Indira (2008), offers major

advantages such as speed, accuracy, and enhanced communication capabilities,

transforming how businesses handle financial data and interact with stakeholders. The

transition from manual to computerized accounting systems, as discussed by Amidu,

Effah, & Abor (2011), has streamlined operations, improved data accuracy, and

facilitated timely decision-making processes. This shift underscores the critical role of

technology in modern business environments, where computers play a pivotal role in

enhancing operational efficiency and navigating the dynamic landscape of global

business practices. The adoption of computerized accounting systems not only improves

internal processes but also strengthens external relationships with accounting firms, as

noted by Kapp & Heslop (2011), by providing more accurate information, better

efficiency, and tighter internal controls to prevent fraud. Overall, leveraging advanced

software systems proves to be greatly beneficial for businesses in adapting to the

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rapidly changing technological landscape and ensuring competitiveness in today's

digital-driven world.

Small and Medium Enterprises (SMEs) are vital contributors to economic

growth, providing employment opportunities and fostering entrepreneurship. In

Tuguegarao City, many SMEs still rely on traditional non-computerized accounting

systems despite the advancements in technology. This reliance on manual methods is

often influenced by factors such as cost constraints, resource limitations, and a comfort

level with familiar practices.

Research studies provide valuable insights into the challenges faced by SMEs in

adopting computerized accounting systems. For instance, Hamel (2018) highlighted that

small businesses accumulate various types of data but face obstacles in implementing

accounting software systems due to drawbacks such as complexity. Additionally,

research conducted by the International Journal of Advanced Research revealed that

only a small percentage of SMEs in Tuguegarao City have embraced computerized

accounting systems, indicating a significant gap in adoption rates. Furthermore, Zahid

and Murtaza (2016) emphasize the benefits of cloud accounting software for SMEs,

showcasing the potential for improved financial management through technological

solutions. Understanding the implications of choosing between computerized

accounting systems are crucial for SME owners to enhance financial management

practices and decision-making processes. This comparative study aims to delve deeper

into the benefits and drawbacks of each system to assist SMEs in selecting the most

suitable accounting system based on their unique needs and circumstances. By

synthesizing existing research findings with empirical investigations, this study seeks to
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provide actionable insights that can empower SMEs in Tuguegarao City to make

informed decisions regarding their accounting practices.

The comparative analysis between computerized and non-computerized

accounting systems within the context of small and medium-sized enterprises (SMEs)

unveils critical insights into the evolving landscape of financial management practices.

Romano's (2013) emphasis on the accessibility of accounting data beyond traditional

office settings underscores a paradigm shift towards enhanced convenience and

operational flexibility, empowering SMEs to make informed decisions anytime,

anywhere. In parallel, Lin's (2010) findings shed light on the transformative impact of

computerized systems, showcasing accelerated implementation timelines, cost

efficiencies, and heightened competitiveness for SMEs embracing technological

advancements. Conversely, Edison et al.'s (2012) cautionary stance against

technological inertia among SMEs highlights the stark repercussions of failing to adapt

to modern accounting tools, potentially jeopardizing their viability and long-term

success in an increasingly digital-driven business environment. Moreover, Kapp &

Heslop's (2011) delineation of the tangible benefits offered by computerized accounting

systems, including enhanced accuracy, operational efficiency, and robust internal

controls against fraudulent activities, underscores the imperative for SMEs to leverage

technology as a strategic enabler for sustainable growth and resilience. Collectively,

these research insights underscore the pivotal role of technology adoption in reshaping

financial management practices within SMEs, from optimizing data accessibility and

operational efficiency to fortifying competitiveness and safeguarding financial integrity

in an ever-evolving marketplace.
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Theoretical Framework

As mentioned by Vitez (2013), non-computerized has an advantage for being 1. Timely

and Accurate. While, Joseph (2013) and Babalola (2016) mentioned the disadvantage of

non-computerized by being 2. Susceptible to Errors and Damage consecutively. On the

other hand, Weber (2014) theorized that Computerized accounting provides a better 3.

Internal Control while Magloff (2013) stated 4. Computer Fraud may be a problem in

computerized accounting system, and a theoretical paradigm which serves as a basis for

different responses thereto which accounting system is more effective.

ACCOUNTING
SYSTEM

Non-
Computerized

Timely and Susceptible to

Accurate Errors and
Computerized Damage

Internal Control Computer Fraud

Effectiveness of
Accounting
System
Figure 1.

Accounting is a crucial component of any organization, according to Shanker

(2013). Interested stakeholders, including owners of all sizes, want to know if their
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venture is profitable. Many small firms are content with their current structure, which

involves doing their bookkeeping by hand. Given the low cost of accounting software

these days, some may be thinking about implementing a computerized system.

Accounting principles and concepts are essentially the same for both manual and

computerized accounting systems; the differences are in the mechanics of the

operations.

Non-Computerized: Timely and Accurate

According to Vitez (2013), the manual accounting system requires great detail

because accountants have to manually enter data into physical books. The manual

accounting system can provide accurate and timely information if it is designed

properly.

Non-Computerized: Susceptible to Errors and Damage

Joseph (2013) claims that human error can occur while "number crunching" by

hand, which can be expensive for small business owners who could be pressured for

time on an accounting assignment. The possibility of harm to the records themselves is

another evident drawback. The records in a manual accounting system are vulnerable to

damage from fire, water, and other hazards, which may appear like an unavoidable

disadvantage (Babalola, 2016).

Computerized: Internal Control

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According to Weber (2014), the cost of an effective computerized accounting

system can range from thousands to millions of dollars, depending upon the complexity

and scale of the enterprise. For any particular time period, a computerized accounting

system offers a stronger internal control report system since it can monitor thousands of

indicators at once and notify the relevant departments or employees when any of them

differ from the norm.

Computerized: Computer Fraud

Magloff (2013) notes that there are additional challenges associated with

utilizing a computerized accounting system, including the necessity to safeguard against

viruses and power outages that could cause data loss, as well as the risk of hackers

stealing data. Computer fraud is an issue as well, so you should look into implementing

controls over who has access to information, especially that related to customers.

Statement of the Problem

This study aims to determine the Accounting System used by the SMEs in

Tuguegarao City. Specifically, it sought to answer the following questions:

1. What is the business profile of the SMEs in Tuguegarao City in terms of

1.1 Nature of Business

1.2 Type of Accounting System Used

1.3 Number of Employees

1.4 Number of Years of Operation

1.5 Average Monthly Income

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2. What is the level of effectiveness of the accounting system used by the SMEs in

Tuguegarao City in terms of

2.1 Reliability of Records

2.2 Security of Records

3. What are the factors influenced in the adoption of non-computerized and

computerized accounting systems?

4. Is there a significant difference in the accounting system used by the SMEs in

Tuguegarao City?

Hypotheses of the Study

To know which accounting system is more efficient either using Computerized

or Non- Computerized system of the population as a whole.

Ideally, building on notions explored during the secondary research, the

researchers will aim to discover whether Computerized or Non- Computerized is better

in accounting systems and that hypotheses denoted by HO are as follows.

HO1

Software accounting system is not able to handle large volume of data than the

manual accounting system.

HO2

Manual accounting system is more effective and efficient than the software

accounting system in reducing the amount of fund lost through frauds and forgeries.

Significance of the Study

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The result of the study will serve as good sources of data and information

comparing the use of computerized and non-computerized accounting system in Small

and Medium Enterprises. The findings of the study will be beneficial. Specifically, this

would benefit the following:

SME Owners - SME owners can benefit from the insights provided by this

research to make informed decisions regarding the adoption of accounting systems that

best suit their business needs. By understanding the advantages and drawbacks of both

computerized and non-computerized systems, SME owners can enhance their financial

management practices, improve decision-making processes, reduce errors, and

ultimately boost their business performance.

Financial Managers - It can help them leverage the findings of this study to

advocate for the adoption of more efficient accounting systems that can streamline

financial processes, reduce errors, and provide real-time insights.

Policymakers at Local Government - They can use the research outcomes to

develop initiatives or programs that promote the adoption of modern accounting

technologies among SMEs in Tuguegarao City. By empowering SMEs with knowledge

about the benefits of computerized accounting systems, these stakeholders can drive

positive change and advancement within the sector, ultimately contributing to economic

growth and sustainability.

Future Researchers - This study will be a useful reference for the researchers

who would plan to make any related study underlying the program Bachelor of Science

in Accounting Information System. It would help them to better analyze and it can be a

help as a future reference for more studies in the future.

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Scope and Limitations

The study focuses on examining the accounting systems utilized by SMEs in

Tuguegarao City. The target respondents were the owners of different small and

medium enterprise in the city. Random sampling technique will be used to gather

samples from the population. This study aims to determine the effectiveness and

prevalence of both computerized and non-computerized accounting systems within

these enterprises.

By using surveys and questionnaires, the research will gather insights into the

accounting practices of SMEs in the city, examining factors like job performance, work

quality, convenience, and time efficiency associated with each system.

Definition of Terms

Small and Medium Enterprises (SMEs) – An entity using accounting systems

including small and medium enterprises measuring through personnel size, number of

assets, maintained revenues, and on a limit of a certain threshold

Computerized – An accounting system with the use of software, applications, and

systems to generate and computations of financial statements. Providing also an

automated report in real time and even upon requests.

Non-Computerized – A traditional use of accounting systems using only paper-and-

pen and manually reporting of financial statements.

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Modern Accounting System – It is with the use of technology in accounting systems

by adapting the change for easier and better processing.

Accounting System – A set of accounting processes including identifying transactions,

recording transactions in a journal, posting the transactions, preparing the unadjusted

trial balance, analyzing the worksheet, adjusting journal entry discrepancies, preparing

adjusted trial balance, preparing a financial statement and closing the books.

Communication - Since Accounting is often referred to as the “language of business”

because it serves to communicate financial information about a company or

organization (Buffet, 2015). It is through the processed information used in accounting,

including the summary of accounts and financial statements.

Nature of Business - Refers to the specific industry or sector in which SMEs in

Tuguegarao City operate, providing insights into the diversity and focus of businesses

in the region.
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Chapter 2

REVIEW OF RELATED LITERATURE AND STUDIES

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Chapter 3

RESEARCH METHODOLOGY

This chapter presents the methods of investigation that will be used by the

researcher in analyzing the data.

Research Design

Locale of the Study

Research Instruments

Data Gathering Procedures

Statistical Tools and Treatment

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LITERATURE CITED

A. BOOKS

B. THESES AND DISSERTATIONS

C. JOUNALS, ARTICLES, PAPERS

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D. INTERNET RESOURCES
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Appendix