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CHAPTER ONE

INTRODUCTION 

1.1  BACKGROUND OF THE STUDY

Book-keeping may simply be defined as an art of recording all money transactions of an organisation so that its relationship to both its proprietor and outsider can readily be ascertained for a particular point in time. Book-keeping cannot be easily differentiated from accounting in general. The book-keeper writer up books and keeps accounting records in a system designed by the accountant whereas the amount ant controls the book-keeping system and ares information produced to prepare financial statement and advice management and other users of financial information. Accounting can be defined in various ways depending on the objectives which the writer wants to achieve for the purpose of this study, accounting can be defined as a process of collecting, analyzing interpreting and summarizing of information or date relating to an organization in such a way that decision guide is made easy. It can also be defined according to the nature of the activities involved in an organization either descriptive or analytics information obtained from the activities involved. An on information system it collects and communicate economic information about business and organization whose actions and decision are related to the activities being communicated. Accounting may be summarized as a machine behind the writing of an economic history and plan of an or both qualitative and financial in manner so that facts can be realized for decision making for internal and external papooses.
HISTORICAL DEVELOPMENT OF BOOK-KEEPING
There have been no ascertainable record as to when book keeping and accounting developed. Many schools of thought have numerated the historical development of book – keeping and accounting record from their historical perspectives and philosophical background. It is on record that about 850 BC the early man established the fact that there have been in existence of book-keeping and accounts. Are several prove by academicians a record was discovered which reveals the book-keeping practices. Table of days were used in recording facts and events as well as business transitions. Similarly tablets were also used in reporting on how well the business has been. The modern accounting practice according to list to traced its origin from Egypt which indicted that precious materials like stocks of jewels and other precious stocks were bought and sold by early merchants of dierent countries which sees the facts that proper accountability is necessary in the smooth running of the business and understanding among the owners of the business.
1.2 STATEMENT OF PROBLEMS
To many Nigerians small business men, to get rich quick and short term profitability rather than sustained growth, survival and long term profitability is the aim of being in business. therefore many of them cannot easily be convinced that there is a correlation between sound accounting practices and long range profitability. Even where they do, the problem does not there, because the record must be designed to suite the specific business if it is to be adequate and proper. The question is does proper book keeping eect business profitability?
1.3  OBJECTIVES OF STUDY
This work is aimed at assessing the place of proper and adequate financial record keeping in the success of small scale businesses. The following are the objectives of this work.
a) To educate the public on how accounting and record keeping enhances small scale businesses.
b) To examine the implication of the above in designing accounting systems for small scale businesses.
c) To know the extent of financial records kept by small scale businesses and causes of inadequate records. d) To recommend ways of building and marinating effective accounting systems for proper maximization, good management decision making and optimism growth.
e) To serve as point of reference to other researchers on the importance of adequate financial record keeping in small scale business.
1.4  SIGNIFICANCE OF STUDY
The significance of this work is highlighted on illustration case of mr Willions Ibe had not rounted the sudden change of events which had le him in total charge of retail store owned by his step – failure, Mr. Christopher Okeke who had been paralyzed by involve on November 30th learning willioms totally responsible for the operation of the Okeke and Son Enterprises. Although Willions had worked in the store even since grand wation two years earlier he knew ltle about the financial anjext of the business. Mr. Okeke had relied or Willioma deafly for the supervision of the order clerks to handle in carry shipments of goods and to help in daily bank deposits. He had kept this business aairs to himself and as far as idilliams is concerned his financial records were lawarys in his lead. Still the business provided a comfortable living for the family and Mr. Okeke had seemed to have a good business reparation in the community Aer careful search Williams located the business cheque book, complete with debts of file of unpaid bills and file of uncollected credit ships for goods sold to customers on accounts Mr. Okeke gave him the combination to oice safe, in which he found cash book with lists of cash receipts and payment in chronological order a small folder containing and Mr. Okeke priced himself or preparing his own returns. Mr. William was quite supervised at the small amount of net profit subject to tax shown on the returns. A diligent search failed to uncover among other kind of financial report. There was no analysis that showed if the business could anticipate on inflond of cash at a alarming ration November 30 was pay day for the employees Willom did not know how much salary each of the employees earned, although he was aware that the business from the pay cheques had to be made for tax, he was not assure how to determine the amount in desperation he counted the cheque stabs for October salaries and wrote out November cheques for the same amount. He hoped that the cash balance shown in the cheque book was correct enough so that the cheque would be paid by the bank.
Fortunately, Mrs. Okeke was asked to sign business cheques, life was naturally retcti for Willaims during the next few days. Each incoming mail brought a stock of unpaid bills. He was not were if the business had actually receives. The goods and services covered by the bill whether the prices were sight or whether the debt had been paid earlier. Several of the statements were marked faont the and on others the time period had expired for .............. a discount for prompt payment. He also received a call from the land Lord, notifying him that the monthly reat payment was fast due. William made cheques to pay the meat and the bills which seemed most request hoping that the reditions would be honest enough to refund over payments. On December 4, William Ibe remembered with a start that Mr. Okeke was in the habit of reading out monthly statement to his credit customers. He woundered where the file on uncollected sale tickets was complete and whether it trained item which had already been paid, would it be was to risk aording customers by reading them incorrect bills, or to fail to collect money rigidly needed by the business by not reading out any bills? With some misgiving William decided that the next alterative would be worse and he and Mrs. Okeke spet several rights preparing and addressing statement of customers accounts. In the next few weeks more truble arose when various items of merchandize was depleted William know the store would lose many sales and income, customers will during the weeks need to fill replenishing order worse than ever, he had no idea which items Mrs. Okeke had already ordered. Mr. Okeke’s medical bills had explanted his personal bank account and were beginning to draw the business cash severally. During this time, many customers called to ask questions about their account balances. They were usually corrections but Williams was embraced not to know whether their complaints were justified. When the bank called late in December to report that therefore was not enough funds written on the business bank account, it was last straw for William. The cheque book and shown a balance of N12,500.13 which William had counted on to hand him over the employee’s pay day. In desperation, he called the bank manger, mr. Ibe to ask for emergency help. Mr. Ibe, sympathetically saying that he hand already grossed the situation agreed to lead the business N17,000.00 on 60 day promissory note signed by mr. Okeke prior to visiting the bank Williams had added up the unpaid bills owned by business combined with the upcoming payroll including his own comparation, they amounted to almost N28,000.00 Mr. Ibe explained that such a large loan was impossible without the approval of the bank loan committee without supporting information about the financial position and profitability of the business, including the estimate of failure cash inflows and outflows to indicate whether the loan could be unpaid, William admitted that he could not find anything like such statements in the records of the business and that he did not know how to prepare them. The banker recommended that William engage a firm of chartered accountants but aer getting a rough estimate of what a firm of chartered accountant fee would be, Williams felt that the business could not aord this service. Than as a result of this, the business want into liquidation.
The above illustration explain exactly the mortality problems of small business which arise as a result of improper and inadequate financial record keeping. This research work has illustrated the importance of keeping financial records and made recommendations on accounting system of selected small scale business. This will help management of small scale business in decision making for long term survival and also the government objectives of overall industrial development through which the small business is propelled. This study will be easy useful to management accountants and professionals accountants as they are pertness in progress with small scale industries, students of accounting systems and systems designers will also find this work as bank foundation for more indepth and diversified research aimed at achieving greater productivity in this sector. Lastly and perhaps most importantly, perspective small scale business owners, researchers and some university quantities may find this work of help. Below is also an example of an enterprises who keeps accounting record, though incomplete. Marley is a self employed businessman who established his business of 1st January 1998. He was very competent at his job but had no idea of how to maintain proper accounting records, sometimes during 1998 one his friends asked Marley how well his business was doing. He replied alright I think but I am not quite sure. In the ensuring conversation, his friend asked whether he had prepared account get covering his fist greater trading to which Marley replied that he had ol. This friend then stressed that for various seasons, it was vital for accounts of business to be prepared properly. Shortly aerwards, Marley came to his friend to ask for his help in preparing accounts for his first quarter of trading. He brought with him a cardboard box, the only records he had mainly scribbled or seeps of popper. He explained that he started his business with a car worth of N7,000 and N1,250 in cash N250 was savings and N2,00 had been borrowed from a relative at the interest rate of 10% per annum. It was his practice to pay his suppliers and expenses in cash, to requires his customers to settle their accounts in cash and to bank any surplus in a bank account. He continued cost of cash receipts and payments of supplies obtained on credit and of work carried out for customers and appliances sold or credit. The list of suppliers are as follows: Date supplied Supplier Amt owed Date Amt paid Remarks 1998 N N Jan Dec & Co. 337.74 Mar 330.00 7.4 dis AB supplier 528.20 Mar 528.20 Feb. Simpson 141.34 Mar. 138.00 rec as 3.34 Cotton Ltd 424.40 Mar. 130.00 Paid on cash April 297.40 Remainder Dec & Co, 146.82 Mar. 140.00 Rec. Dis 06.82 March AB supplied 643.43 April 643.43 Simpson 95.60 Not yet paid The purchase in January from Dec. & Co. was of tools and equipment to enable him carry out electrical repair work. all the remaining purchases in February from cotton ltd which consisted of electrical appliances for resale. In addition to the above credit transaction he had bought repair materials for cash are follows:
INCOMPLETE RECORDS
1998 N
Jan 195.29
Feb. 161.03
Mar. 22.06 Other cash payment comprised; 1998 N
Jan Rent of premises for Jan – June 1998 400.00 Rates of premises for
March 1998 150.00 Stationeries 32.70 Car running expense 92.26
Feb. Sunshine 51.54 Car running expense 81.42
Mar. Car running expenses 24.01 Transfer to bank 104.52 Sundries 500 He also withdraw N160.00 in cash at the end of each month for living expenses. The list of credit customers are as follows Date of sale Customer Amt. owed Date Amt. received Remarks 1998 N N Jan D. Hapkiner 362.80 Feb 357.00 All. Disc 580 P. botton 417.10
Mar. 417.10 Feb G. Leivers 55.00 Mar 55.00 M. White head 151.72 April 151.72 A. Linnellies 12.53 Mar. 12.53 Mar. E. Horton 462.21 Mar 462.21 S. Word 431.08 Mar. 426 Allowed dis 5.08 N. annual 85.42 Mar Not yet received W. Sciotem & co. 319.12 Mar Not yet received The above amounts relates to charges for repairs which he has carried out except that the amounts shown in for a Leiwers, and A.
Linnekers are for sales of electrical appliances. In addition to the above credit transaction he had cash takings as follows: 1998 N Jan repair work 69.48 Feb repair work 285.86 Mar repair work 182.90 Appliances 112.81 The estimates at the end of march 1998 has stock of electrical repair materials was 69.44 and of electrical appliances for revenue was N320.58, his tools and equipment work worth N300.00 and his car N600.00. Apart from loan interest, the only accurate was for heating and lighting N265.00 required. i) Prepare purchase day book with analysis columns for type of purchase. ii) Sales day book with analysis column for days of business undertaker. iii) Open, post to 31 march 1998 only and balance and a column cash suitably analysed to facilitate ledger postings.
SOLUTION PURCHASE DAY BOOK
Date Customers Total Repair & maintenance Tools equipments 1998 N N N N Jan Dec & Co. 337.74 - 337.74 - AB suppliers 528.20 528.20 - - Feb. Simpson 141.34 141.34 - - Cotton Ltd 427.40 - - 427.40 Dec & co. 146.82 146.82 - - March AB supplier 643.43 643.43 - - Simpson 95.60 95.60 - - 2320.53 1555.39 337.74 427.40
SALES DAY BOOK
Date of sale Customers Total Repair work Appliance 1998 N N N Jan Dec & co. 382.80 362.80 - AB suppliers 417.0 417.10 - Simpson 55.00 - 55.00 Cotton Ltd 151.72 151.72 - Dec & co. 49.14 - 49.14 12.53 - 12.53 462.21 462.21 - 431.08 431.08 
319.12 319.12 - 85.14 85.14 - Total 2346.11 229.44 116.67
CASH BOOK (DEBIT SIDE) RECEIPTS
Date Items Dis/allow Total Debtors Repair work Appl. Sunshine 1998 N N N N N N N Capital 250 250 Loan 2000 2000 Repairs 69.44 69.44 D.Hopkins 5.80 337.00 Repairs 256.86 956.86 P. botton 417.10 417.10 G. lievers 55.00 55.00 J. ward 5.08 416.00 426.00 Repairs 182.00 182.00 Appliances 112.81 112.81 10.88 4139.04 1267.63 509.20 112.81 2250 Capital 250.00 Loan 2,000.00 2,250.00
CASH BOOK (CREDIT SIDE) PAYMENT
Date Items Dis Total Creditors Repairs Drawing Expense 1998 N N N N N Jan Repayment 195.29 Rent 400.00 400.00 Rate 150.00 150.00 Car exp. 32.70 32.70 Drawing 92.26 92.26 Feb. Repayment 160.00 Sanders 161.00 161.00 Car. exp 51.54 51.54 Drawing 81.42 81.42 March Dec & co. 160.00 AB suppliers 7.74 330 330 Simpson 528.20 528.20 Cotton Ltd 3.34 138.00 138.00 Dec & co 130.00 130.00 Repayment 6.82 140.00 140.00 22.06 22.06 Car. exp 24.61 24.61 Drawings 104.52 104.52 Bank 160.00 17.90 3561.63 1266.20 378.38 980.00 957.65 N35651.63 N 578.01 N41,139.64 Drawings 285.24 Bank 500.00 785.24 Rent 400.00 Rate 150.00 Stationary 32.70 Car exp 278.20 Sandries 76.15 937.05
CREDITORS CONTROL
AC 1998 N 1998 N Mar. Mar Cash paid 1266.20 Purchase 2320.53 Disc received 17.90
Bal. c/d 1036043 2320.53 2320.53 bal. c/f 1036.43
DEBTORS LEDGER CONTROL
AC 1998 N 1998 N Mar Mar Sales 2346.11 cash received 1267.63 Discount all 10.88 Bal c/d 1067.60 2346.11 2346.11 Bal b/d 1067.60 It is now evident that good financial statements are the end product of a good system of accounting. These statements in whatever sector they are profend provide useful information which forms good bases for decision making. that is the ultimate goal of good accounting system viz, present timely, relevant and useful information for moving the organisation forward.
1.5  HYPOTHESIS FORMULATION 
In the course of pursuing the objectives of the write up, the following hypothesis was formulated. Alternative Hypothesis (Hi) Small scale business maintain proper and adequate financial records. Null Hypothesis (Ho) Small scale business do not maintain proper and adequate financial records. Alternative Hypothesis (Hi) There is a relationship between proper and adequate financial record keeping and high levels of success of small businesses. Null Hypothesis (Ho) There is no relationship between proper and adequate financial record keeping and high levels of success of small businesses.
1.6  DEFINITION OF TERMS
In order to achieve the objective of this study, the following terms has been defined. Small scale business Small scale business is any enterprise with capital invested excluding cost of land but including working capital of N500,000 employing between 5 and 50 employees and having annual profit of N250,000 or less. Small scale business can also be defined as an enterprise which include collage industries whose total cost excludes cost of land but does not exceed N10m. CNN circular guideline No. 29. Management Management can be defined as ‘the directing controlling, organizing and staing of an industrial enterprise or organisation achieve specified objective in the most economical way”. Management can also be defined as “a team of knowledgeable people who on behalf of the owners of the business organisation are involved in taking decision that will help to achieve stated objectives. Return on investment (ROT) This can be defined as profit before interest and tax (PBIT) divided by invested capital, excluding cost of land but including working capital. Records These are prices of information gathered, written and stored for reference purposes. Accounting systems These are composite of activities and operation o business with the related records and devices necessary to accomplish the accounting functions

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