The Relevance Of Accounting Procedure In Small Scale Businesses

The Relevance Of Accounting Procedure In Small Scale Businesses

Abstract

The purpose of this study was to evaluate the relevance of accounting procedure in small and medium scale business. The study was conducted in Abuja metropolis, FCT, Nigeria. A total of 134 respondents were selected from the population figure out of which the sample size was determined. The primary source of data collected was mainly the use of a structured questionnaire which was designed to elicit information on the role of auditors in prevention of fraud in banking industry or banks. To attain these goals, a test questionnaire was administered to a total of 40 respondents. Data collected will be analyzed using frequency table, percentage and mean score analysis while the nonparametric statistical test (Chi-square) was used to test the formulated hypothesis using SPSS (statistical package for social sciences). The analyses of collected data revealed a significant relationship between accounting procedure and small and middle scale business performance. While accounting record keeping was found to contribute immensely to the efficient performance of small business in Nigeria, there was a large market of clients for accounting services. This study also has implications for prompting and sustaining a robust contingency based tradition in management accounting research in Nigeria and beyond.

Chapter One

Introduction

1.1 Background to the Study

From time in memorial man has consistently improved on the ways transactions are carried out. Particularly, the improvement in the increasingly complexity of daily transactions by man started in the mercantile era, that is, the period of the birth of modern commerce.

This period witnessed a boom in merchandising, leading to large volumes of exchange of goods and services between individuals and across various frontiers, this development led to the growth of and formal recording of transaction involving exchange of currency(s). However the recording transactions in books of accounts known as book keeping in line with double entry principle dates back to the 14th century AD when Italian merchants began to use the double entry system to record their transactions (Igben, 2004).

Nevertheless the earliest known double entry records which gave birth to modern financial accounting as noted by Igben (2004) is the account of “stewards of the commune of Genoa” in the year 1340. The implication of this is that modern accounting practices can be traced to Italian origin as it was called “Italian method”.

However, for financial accounting, several definitions exist, it can simply be defined as the process of collecting, recording, presenting and analyzing and interpreting financial information for the users of financial statements (Igben, 2004).

As transactions are carried on and they are recorded in statements, which are usually contained in source documents like invoices, bills, debit notes, receipts vouchers, credit note to mention but a few, such are recoded, presented and analyze/interpret for the purpose of transparency, accountability and understanding by the parties involved in the transactions.

Nevertheless, transactions in whatever form are recorded in the books of accounts, ledger and subsidiary books, as credit and debit showing what goes out and what come in the transactions. This allow both the preparer (accountant) and the user of financial statements to keep back of money, the worth of assets and liability of the user of the accounts. It also allows for close monitoring of the profit and loss of any business for which the accounts is prepared.

Knowing how a business fairs and be properly informed and make or take necessary steps towards making progress could easily be the desire of every enterprise. Be that as if may all business enterprises strive to maximize profit. To achieve this however there is therefore the need for a proper accounting process/procedure. Lack of proper accounting in an enterprise usually speaks doom for the enterprise many small enterprises are from observation and experience do not employ the service of trained accountant let alone keeping profit account of businesses. The implication of this is the failure of many businesses enterprises particularly small scale enterprises.

It is on this note therefore that this research work sets out to investigate the relevance of keeping proper accounting of business identifying the problem associated with improper accounting procedure and the implication on the growth of small scale business with a view to making proposals for small scale business growth through encouraging them to maintaining regular and keeping of accounts in all transactions no matter the size.

1.2 Statement of Problem

The relevance of proper accounting practice in any organization cannot be overemphasized. Any organization, no matter its size without proper records of its daily transactions is doomed to fail. Unfortunately through, as relevant as accounting to the success of enterprises many small scale business in Nigeria have been observed to neglect proper and maintenance of standard procedure for book keeping in their day to day business transactions. However, many researchers have discovered and highlighted several factors responsible for the failure of small businesses in Nigeria with little emphasis on the role of improper and lack of standard accounting process or procedure in the failure stories of small scale businesses.

It is therefore the aim of this research to investigate the cause of the failures associated with improper accounting in small scale business enterprises in Nigeria with a view to making suggestions on how to encourage small scale enterprises to enable the use of proper and the standard of accounting practices if they must succeed.

1.3 Objectives of the Study

The main objectives of the study is to evaluate the relevance of accounting procedure in small and medium scale business.

The specific objectives include:

1. To ascertain the extent to which small and medium scale business keep accounts of their financial transactions
2. To determine the relationship between accounting procedure and small and medium scale business performance
3. To ascertain the extent accounting records keeping contributes in efficient performance of small and medium scale business.

1.4 Research Questions

The following research questions are relevant for understanding of the study.

1. To what extent do small and medium scale businesses keep accounts of their financial transactions?
2. Is there a significant relationship between accounting procedure and small and medium scale business performance?
3. To what extent does accounting records keeping contribute to the efficient performance of small business?

1.5 Research Hypotheses

Hypothesis I

• H0: There is no significant relationship between accounting procedure and small and medium scale business performance
• Hi: There is a significant relationship between accounting procedure and small and medium scale business performance

Hypothesis II

• H0: Accounting record keeping does not contribute to the efficient performance of small business
• Hi: Accounting record keeping contributes to the efficient performance of small business

1.6 Significance of the Study

This study is meant mainly to expose the attitude of small and medium scale businesses towards keeping proper accounting in their daily transactions. It exposes the method of accounting employed by small enterprise in keeping records of their daily transactions and hence the causes of several bankruptcy common among the small scale enterprises.

The study intends to bridge the gap between earlier studies which are done on the general causes of failure of small business while emphasizing on the failure caused by lack of proper accounting procedure. This study will be of immense benefit to other researchers who intend to know more on this study and can also be used by non-researchers to build more on their research work. This study contributes to knowledge and could serve as a guide for other study.

1.7 Scope of the Study

This research work intends to examine the factors responsible for the failure of small and medium scale business enterprise with a view to establishing the rate of failure related to improper accounting procedure. It also studies the operation and various transaction involved by these enterprises with a view to examining their mode of operation and how transactions are recorded and who does the recording to ascertain the standards employed. The study covers a Small scale business in Abuja metropolis.

1.8 Limitations of the Study

The study is faced with some constraints which may likely affect the generalization of findings. The constraints include the following:

Geographical Coverage:

Factors that may likely affect the work is the issue of investigating all accounting firms in the country. Due to the spread of accounting firms all over major cities in the country, the researcher could not be able to cover the whole areas. Hence, emphasis was focused on only Aviele, which I think could affect the generalization of result. Problem of sourcing for Materials: The research was faced with problems of getting current materials, textbooks, journals, seminar papers in relation with this research topic. In the final analysis most interviewed and investigated could not give some vital information that would have acted as ingredients in the work.

Financial Constraint:

Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).

Time Constraint:

The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work.

1.9 Definition of Terms

Accounting:

The process or work of keeping financial accounts.

Accounting Procedure:

An accounting procedure is a standardized process that is used to perform a function within the accounting department. Examples of accounting procedures are: Issue billings to customers. Pay invoices from suppliers

Small and Medium Scale Businesses:

A small scale enterprise is a privately owned and operated business, characterized by a small number of employees and low turnover. The U.S. Small Business Administration states that small-scale enterprises generally have fewer than 500 employees within a 12-month period in non-manufacturing industries

Chapter Five

Summary, Conclusion and Recommendations

5.1 Summary of Findings

The purpose of this study was to evaluate the relevance of accounting procedure in small and medium scale business. Two hypotheses were formulated (generated) to guide the researcher. The first was meant to find out if a significant relationship exist between accounting procedure and small and medium scale business performance. The research also sought to uncover whether accounting record keeping contributes to the efficient performance of small business.

To attain these goals, a test questionnaire was administered to a total of 40 respondents. During data analysis, the student t-test analysis was employed.

The analyses of collected data revealed a significant relationship between accounting procedure and small and medium scale business performance. While accounting record keeping was found to contribute immensely to the efficient performance of small business in Nigeria. The null hypothesis of all the formulated hypotheses formulated was rejected.

5.2 Conclusion and Recommendations

Accounting services provide small businesses with the relevant advisory, technical and professional support. Business owners require accountants to advise and guide them in the correct determination of profit, for better accountability and to help management achieve set goals and objectives. The findings of this study point to a large market of clients for accounting services. Small scale business (Small scale business) require professional and technical advice that accountants can give.

Therefore, accounting professionals should be encouraged to explore the needs of Small scale business as their active involvement in the Small scale business operations could help reduce the high mortality rate of Small scale business. Based on the findings of this study, accountants may also get involved in seminars and workshops to enable them understand the requirements of successful Small scale business especially when it comes to the financial aspects.

Further research can examine the extent to which owners of Small scale business employ accountants as part of their business or outsource accountants. By outsourcing accountants, this study means employing accountants when the need arises only. In such scenario, the accountant only works for the business when the need arises after which the contract is terminated. A major limitation of this study was that the entire South-Western part of Nigeria could not be sampled. Future researchers can explore this area.

The study also has implications for prompting and sustaining a robust contingency based tradition in management accounting research in Nigeria and beyond. It may even stimulate the search into developing or including more contextual variables in understanding the relationship between AIS and performance of small scale enterprises.

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