ASSESSING BOOK KEEPING PRACTICES OF SMALL SCALE ENTERPRISE

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Abstract

The economy of Nigeria cannot function properly or thrive without the micro, small and medium scale enterprises (SMEs). These small scale enterprises cannot function properly if they are not properly managed and monitored to ensure that they are successful, this concern has led us into this study of assessing the book keeping practices of small and medium scale enterprises . The unique feature of most SMEs is that, they can be easily established since their requirement in terms of capital, technology; management and even utilities are not as demanding as it is the case of large enterprises. Consequently, small enterprise sector is one of the leading employers (next only to peasant agriculture) in Nigeria and has been recognized as significant sector in employment creation, income generation, poverty alleviation and a base for industrial development. It is estimated that there are over 32 million enterprises in the sector employing between 15 to 18 million people. Despite the enormous potential of the private sector, poor record keeping is identified as a constraint hampering its growth in Nigeria. Businesses are unable to keep track of daily activities and banks are unwilling to lend to SMEs all due to lack of financial information. Hence, this study seeks to investigate whether SMEs practice bookkeeping or not, and the contributions of bookkeeping to the growth of SMEs in the Uyo in Akwa Ibom State of Nigeria. The study considered a total population of 400 comprising SMEs, 15 Banks as well as SMEDAN office in the Local Government Area. Out of this figure, a simple random sampling technique was used to select a sample size of 100 for the study. From the findings of the study, it was revealed that, 80.7% SMEs were practicing bookkeeping and the manual system was predominantly used. The recommendations however were that, SMEDAN must be strengthen and well resourced by government to offer support services in the area of organizing effective training programmes for SMEs operators. There must also be an intensive publicity in the local dialect through the mass media to sensitize SME operators on the need to maintain proper books of records

 

TABLE OF CONTENT

Title page

Approval page

Dedication

Acknowledgment

Abstract

Table of content

CHAPETR ONE

1.0   INTRODUCTION 

1.1        Background of the study

1.2        Statement of problem

1.3        Objective of the study

1.4        Research Hypotheses

1.5        Significance of the study

1.6        Scope and limitation of the study

1.7       Definition of terms

1.8       Organization of the study

CHAPETR TWO

2.0   LITERATURE REVIEW

CHAPETR THREE

3.0        Research methodology

3.1    sources of data collection

3.3        Population of the study

3.4        Sampling and sampling distribution

3.5        Validation of research instrument

3.6        Method of data analysis

CHAPTER FOUR

DATA PRESENTATION AND ANALYSIS AND INTERPRETATION

4.1 Introductions

4.2 Data analysis

CHAPTER FIVE

5.1 Introduction

5.2 Summary

5.3 Conclusion

5.4 Recommendation

Appendix

 

 

 

 

 

 

 

 

 

 

 

 

 

CHAPTER ONE

INTRODUCTION

  • Background of the study

The importance of keeping proper accounts to promote the growth of small businesses has been acknowledged in prior studies on small business growth and development (Abor & Biekpe, 2006). Other studies have also identified that the lack of keeping proper accounts is one of the most important constraint to growth in the small business sector (Aryeetey et al, 1994; Steel & Webster, 1992 and Sowa, Baah-Nuakoh, Tutu & Osei (1992). Mead & Liedholm (1998), Marfo-Yiadom. & Kweku (2006) identified the lack of demand, shortage of working capital and poor accountability as the main reasons for small business closures in Africa. Financial reporting is very critical to ensuring the survival and growth of every business unit. The keeping of proper records and writing of financial statements have enormous benefits for Small Scale Enterprises. They serve as an important management tool for every business because they provide an accurate reflection of financial performance of the business. They also serve as a means to monitor performance and measure the accuracy of income and expenditure (Adjei, H, Anokye, O. A. C., Mintah, E. K., & Offeh, M. C. 2014). The keeping of accounting records involves the documentation of all the transactions of the business entity including its assets and capital (equity and liabilities), and in order to solve business limitations such as, lack of finance, weak institutional capacity, lack of managerial skills and training of small-scale enterprises, there is need for business management expertise to manage properly the finances, purchases, sales, production, and human resources aspect of the business. According to Jones, Simmons, Packham, Beynon- Davies, & Pickernell .(2012), accounting is important because it allow businesses or organizations to understand their financial position at any given time which enhances the development of strategies to reposition the business for further expansion and growth. In order to properly develop SMEs, there is need for them to adopt and develop proper accounting practices. There is a growing recognition of the important roles Small and Medium-Scale Enterprises (SMEs) play in the economic growth and sustainable development of every nation (Ghartey, 1988; Moore, Petty, Palich & Longernecker, 2008). For example, Ghartey, (1988) described SMEs as the bedrock of both developed and developing countries. The percentage contribution of SMEs to Gross Domestic Product (GDP) ranges from 60% in China, 57% in Germany, 55.3% in Japan, 50% in Korea and 47.3% in Malaysia. SMEs in Ghana provide about 85% of manufacturing employment and are believed to contribute about 70% to Ghana’s GDP (Frimpong, 2013). These important roles of SMEs can best be sustained through the implementation of fundamental financial and accounting practices (Schwenk & Schrader, 1993). However, it has been reported that many SMEs failed to keep adequate accounting records to generate the much needed accounting information that owner-managers and other users require for their decision making purposes which led to major problems (Howard, 2009; Madurapperuma, Thilakerathne, & Manawadu, 2016). Larson & Clute, (1997) further reported of weak internal accounting systems of some SMEs which resulted in poor planning, weak expense control, low collection of accounts receivable, poor financial condition, and inadequate information for decision making purposes. Okoli, (2011) in his work linked proper record keeping of SMEs to profitability and asserted that as a result of inadequate record keeping, small scale business operators could not effectively assess their financial performance. Therefore, he suggested that SMEs should keep adequate records which would help the owner-managers to keep track of the performance of their businesses and also enhance their continuity. Inefficient use of accounting information to support financial decisions of owners-managers of SMEs can negatively affect the financial status and long term sustainability of the business of the SMEs whether large or small. In recent times, several education and training programmes have been organized for SMEs in Ghana on proper bookkeeping and accounting practices. However, the findings of (Mbroh & Attom, 2011; Dawuda & Azeko, 2015; Ankrah, Mensah, & Ofori-Atta, 2015) gave evidence that SMEs still failed to keep proper books of accounts due to low levels of education and inadequate knowledge in accounting on the part of the Owner-managers and lack of money to hire qualified accountants. In view of the importance of SMEs to the economic development and growth of a country, this study has been designed to examine whether the findings of Mbroh & Attom (2011); Dawuda & Azeko, (2015); Ankrah, Mensah, & Ofori-Atta, (2015) still persist or there has been a mark improvement in the accounting practices of SMEs especially in the Ho Municipality.¬† Small and Medium-sized Entities (SMEs) play important roles in the economic growth and sustainable development of every nation, (Moore WC, Petty JW, Palich CH, Longernecker¬†JG., 2008). The government of Nigeria has identified entrepreneurship development as a major policy thrust to achieve economic development. The main reason of this concern is the growing need for entrepreneurs who accelerate economic development through generating new ideas and converting them into profitable ventures (Tucker, 2000), The Small Medium Enterprise (SME) sector has been identified as an significant strategic sector in the overall policy objectives of the Government of Nigeria (GON) and it is seen as a driver of change for wide-ranging economic growth, regional development, employment generation and poverty reduction. SME sector is envisaged to contribute to transform lagging regions into emerging regions of prosperity.

The rate of educated unemployment remains proportionally higher than the rate for less-educated workers in Nigeria. Today Nigerian government is facing a critical issue of providing employment opportunities for GCE A/L & above. The development and growth of SMEs in Nigeria provides a solution to this problem. The Government of Nigeria recognizes SMEs as the backbone of the economy, as it accounts for more than 75% of the total number of enterprises, provides 45% of the employment and contributes to 52% of the Gross Domestic Production (GDP). SMEs promote broad based equitable development and provide more opportunity for Women and Youth participation in the economic development of the country. To upgrade and strengthen this sector it is important to have a government led intervention and support mechanism to meet the expectations of the country. SME Policy Framework aims to promote high potential, promising SMEs and improve business environment to allow them to realize their full potentials in today’s globalized economy. Given the nature of this sector, there are many challenges the SMEs are facing. It has been recognized that appropriate accounting information is important for successful management of any business entity, whether large or small.

Accounting systems provide a source of information to owners and managers of SMEs operating in any industry for use in the measurement of financial performance. The importance of financial performance measurement to any business entity, big or small, cannot be over-emphasized. In any sense, profit can analogously be viewed as the life-blood of a business and hence the accounting bases, concepts and principles adopted ought to capture and report all the relevant accounting information to ensure reliability in its measurement. Reported profits reflect changes in wealth of owners and this can explain why major economic decisions in business are centered on financial performance as measured by profitability, (Cooley, 1983). It has been recognized that appropriate accounting information is important for successful management of any business entity, whether large or small (European Commission, 2008), 2008). It is crucial therefore that the accounting practices of SMEs supply complete and relevant financial information needed to improve economic decisions made by entrepreneurs. This research therefore focuses on investigating the types of accounting records being kept and maintained by SMEs, their completeness and the availability of accounting skills and knowledge to capture and process accounting information which can be used to measure performance in SMEs.

  • STATEMENT OF THE PROBLEM

Small and Medium-sized Entities (SMEs) play important roles in the economic growth and sustainable development of every nation, (Moore WC, Petty JW, Palich CH, Longernecker JG., 2008). The government of Nigeria has identified entrepreneurship development as a major policy thrust to achieve economic development. The main reason of this concern is the growing need for entrepreneurs who accelerate economic development through generating new ideas and converting them into profitable ventures (Tucker, 2000), The Small Medium Enterprise (SME) sector has been identified as an significant strategic sector in the overall policy objectives of the Government of Nigeria (GON) and it is seen as a driver of change for wide-ranging economic growth, regional development, employment generation and poverty reduction. SME sector is envisaged to contribute to transform lagging regions into emerging regions of prosperity. It is in view of the above that the researcher intends to investigate the book keeping practices of small scale enterprise

  • OBJECTIVE OF THE STUDY

The main objective of this study is on assessing book keeping practices of small scale enterprises. But to aid the successful completion of the study, the researcher intends to achieve the following specific objective;

  1. To ascertain the impact of book keeping on the profitability of the organization
  2. To examine the role of book keeping in organizational efficiency
  • To ascertain if there is any relationship between book keeping and organizational profitability
  1. To ascertain the impact of book keeping as a tool for internal control
    • RESEARCH HYPOTHESES

The following research hypotheses were formulated by the researcher to aid effective completion of the study

H0: there is no significant relationship between book keeping and organizational profitability

H1: there is a significant relationship between book keeping and organizational profitability

H0: book keeping does not serve as a tool for internal control in small scale enterprise

H2: book keeping does serve as a tool for internal control in small scale enterprise

  • SIGNIFICANCE OF THE STUDY

It is believed that at the completion the study the findings will be of great importance to the management of small scale enterprises in the study area as the study seek to explore the numerous merit of book keeping to small scale enterprises. The study will also be of importance to tax authorities as the findings will help them inculcate some of these SMEs into tax net which in turn increases government revenues for infrastructural development. The study will also be useful to researchers who intend to embark on a study in a similar topic as the findings will serve as a reference point to further studies

Finally, the study will be useful to student, teachers, academia’s lecturers and the general public as the study will contribute to the pool of existing literature and also add to the knowledge bank on the subject matter.

  • SCOPE AND LIMITATION OF THE STUDY

The scope of the study covers an assessment of book keeping practice of small and medium scale enterprises. In the cause of the study, there were some constrains which limited the scope of the study;

  1. a) AVAILABILITY OF RESEARCH MATERIAL: The research material available to the researcher is insufficient, thereby limiting the study
  2. b) TIME: The time frame allocated to the study does not enhance wider coverage as the researcher has to combine other academic activities and examinations with the study.
  3. c) Organizational privacy: Limited Access to the store manager makes it difficult to get all the necessary and required information concerning the activities.

1.7 OPERATIONAL DEFINITION OF TERMS

Book keeping

Bookkeeping is the recording of financial transactions, and is part of the process of accounting in business. Transactions include purchases, sales, receipts, and payments by an individual person or an organization/corporation

SMEs

The European definition of¬†SME¬†follows: “The category of micro, small and medium-sized enterprises (SMEs) is made up of enterprises which employ fewer than 250 persons and which have an annual turnover not exceeding 50 million euro, and/or an annual balance sheet total not exceeding 43 million euro

Accountability

In ethics and governance, accountability is answerability, blameworthiness, liability, and the expectation of account-giving

1.8 ORGANIZATION OF THE STUDY

This research work is organized in five chapters, for easy understanding, as follows Chapter one is concern with the introduction, which consist of the (overview, of the study), statement of problem, objectives of the study, research question, significance or the study, research methodology, definition of terms and historical background of the study. Chapter two highlight the theoretical framework on which the study is based, thus the review of related literature. Chapter three deals on the research design and methodology adopted in the study. Chapter four concentrate on the data collection and analysis and presentation of finding.  Chapter five gives summary, conclusion, and recommendations made of the study.



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