FINANCIAL ACCOUNTING INFORMATION AND MANAGEMENT OF SMALL SCALE BUSINESS
ABSTRACT
The study was about the effect of financial accounting information and management of small scale businesses based on the following objectives; to find out whether small scale business management keeps accounting records, to find out if the management of small scale businesses do prepare financial accounting statements, to find out if the management of small scale business does make use of information of financial accounting in making business decisions, to find out performance level of small scale business and to establish the relationship between financial accounting information and management of small scale business. The study design comprised a combination of both descriptive and cross-sectional research designs, and both qualitative and quantitative data were employed. Stratified sampling was used to determine the sample size. A formula computed a sample size of 50 for Krejci and Morgan 1970 was considered primary data was collected by the use of questionnaires which focused on the research questions. Data entered into excel was presented by the use of frequency tables. Data analyzed by statistical packages for social scientists (SPSS) was presented in an F-Test (ANOVA- Analysis of Variance) coefficients table, which showed the strength of RelationshipRelationship between financial accounting information and the management of small scale businesses. Findings on the effectiveness of financial accounting preparation in small scale businesses showed that financial accounting information enhances business decision making, and adjustment accounting records play a role in reducing operating costs, improving efficiency and productively. Recommendation on the financial accounting information in the small scale business, management of small scale business needs to ensure that complete and accurate business records are kept to enhance business decision making and improve efficiency and productivity.
TABLE OF CONTENT
PAGES
Title Page i
Certification ii
Dedication iii
Acknowledgement iv
Abstract vi
Table of Content vii
CHAPTER ONE
1.0 Introduction 1
1.1 Background of Study 1
1.2 Statement of the Problem 5
1.3 Research Objectives 5
1.4 Research Question 6
1.5 Research Hypothesis 7
1.6 Significance of Study 8
1.7 Scope of Study 9
1.8 Limitation of Study 9
1.9 Definition of Terms 10
CHAPTER TWO
LITERATURE REVIEW
2.1 Introduction 13
2.2 Concept of Financial Accounting 14
2.2.1 Record-Keeping 16
2.2.2 Income Statement 18
2.2.3 Balance Sheet Statement 20
2.2.4 Cash Flow Statement 22
2.3 Importance of Financial Accounting Reporting 24
2.4 Concept and Importance of Small Scale Business 27
2.4.1 The Role and Importance of Small Businesses 30
2.4.2 Problems of Small-Scale Industries 31
2.4.3 Nature Classification and Characteristics
of Small Scale Enterprises 40
2.5 Financial Information and Management of
Small Scale Businesses 43
2.6 Effect of Financial Statement Preparation and
Reporting on Small Scale Business. 48
2.7 Problem Affecting Financial Accounting Preparation
and Reporting In Small Scale Business. 53
2.8 Conclusion 54
CHAPTER THREE
METHODOLOGY
3.0 Introductions 55
3.1 Research Design 55
3.2 Population of Study 56
3.3.0 Sampling Method 56
3.3.1 Sampling Size 56
3.3.2 Sampling Procedures 57
3.4 Data Analysis 57
3.5 Sources of Data 58
3.6 Data Collection Instruments 58
3.6.1 Questionnaires 58
3.6.2 Interviews 59
3.7 Validity of Instrument 59
3.8 Reliability of the Instrument 59
CHAPTER FOUR
PRESENTATION AND INTERPRETATION OF FINDINGS
4.0 Introduction 60
4.1 Demographic Characteristics of Respondents 60
4.1.1 Age Range of Respondents 60
4.1.2 Gender of Respondents 61
4.1.3 Marital Status 61
4.1.4 Level of Education 62
4.1.5 Types of Businesses of Respondents 63
4.1.6 Number of People Employed in Business 63
4.1.7 Period Spent by Respondents in Business 64
4.2 Findings on Accounting Record-Keeping in
Small Scale Business Units
4.2.1 Businesses Keep Business Accounting Records 65
4.2.2 Findings on whether the Manager keeps the
Records of the Business Financial Transactions 67
4.2.2 Findings on Whether Records are kept on Cash
Receipts, Sales, Purchases, Creditors and
Debtors were Considered and can be
As evidenced in the Table Below, 68
4.2.3 Business Owners and ShopKeepers are
Responsible for Record-Keeping 69
4.2.4 Manual Record-Keeping System is used in Business 70
4.2.5 Receipts, Invoices and Payments Vouchers
are used as Record-Keeping Documents 71
4.2.6 Record-Keeping is Essential for Decision
Making and Business Adjustment 72
4.2.7 Cash Books, Ledgers and Journals
are the Books used for Record-Keeping 73
4.2.8 Procedures are followed to Document Records
Until Final Accounts are Prepared, 74
4.2.9 Record-Keeping Reduces Operating Costs,
Improves Efficiency and Productivity 75
4.2.10 Accounting Records Retrieval is
Done by an Authorized Person 76
4.2.11 Business Involves Reliance on Mental
and Verbal Information 77
4.2.12 Complete Accounting Records are Essential
For Preparation of Financial Statements 78
4.2.13 Accounting Records Support Business
Audit and Research 79
4.2.14 Accounting Records Assists in Resource
Allocation and Performance Planning 80
4.2.15 Businesses Relies on Outside Accounting
Firms to Maintain Business Records 81
4.2.16 Accounting Records Require Skilled
Personnel and a Lot of Time 82
4.2.17 Business Prepare Yearly Financial Statements 83
4.3 Findings on Management of Small Scale Business 84
4.3.1 The Owner of the Business is also the
Management of the Business 84
4.3.2 The Business Employe the Manager
Managing the Firm 85
4.3.3 The Manager is the one Preparing the
Financial Statement of the Business 86
4.3.4 The Business Employes the Service of
Professional Accountant 87
4.3.5 do not carry out the Ratio Analysis of
Financial Statement Regularly 88
4.3.6 The Management does make use of Financial
Information for Decision Making 89
4.3.7 do not use Other Business Financial Statement
to Compare 90
4.3.9 Small Scale Business Management Measure
Performance of their Businesses. 91
4.3.10 Workers Provide the Strongest Linkage to
Successful Business Performance 92
4.3.11 Profitability is a Widely Used Measure of
Financial Performance 93
4.3.12 There Is a Significant Relationship Between
Small Scale Business in Keeping Financial Records. 94
4.3.13 Effective Business Performance Depends on the
Firm’s Ability to Control Expenses 95
4.3.14 The Accounting Information Shows the
Performance Level of the Business 96
4.3.15 The Growth of the Business is Determined
Through Financial Reporting. 97
4.3.8 The Financial Stability of the Business is known
through Financial Reporting 98
4.3.9 Business Manager Set Yearly Objectives
for each Performance Indicator 99
4.3.10 Financial Accounting Information enable the
Business to Achieve Its Strategic Objectives 100
4.3.11 Financial Accounting Preparation Initiatives
Fail Due to Difficulties in its Preparation. 101
4.3.12 Small Scale Business Operators Prepare
Budgets for Running of Business 102
4.3.13 Effective Business Management Depends on the
Firm’s Ability To Prepare Financial Statements. 103
4.3.13 Interpretation of Financial Reporting help
Organization Decision Making Process 104
4.4 Interpretation of Research Hypothesis of Financial
Accounting Information and Small Scale Business 105
4.4.1 Hypothesis 1 105
4.4.2 Hypothesis 2 106
4.4.3 Hypothesis 3 108
4.4.4 Hypothesis 4 109
4.4.5 Hypothesis 5 110
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATIONS
5.0 Introduction 112
5.1 Summary of Major Findings 112
5.1.1 Summary of General Findings 112
5.1.2 Findings on Accounting Record-Keeping 113
5.1.3 Findings on the Management of Small
Scale Business Units 113
5.1.4 Findings on Financial Accounting Information
And Management of Small Scale Businesses. 113
5.2 Conclusion 114
5.2.1 Conclusion on Accounting Record Keeping. 114
5.2.2 Conclusion on Performance of Small Scale Business
5.2.3 Conclusion on Relationship Between
Financial Accounting Information and
Management of Small Scale Business. 115
5.3.1 Recommendation on Accounting Record-Keeping 115
5.3.2 Recommendations for Management of Small
Scale Business 116
5.3.3 Recommendations on the RelationshipRelationship Between
Accounting Record Keeping and Management
Performance of Small Scale. 116
5.4 Areas for Further Research 116
References 117
Appendices 121
CHAPTER ONE
1.0 INTRODUCTION
This chapter will cover the following areas: the background to the study, statement of the problem, research objectives, research questions, research hypothesis, the significance of the study, scope and limitation, and definition of terms.
- BACKGROUND OF THE STUDY
Understanding financial accounting information is essential to the success of small scale businesses. They can be used as a roadmap to steer the management of small scale businesses in the right direction, help the management in the planning and decision-making process, and avoid a costly breakdown.
Accounting communicates financial information about a business entity to users such as shareholders and managers (Elliot, Barry and Jamie: Financial accounting and reporting).
Financial accounting is the field of accountancy concerned with preparing financial statements for decision-makers, such as stockholders, suppliers, banks, employers, government agencies, owners and other stakeholders.
Financial accounting is a specialized branch of accounting that keeps track of a company’s financial transactions using standardized guidelines; the transactions are recorded, summarized, and presented in a financial report or financial statement such as an income statement or a balance sheet. Also, financial accounting gathers and summarizes financial data to prepare financial reports such as balance sheets and income statements for the organization’s management.
The primary objectives of financial accounting are preparing financial statements, including the balance sheet, income statement, and cash flow statement, that encapsulates the company’s operating performance over a particular period and financial position at a specific point in time. Financial position at a specific point in time, the field of accounting treats money as a means of measuring economic performance instead of as a factor of production. It encompasses the entire monitoring and control of money as it flows in and out of an organization as assets and liabilities and revenues and expenses.
In the management of small scale businesses and for the successful growth of small scale businesses, there is a need to understand financial accounting information; it is important in the effective and successful management of small scale businesses.
Growth is often the bull eyes every business aim for, yet ironically enough, when it arrives, the sudden surge can cause a company to falter or even fail due to a lack of proper and effective management of small scale business in decision making.
Accounting and management, respectively, are interesting fields of study that have permeated all aspects of human endeavours. This is because, as a social process, it entails responsibilities for effective planning and regulation of the operation of an enterprise in the fulfilment of a given purpose or task such responsibilities involve.
- Judgment and decision in determining plans and progress of the business.
- Guidance, integration, motivation, and personal supervision comprise the enterprise and carry out its operations.
In their work, Okafor and Udu (2005) said that management refers to those changes with the responsibility of taking actions that will make it possible for individuals to make their best contributions to group objectives.
Eze (2006), in his work, divided management into three (3):
- Scientific management.
- Administrative management and
- Bureaucratic management.
According to the survey carried out by enterprises Uganda (2007), one of the most prevalent challenges identified during the business health checks is that small scale business units are associated with poor accounting and financial records, making an entrepreneur unable to make business decisions.
Decision making itself can be described as the act or science of choosing among possible managerial actions. The art of science of decision-making enables the management of a business to choose from among a range of already analyzed and evaluated alternatives from the preparation and reporting of financial accounting position of small scale business to enhance the profitability growth of the business.
Therefore, the accuracy of decision-making in every business depends largely on the effective and efficient management information system design.
It is evident that good financial accounting information is important and geared to enhancing business performance; a survey shows that most small scale businesses are often strongly based on the owner-managers know-how and expertise. This is evidenced in the business. A common assumption is that the owner-managers have sufficient technical knowledge but lack managerial skills or sophisticated managerial practice (Mase-et-al-2004).
- STATEMENT OF THE PROBLEM
Survey shows that different scholars have researched large and medium scale businesses. One of the most prevailing challenges identified during the business health checks is that small scale business units are associated with poor accounting and financial records, which makes entrepreneurs unable to make business decisions.
The researcher in this particular study wishes to evaluate the financial accounting information and the management of small scale businesses. In this process, 50 small scales businesses will be visited, and data will be collected.
- RESEARCH OBJECTIVES
The general objective of this research is to find out how financial accounting information obtained from small scale businesses’ financial statements has contributed effectively to the decision making of the management of small scale businesses.
The specific objectives are:
- To know if the managers of small scale businesses keep records of the business financial transactions.
- To discover if the business owners or management employ the service of an accountant for the preparation of business financial accounts.
- To know the information the management uses in deciding on a small scale business.
- To know if the business management uses the financial accounting information in the decision making of the business.
- To know the performance level of the small scale business and the solvency position of the business.
At the end of the research work, recommendations will be made to help the small scale businesses’ community management improve and enhance their management of the important roles the financial accounting information plays in the profitable businesses’ growth and effective decision-making.
1.4 RESEARCH QUESTION
- Do managers of small scale businesses record the business financial transactions?
- Does a business owner or management employ the service of an accountant for the preparation of business financial accounting?
- What is the performance level of the small scale business?
- What information does the management use in deciding on a small scale business?
- Does the business management use the financial accounting information in the decision making of the business?
-
- RESEARCH HYPOTHESIS
For our examination and analysis, we propose five (5) hypotheses viz;
HO: There is no significant relationship between the managers of small scale businesses in keeping records of the business financial transactions.
HI: There is a significant RelationshipRelationship between the managers of small scale businesses in keeping records of the business financial transactions.
HO: There is no significant relationship between the owners or managers of small scale businesses in the employment of the service of an accountant for the preparation of business financial accounting.
HI: There is a significant RelationshipRelationship between the owners or managers of small scale businesses in the employment of the service of an accountant for the preparation of business financial accounting.
HO: There is no significant relationship between the performance level of the small scale business and financial accounting information.
HI: There is a significant RelationshipRelationship between the performance level of the small scale business and financial accounting information.
HO: There is no significant relationship between the information the management uses in deciding on a small scale business and the information provided in the preparation of financial accounting.
HI: There is a significant RelationshipRelationship between the information the management uses in deciding on a small scale business and the information provided in the preparation of financial accounting.
HO: There is no significant relationship between the business management using the financial accounting information in the decision making of the business and the growth of the business.
HI: There is a significant RelationshipRelationship between the business management using the financial accounting information in the decision making of the business and the growth of the business.
- SIGNIFICANCE OF THE STUDY
As one may rightly say that growth in terms of profitability is the main purpose or goal of every business, but it has been realized through a survey that mostly all small scale business profitability growth has collapsed due to the wrong decision being made, taken or adopted by the management of the business and this is as a result of lack of knowledge and understanding of financial accounting information on the effective management of small scale businesses. This study aims to critically look at the role of financial accounting information in the management of small scale businesses and how it can contribute to the growth of profitability and decision-making.
- SCOPE OF THE STUDY
This study will be focused mainly on the financial accounting information and management of small scale businesses, and fifty (50) small scale businesses will be visited in Lagos-State of Nigeria.
This study limits the research to fifty (50) small-scale businesses and respondents and data collection.
- LIMITATION OF THE STUDY
- Owners of small scale business units were not willing to give their confidential information, which was sufficient for the researcher. However, the researcher convinced them that the study was intended to help them to improve their problems.
- The researcher was faced with the problem of too much pressure; the researcher had limited time for the research and, at the same time, had to read for the other course units. The researcher devoted most of the time to the research.
- Financial constraints, since the research required money for typing and printing, transport and surfing. The researcher ensured that costs were minimized as possible.
- DEFINITION OF TERMS
FINANCIAL ACCOUNTING: This is the field concerned with preparing financial statements for decision-makers, such as stockholders, suppliers, banks, employers, government agencies, owners, and other stakeholders.
Financial accounting is used to prepare accounting information for people outside and within the organization; management accounting provides accounting information to help managers decide to manage the business.
Financial accounting is the process of summarizing financial data taken from organizations accounting records and publishing it in the form of annual (or more frequent) reports for people outside the organization.
INFORMATION: Is that which informs, i.e., from which data can be derived. Information is conveyed either as the content of a message or through the direct or indirect observation of something. That which is perceived can be constructed as a message in its own right, and in that sense, information is always conveyed as the content of a message. Information can be encoded into various forms for transmission and interpretation.
MANAGEMENT: Management in business and organizations is the function that coordinates the efforts of people to accomplish goals and objectives using available resources efficiently and effectively; management comprises planning, organizing, staffing, leading or directing, and controlling an organization or initiative to accomplish a goal. Resources encompass the deployment and manipulation of human resources, financial resources, technological resources, and natural resources.
SMALL SCALE BUSINESS: Small scale businesses are normally privately owned corporations, partnerships, or proprietorships.
Definition of “small scale business” varies by country and industry. In the United States, the small business administration establishes small scale business size standards on an industry-by-industry basis but generally specifies a small scale business as having fewer than 250 employees for manufacturing businesses and less than #7 million in annual receipts for most non-manufacturing businesses. The definition can vary by circumstances; for example, a small business has fewer than 25 full-time equivalent employees with average annual wages below $50,000.
ACCOUNTING INFORMATION: The collection, storage and processing of financial and accounting data used by decision-makers.
DECISION MAKING: This is the cognitive process resulting in selecting a belief or a course of action among several alternative possibilities. Every decision-making process produces a final choice that may or may not prompt action. Decision making is the study of identifying and choosing alternatives based on the values and preferences of the decision-maker.
Decision making is one of the central activities of management and is a huge part of any implementation process.
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