CHAPTER ONE

INTRODUCTION

1.1     BACKGROUND OF THE STUDY

Recent researchers have shown that one of the main causes of indigenous business failure in this country is failure to maintain proper financial records. Many businesses have been operated with merely a single entry memorandum record of transactions and others with no record whatever, except possible cheque stubs. As a result, business decisions are based on guesses and intuition. (Ola, 1985).

               In today’s economy, information and accountability have assumed a larger role in our society. This is why it is statutory, Companies and Allied Matters Decree (1990) require all registered companies in the country to prepare and present financial statements in accordance to the relevant accounting regulation.

              Business organizations have to analyze their financial statements or accounts by way of interpretation, simplification and transaction of facts and data contained in the financial statements.

The essence of the study is to draw relevant conclusion, make inference as to the business operations, financial positions, and future prospects of the organizations. In the assessment of the performance of an organization, an important area of management control is past factor assessment of financial results of the organization as a whole, which is the examination in retrospect of the financial effects of earlier decisions to invest. Management must regularly commit resources for both long term and short term purpose and because the commitment will always involve risk or careful assessment of the anticipated results of any project on the financial position should be made before a decision is taken and before resources are irrevocably committed.

             A periodic evaluation is needed after resources have been invested, to report what has been achieved, to examine amount of the profit, or the extent of the loss and to consider the effect of implementing the plan on the financial statement of the business, in particular to note whether financial stability has been maintained or alternatively the extent to which it has been impaired.

Information on all the aspect of the finances of the business is needed to permit management to assist the quality of past decision at strategic level and the effectiveness with which they have been implemented. Finally, It is important that the information base of financial knowledge should be developed from which future activities can be planned.

       An important purpose of the appraisal of results is to confirm whether or not the project has produced the expected cash flow. The main function of the financial account of a business however is to measure the results in terms of profitability and it is on the basis of success or failure measured in these terms that management will be judged.

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