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ROLE OF
ACCOUNTING INFORMATION ON SMALL AND MEDIUM SCALE BUSINESS IN NIGERIA
CHAPTER ONE
INTRODUCTION
1.1. BACKGROUND TO THE STUDY
Accounting
information is a part and parcel of today’s life which is necessary to
understand the accurate financial situation of the organization and used as the
basis of making strategic decisions. Accounting plays a critical role in the
success or failure of contemporary business institutions.
Accountinginformation
serves as a critical tool for recording,
analyzing, monitoring and evaluating the financial condition of
companies,preparation of documents necessary for tax purposes, providing
information support to many otherorganizational functions,(Amidu et al.,2011).
In the context of SMEs, accounting information is important as itcan help the
firms manage their short-term problems in critical areas like costing,
expenditure and cashflow, byproviding information to support monitoring and
control.
The range of accounting information users is a
broad one, and it has different information needs, but the same quality
requirements in terms of accounting information contained in the financial
statements. Even if a number of criticisms and limitations can be brought and
attributed to accounting information, it remains the most important
substantiation source of financial decisions for most small and medium scale
business.
According to
Ademola et al (2012), accounting information is essential to business
management. It involves identification, classification, storage and protection,
receipt and transmission, retention and disposal of records for preparation of
financial statements.
Within
contemporary economic conditions, a successful small scale business owner needs
a lot of reliable accounting information in order to be able to make quality
business decisions (Miko, 1998). Economical information especially financial
and accounting ones are the information which always small scale business
owners use in short term and strategic decisions and they may have most
application among different variables effective in decision-making and in all
types of decisions, thereby boosting productivity and profitability of the
business.
As a result
of the increasingly important role that the financial-accountinginformation
plays today in small and medium scale business as “social good”, accounting has
consolidated its central placewithin the information system of any enterprises,
be it public or private, clearly bringing its“contribution in an area of
complex social, multilateral and multidimensional relations.
The impact
of accounting information is a function of the benefit that are derived by the
members of the society who had bind themselves into the social organization of
their survival and want satisfaction quest (Anyigbo 1999).
Business
benefit from availability of accounting information, equality important is the
availability of accounting information which facilitates the solution or
resolution of business planning, organization and control function of the
enterprises as a social organization. The numbers of Small and medium scale
enterprises in Nigeria tend to increase continuously, they are the largest
business cluster in Nigeria, yet with
little or no criticisms they are regarded as the primary business organisms
that could help enhance and sustain wealth of an economy in the long run.
Small and
Medium Enterprises (SMEs) have been very important in many countries, because
of its role for the country's economic growth.Thiscontribution is judged from
providing employment to skilled and unskilled workers,enhancing national Gross
Domestic Products, and providing support to other small and largebusinesmall
scale business enterprise (Heenetigala & Armstrong, 2009). Recognition of
small business contributionmotivates public and private organizations to
support the small business sector by providingthem with a diverse range of
services. They are also important to the development of trades and job market,
moreover some Small and Medium Enterprises have high potential to expand their
enterprises to a larger scale, despite challenges especially in financial and
accounting systems.
Small
businesmall scale business enterprise are organized, operated, managed and
controlled by a small business owner.
The term
small business owner is being used throughout this study replacing other titles
such as operator, manager, self-employed, sole-trader, and entrepreneur.
Small
business enterprises (SMEs) have an important role to play Nigeria development.
The extent of contribution these business units can make towards the growth and
development of Nigeria is dependent on the level of success attained by their
operations. The fact is that, underlying the success of a business enterprise
is the establishment and application of controls by the owners or management in
addition to the systematic record keeping of business transactions, which, at
the end of the period, keeps the owner well-informed about the performance of
the business.
Furthermore,
accounting information are needed so that financial statements will be fairly
and consistently describe as a financial performance. Without information and
standards, users of financial statements would need to learn the accounting
rules of each business, and comparisons between firm would be difficult. While
keeping track of your business’s finances may seem overwhelming, it’s not that
hard when you know the bases of accounting and bookkeeping.
It has been
recognized that appropriate accounting information is important for a
successful management of any business entity, whether large or small (European
Commission (EC), 2008).
This research; therefore, focuses on
investigating the roles accounting information plays on small and medium scale
business in Nigeria, 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 productivity and performance in SMEs.
1.2. STATEMENT OF PROBLEM
A number of
Small Scale Enterprises have not given much attention to accounting information
and book keeping in relation to their
business transaction, despite its importance in the success of small scale
business enterprise. This could be lack of sound knowledge in book keeping
practices by owners or respective managers.
Also, there
was difficulty in ascertaining whether comprehensive accounting records that
satisfied the laws under which it was incorporation had been kept. It was hard
to determine to what extent no adherence to laid – down accounting procedure
and constituted in the wheel of implementation of good accounting system.
Most small
scale firm owners prefer to recruit unskilled personnel especially clerical and
accounting staff. The product of these unskilled accounting (clerical staff)
has only succeeded in helping the small scale firms to stagnate; some firms
have even wound up. This was because unskilled accounting staff could not keep
reliable accounting records that would stand the test of time statutory; such
staff could not correctly determined the profit or loss of the firm preparing
profit and loss account.
Difficult
exist in ascertaining how far non – recognition of the necessity of accounting
information to continued existence and growth, low educational background of
owners and the employment of unskilled accounting staff had affected the
production of unreliable accounting or financial statement.
It has also
been ascertained that most small-scale enterprises fail to keep proper books of
account and also fail to observe basic accounting procedures. As a result, they
are not able to portray the exact financial position of their businesmall scale
business enterprise. This tends to impede the ability of the enterprise to
obtain the much needed loans from the financial institutions and other sources
for expansion and diversification. The financial statements, such as the profit
and loss accounts, the balance sheet and the cash flow statement of small-scale
enterprises cannot easily be prepared. Under such circumstances, annual profits
cannot readily be determined.
Small and
medium scale enterprises in Nigeria are however, often encountered with
accounting and financial management challenges. Poor record keeping,
inefficient use of accounting information to support their financial
decision-making and the low quality and reliability of financial data are part
of the main problems in financial management concerns of Small and medium scale
enterprises in Nigeria.
(Adeboye
2005) While proper accounting is a useful system for making sound economic
decisions, The misuse, untimely, poor record keeping, and inaccuracy of
accounting information also causes Small and medium scale business in Nigeria
to inaccurately asmall scale business enterprises their financial situation,
and make poor financial decisions.
These short
comings might be the cause of difficulties to succeed and to raise fund or
borrow money during the later stage. In the worst case, might face with the failure and perhaps
bankruptcy in the end.
It is also
important to state that the absence of proper accounting information does not
only impair the growth of the small-scale enterprise but also, as stated
earlier, reduces their chances of obtaining credit facilities from the financial
institutions and other fund lenders. It is obvious that a cash starved
small-scale enterprise is bound to encounter difficulties in its attempt to
expand and/or diversify its operation.
Based on the
fact that the financial accounting is one of the social sciences which aim to
serve various needs of the private and public business facilities, it is
affected by the changes of the general economic, social, legal and political
and political conditions prevailing in each country or certain environment at
each period. The accounting information is resulted by certain requirements
which change due to various environmental factors within the economic, social,
legal and political environments in which the accountancy works.
1.3. OBJECTIVES OF THE STUDY
The major
objective aim is to examine the role of accounting information on small scale
business productivity and performance.
Other specific objectives aimed to be achieved
are:
1. To
examine the importance of accounting information and basic accounting
procedures in small-and medium scale enterprises.
2. To
determine the extent to which accounting information and basic accounting
procedures have been implemented and applied in small-and medium scale
enterprises.
3. To
investigate the types of accounting records being kept and maintained by
small-and medium scale enterprises.
4. To
ascertain the extent to which accounting information is being used as a
financial tool for measuring financial performance of SMEs.
5. Analyze the relationship between accounting
information & small scale firm performance.
6. To
analyze the completeness of accounting records being kept by SMEs as a source
of information for economic and financial decision making.
7. Determine
the major barriers to accessing to efficient accounting information.
1.4.
RESEARCH QUESTION
The research
question provides a framework and guidelines through which substantial
knowledge of the research study can be understood.
The research
question asked includes:
1. What are
the importance of accounting information and basic accounting procedures in
small-and medium scale enterprises?
2. To what
extent is accounting information and basic accounting procedures implemented
and applied in SMEs?
3. What are
the types of accounting records being kept and maintained by small-and medium
scale enterprises?
4. To what
extent is the accounting information is being used as a financial tool for
measuring financial performance of SMEs?
5. Is there any relationship between accounting
information & small scale firm performance?
6. How
efficient is the completeness of accounting records being kept by SMEs as a
source of information for economic and financial decision making.
7.Are there
any barriers to accessing to efficient
accounting information by SMEs?
1.5.
STATEMENT OF HYPOTHESIS
The
hypotheses are stated in the null form for testing:
HYPOTHESIS
ONE
Ho1 -There
is no significant relationship between accounting information and small scale
enterprises performance.
HYPOTHESIS
TWO
Ho2 -
Accounting information and procedure do not increase the chances of the
business operating and achieving success.
1.6.
SIGNIFICANCE OF THE STUDY
Though, this
study was initiated to evaluate the importance of accounting information in
small and medium scale business, no gain saying that, accounting information
plays a positive role in the integrity of the decisions as well asthe success
of the small scale business.
The
significance of this study was to create through documentation, an awareness of
the importance of accounting information and basic accounting procedures to
small-scale enterprises.
In addition
it will be a source of knowledge to small-scale enterprises (SSE) on how to
maintain proper accounting records and standards. The result will greatly
facilitate the work of the Internal Revenue Services and the Value Added Tax
officials in developing strategies to extend the tax net to cover such
enterprises which form significant proportion of the Nigerian business
community.
This study will also be of great significance
to policy analysts since it will assist in analyzing the effectiveness and
success of the work of the Small Scale Agency Board in Nigeria.
It will
therefore equally be of immense help to the National Board for Small-Scale
Industries, in evaluating the success of its activities with specific reference
to the problem of poor accounting information initialization and basic
accounting procedures in such industries. It would also assist the boards in
determining or formulating their future plans.
It will also
be of use to the student, researchers for further research study, the existing
and prospective entrepreneur as well as any interested party. It will assist
students in their knowledge build-up and appreciation of the practical
accounting situation of the small scale business.
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