1.2 BACKGROUND OF THE STUDY
Business is one of the sources of earning income. When a business is started, it requires investment of certain amount which is called capital. With this amount of capital the businessman may deal either on trading business or manufacturing business. In a trading business, he will buy goods at a lesser price and sells the same to others at a higher price.
In case of manufacturing business he has to buy raw materials and incure other expenses in the form of wages and salaries, rent, power, insurance, tax, transport, postal and telephone expenses and so on, in the course of production and distribution of goods. In a small sized business the transactions are simple and less in number. But in a large sized business the transactions are numerous. These business transactions enable the businessman to know the result of his business which can be profit or loss for a given period of time. In order to know the result of his business, a businessman has to remember all the transactions of his business. However, owing to lack of memory it is not possible for anybody to remember all the transactions over a period of time. This has given rise to maintenance of a set of accounting books in which business transactions are chronologically recorded. The systematic recording of business transactions enable the businessman to account for every transaction without missing any item.
Such a system of maintenance of a set of accounting books to record business transactions is known as book keeping system.
Before accounting concepts and conventions are discussed, it will be appropriate to know the meaning of the term “accounting principle”. In olden days when size of the business was small and less complicated, the accounting information was felt only by the proprietor of a business. In modern days, with the growth of the business organizations, the transactions have become more in number. Unless these transactions are recorded according to a definite principle by all the business enterprises it is difficult to maintain uniformity in accounting system. Such uniformity is also necessary because many parties such as investors, creditors, employees, government and general public are interested to know the affairs of the business. If every business follows its own accounting practices, the final accounts may not be understandable to all such parties. So there is a scope for misinterpreting the position of the business by all persons interested in the business. Hence there is a need to follow a uniform accounting principles from the stage of recording the transactions up to the stage of preparing final accounts.
1.2 STATEMENT OF PROBLEMS
The following problems led to the formulation of this research work:
Insurance companies has not been complying to accounting principles in their day to day activities.
Insurance firms in Nigeria has not been adhering to accounting principles and standards in their various organization.
The non adherence to the accounting principles has contributed to failure of most insurance firms in Nigeria.