THE RELEVANCE OF ACCOUNTING PROCEDURE IN SMALL SCALE BUSINESSES

Abstract

This study examines the roles of proper accounting procedures to the survival of these small scale businesses. The methodology adopted was the use of questionnaire designed for eliciting information from the heads of various units or department in the industry/company surveyed. However, the study discovers that there is no proper accounting procedure as a result of the overbearing attitude of the proprietor who is a sole man business cautions. The various units head do not have the authority they should have to run the company’s finances because the proprietor is involved in both sourcing for and utilization of funds thereby punctuating the necessary procedures for proper accounting. A practice which the research discovers causes high morality rate of small scale business venture in Nigeria. Nevertheless, the study recommends that certified accountant and trained accounting clerks be employed and should be given enough freedom to exercise within the limits of accounting ethics to carryout their duties in all sectors particularly since the company is into the essential commodities that are sold in the common/open market.

CHAPTER ONE

INTRODUCTION

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 recorded, 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.

Statement of Problem

The relevance of proper accounting practice in any organization cannot be over emphasized. 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.

Research Questions

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

Why is Accounting department the only department in charge of financial matters or transactions in the organization? Why is the management of the organization attach great importance to information on accounting procedure? Why does management rely on accounting procedure for small scale businesses?

Objectives of the Study

The main objectives of the study are:

The accounting department helps in financial matters and transaction in the organization. The management of the organization assists in giving relevant information on accounting procedures. The organizational management provides greatly the accounting procedure for small scale businesses.

Research Hypotheses

Hypothesis One

HO:   The accounting department is not the only department in charge of financial matter and transaction in the organization.

HI:    The accounting department is the only department in charge of financial matter and transaction in the organization.

Hypothesis Two

HO:   The management of the organization does not attach great importance to information on accounting procedure and impose a tight control presentation.

HI:    The management of the organization attaches great importance to information on accounting procedure and impose a tight control presentation.

Hypothesis Three

HO:   The organizational management does not rely greatly on accounting procedure for small scale businesses.

HI:    The organizational management rely greatly on accounting procedure for small scale businesses.

Scope of Study

This research work intends to examine the factors responsible for the failure of small 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 geographical area of Aviele community and a sample size of 40 was adopted using a time frame of 2009 – 2013.

Significance of Study

This study is meant mainly to expose the attitude of small 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.

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.

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