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ACCOUNTING SYSTEM OF SMALL SCALE BUSINESS ORGANISATION WITH PARTICULAR REFERENCE TO AQUA RAPHA INVESTMENT AND MAJESTY BAKERY

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

Comparatively, most of Small Scale Businesses (SSBs) are not registered as corporate bodies but as sole proprietorship, this makes registration procedures quite simple and a bit easier than the other forms of business registration. Partly due to this phenomenon, SMEs has outnumbered all the other forms of business and could be found almost everywhere across the country. In spite of their numbers, and significance, recent studies show that 60% of the SSBs s fail within the first five years of operation Boachie- (2005).

Studies also show that it is hard for the SMEs to access finances from the financial institutions since they lack proper financial records as a requirement (William, 2008). The SMEs inability, many times to live beyond their first few months of existence has been attributed partly to lack of finance. To become successful and be able to contribute meaningfully to the Nigerian economy, SMEs must attract and secure finance all by themselves.(Amoako, 2013).

In most industries, comparability will be affected by size. Larger firms will be able to avail themselves economic and certain sophisticated quantitative management techniques that may not be practicable for small ones. Smaller companies may be able to maintain closer client relation and better customer relation than the larger ones. This difference in operation technique may influence deficit in accounting method employed in generating financial information, (Abdulrasheed, Khadijat and Oyebola, 2012). Among the different principles that firm may employ are different inventory techniques, depreciation method, method of accounting for income taxes and revenue recognition procedures. Pacioli (1494) described in approach developed by Italian merchant to account for their activities as owner and managers of business as the basic accounting model that is used up to this days. As economic activities progressed from the fundable to agriculture continued to adapt to the need of the society. As business unit becomes more complex and broader on scope, accounting evolved in response to the increased planning and control responsibilities of management. As government grows in size and becomes more centralized, accounting was developed to meet the increased accountability. It is often stated that business decisions need to be supported by good and quality financial information which needs to be relevant, user friendly and available in a timely manner, (Abdulrasheed, Khadijat and Oyebola, 2012).Where appropriate accounting should be an active steering tool to run and manage a business instead of representing another administrative burden that the sole proprietor has to comply with. It is important that the accounting systems for one man businesses should fulfill such functions as providing essential financial information for the owners and managers in order for them to be able to manage the business in a competitive environment and to make informed decisions to prevent business failure and to expand the business. However, owners of one man businesses may have particular needs and conditions, so that accounting systems need to be flexible in order not to impose unnecessary operative burdens. (Abdulrasheed, Khadijat and Oyebola, 2012).

However, many new business owners are daunted by the mere idea of bookkeeping and accounting. But in reality, both are pretty simple. Keep in mind that bookkeeping and accounting share two basic goals: to keep track of income and expenses, which improves chances of making a profit, and to collect the financial information necessary for filing various tax returns. There is no requirement that records be kept in any particular way. As long as records accurately reflect the business's income and expenses, there is a requirement, however, that some businesses use a certain method of crediting their accounts: the cash method or accrual method. Depending on the size of the business and amount of sales, one can create own ledgers and reports, or rely on accounting (Williams, Haka, Bettner, and Carcello, 2008). An accounting system records, retains and reproduces financial information relating to financial transaction flows and financial position. Financial transaction flows encompass primarily inflows on account of incomes and outflows on account of expenses. Elements of financial position, including property, money received, or money spent, are assigned to one of the primary groups, that is, assets, liabilities, and equity. Within these primary groups each distinctive asset, liability, income and expense is represented by respective "account".

An account is simply a record of financial inflows and outflows in relation to the respective asset, liability, income or expense. Income and expense accounts are considered temporary accounts, since they represent only the inflows and outflows absorbed in the financial-position elements on completion of the time period (Williams, Haka, Bettner, and Carcello, 2008). The impact of accounting 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 that facilitates the solution or resolution of business planning, organization and control function of the enterprises as a social organization. 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. (Onaolapo and Adegbite, 2014).

The place of sound accounting and internal control systems in any business, irrespective of its scale, cannot be overemphasized. A vast majority of small-scale businesses cannot afford the complexity of a detailed accounting system even if they would have. Hence, the existence of single entries in their books and in some cases on incomplete records (Wood, 1979; Onaolapo, et al., 2011). Audits of small scale enterprises have proven to be among the most worrisome for professional accountants because of the inadequacy of the internal controls. Except for statutory demands, small and medium scale enterprises hardly give serious thoughts to the process of sound accounting, yet the inadequacy and ineffectiveness of accounting processes have been responsible for untimely collapse of a host of them (Mukaila and Adeyemi, 2011). The level of book keeping and accounting in one man businesses have created many problems against the effective operation and accountability of a sole proprietorship. One man business suffers disproportionately from the regulatory burden compared to large companies, since the smaller enterprises often do not have sufficient financial and human resources to manage their obligations in the most efficient way. (Abdulrasheed, Khadijat and Oyebola, 2012).

          Meanwhile, a number of Small Scale Enterprises have not given much attention to book keeping in relation to their business transaction, despite its importance in the success of businesses. This could be lack of sound knowledge in book keeping practices by owners or respective managers. Also, there was difficulty in ascertaining whether there is a comprehensive accounting record that satisfied the laws under which it was incorporation. (Onaolapo and Adegbite, 2014).

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. Difficult exist in ascertaining how far non - recognition of the necessity of accounting 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. Because of the importance of appropriate accounting information for owners and managers of one man businesses and their different stakeholders, it is therefore important to this study to assess the impact of accounting systems applied in small scale businesses in Nigeria.

It is often said that the world has now become a global village. Currently, the way and manner individuals, enterprises and nations react to this assertion of globalization tells it all. Specifically with business enterprises, this era requires much more inputs of some sort to be able to establish, survive and grow in order to properly assess the concept of globalization. However, to merely survive as a business enterprise requires a rigorous application of accounting to every incident in a proper manner. This is due to the fact that, resources of business enterprises are often limited and their proper control in terms of allocation and performance measurement has become the order of the day.

Small business enterprises (SMEs) have an important role to play in Nigeria's socio-economic 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. Fact is that, underlying the success of a business enterprise are 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.

1.2STATEMENT OF THE PROBLEM

The operation of accounting systems in small-scale business organisations is fraught with numerous control problems and ineffectiveness which have, in most cases, produced dysfunctional effects on business operations. Similarly, the enormities of the operational, countervail an strategic problems of computerization have compounded the problem of faulty accounting system in small scale business organisations.   

1.3     OBJECTIVES OF THE STUDY

          The objectives of this study are:

1)                 To evaluate the accounting system of model company so as to determine their appropriateness, adequacy and effectiveness.   

2)                 To examine its operation and the cost and benefit of computerization so as to determine the plausibility or otherwise of adopting computer technology in its accounting system.

3)                 To examine the operational, contextual and strategic problems inherent in the computerization of accounting systems so as to determine how the company has effectively tackled these problems.

4)                 Finally, to make such recommendation as in considered necessary to raise the level of operating environment of the company.

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