THE RELEVANCE OF ACCOUNTING PRACTICES TO THE GROWTH OF SMALL SCALE BUSINESS

THE RELEVANCE OF ACCOUNTING PRACTICES TO THE GROWTH OF SMALL SCALE BUSINESS

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CHAPTER ONE

INTRODUCTION

• Background of the Study

The   importance of small scale industries in the economy of any nation cannot be overemphasized, this is due to the fact that small scale industries have contributed a lot towards the economic growth of these nation. In Nigeria, employment in the economy, checking rural to urban drift by youths, dispersing industries to all parts of the countries, bringing about economic self-reliance and assist in widening the export base of the nation.

Thus, small scale industries if properly managed and enabling environment and infrastructures put in place, can grow up to a status to limited liability companies and contributed more to the economic growth. Between 2008-2009 and 2010-2011 for instance, the small scale industries sub-sector in Nigeria contributed on the average, 8.6 percent of the total value, added in the manufacturing sector, in the same period, small scale industries grew at the rate of 31.8 percent per annum.

However, despite this success story, many small scale industries still perform below average, some hardly exist for one your after establishment due to poor accounting and record keeping. The business finance and stocks of small scale industries and mixed with those finance and goods meants for personal use. Cash and stocks are therefore removed for personal use whenever the need arises with no record of such withdrawals. Also, some small scale industries do not keep proper books of accounts of their transactions. In other not to leak their business secrets and not to invite “trouble” from tax authorities.

An investigation has reveal that the dwindle returns and the eventual folding up most of the small scale industries is due to poor accounting and book keeping which provide necessary information for successful business operations. Thus, for easy understanding, it is pertinent here to define the term “small scale industries” there is no generally accepted definition of small scale industries. Many countries based on their definition of different criteria, such as number of employees, annual turnover or capital employed (Essien, 2002).

The confederation of British industry of instance, defines a small scale industries as “any company with less than zoo employees”, while in the United States of America, the definition varies somewhat, depending on the industry. Any manufacturing concern is defined as small if it employs less than 250 people. A whole scale business and services firms are regarded as small if their total annual receipts are less than one million dollar.

In Nigeria, according to the third National Development plan, manufacturing establishment employing less than ten people or whose investment in machinery and equipment do not exceed N600,000 are referred to as small scale industries. In the credit guidelines of the central bank of Nigeria, small scale industries are classified as these businesses with an annual turnover of less than N500,000. In Nigeria, small scale industries are usually seen in the area of soap making, plastic manufacturing, wood/carpentry, shoe making and toy manufacturing.

Also, Chong, (1996) opine that small scale industries help in providing raw materials to the sectors of the economy and such serve as an instrument for economic development. In view of its importance in the growth of the Nigeria economy, the federal government has encouraged the establishment of small scale industries by direct financial assistance through the National Directorate of Employment (NDE), its fiscal policies and by establishment of development banks such as the Nigeria Industrial Development Banks (NIDB), the Nigeria bank of commerces and industry (NBCI) small scale industries credit scheme and microfinance Bank.

However, in order to play its importance role in the economy growth and reciprocate government gesture towards the enabling environment and other infrastructures, and reward personal efforts, it is importance for the small scale industries to adopt and practices an accounting system that would enhance its continued existence and liability through provision of useful accounting information and financial ratio (Ayandele, 2009) these accounting information and ratio are indispenable tools in determining the profitability and liquidity position of any business.

In view of the important of this information and ratio in business growth, this project is aimed at looking into the relevant of accounting practices and in small scale industries, to find out how accounting records are kept and whether financial statement have been prepared from those records.

This research will also attempt to find out the effectiveness of the accounting system, practiced by small scale industries and to what extent the accounting system practiced has helps in their operations.

• STATEMENT OF THE PROBLEM

Small scale industries are mainly owner-managed enterprises characterized by undiluted ownership, how capital base, relatively low production technology, limited market and inaccessibility to institutional financing sources (Long term) and stock market.

This business sector is facing a great number of problems which block their chances of success. The major problem is lack of managerial skills especially in the area of maintaining a sound accounting system. It has been observed that almost all the small business fail to employ qualified accountant who should have kept proper books of accounts and supply the management with the needed quantitative information which could be used for decision making.

It is also noted that most entrepreneurs cannot understand or prepare a balance sheet, profit and loss account, cash flow statement or do not know how to prepare manufacture account. As a result of this, the profit in most cases are overstated because at times personal expenses are often not distinguished from business, expenses, proper records keeping helps in profit maximization and improved operations.

• OBJECTIVES OF THE STUDY

The general objective is to examine the relevance of accounting practices to the growth of small scale business. Specifically, the study seeks.

1. To examine the basic accounting principles and management practices adopted by small scale business.

1. To find out the problem of small scale business that call for the use of accounting practices.

• To identify the relevance of accounting practices to the growth of small scale enterprises.

1. To give recommendation practices to foster the growth and development of small scale business enterprises.

• RESEARCH QUESTIONS

The following aims at providing answers to the following research questions:

1. Does the adoption of accounting principles and management practices aid the growth of small scale business?

1. Does the problems of small scale business enterprise that call for the use of accounting practices?

• Does the relevance of accounting practices increase the growth of small scale business enterprise?

1. Has your business been in existence for a long time?

1. What are the accounting principles and management practices used in your business?

• SIGNIFICANCE OF THE STUDY

This study would serves as a form of reference for student in Heritage Polytechnic, agricultural and technology, who might want to conduct a research in this or similar topic: it is believed that the findings and recommendations in this study would  assist the management of the selected small scale industries in improving upon their accounting practices.

Also, it is hoped that the study would help to highlighted how asset, inventories and liabilities can be controlled in small scale industries to enhance growth and liability.

• HYPOTHESIS

The following hypothesis were stated to guide the study:

Ho₁     Relevance of accounting practices has no significance difference on small scale industries.

Ho₂     There no significance difference between accounting principles and management practice in small scale enterprise.

Ho₃     There no significance relationship between the relevance of the accounting practice and the growth of small scale business enterprise.

• DELIMITATION OF THE STUDY

This study covers small scale industries in Uyo, irrespective of its nature and profit margin.

• LIMITATION OF THE STUDY

This study is limited to Idem Ultimate and Usmer Water, Uyo, Akwa Ibom State. It is realized that this is a small faction in relation to the entire state in Nigeria, but due to time and financial constraints, the study is based solely on Idem Ultimate and Usmer Water.

• DEFINITION OF TERMS

In understanding, the relevance of accounting practice of small scale industries, it is essential that the definitions of certain terms are properly understood. The terms include:

Small business: In Nigeria, there are many definitions of small scale industries with each related to policy, scheme or study. In small scale industries credits scheme, the federal ministry of industries in 1995 defined a small scale industries as an manufacturing, processing or services industry with capital investment not exceeding N150,000.00 in machinery and equipment along. The capital investment limit was subsequent reviewed upwards at difference time to N500,000.00, N750,000.00 and currently N10 million in fixed assets other than land.

Accounting: Accounting is defined as the process of recording, classifying, reporting, and interpreting the financial information of an organization for the purpose of making sound economic decision.

 

Financial Statement: These are accounting statement which gives financial information about business entity. It includes the balance sheet, profit and loss account or income statement and cash flow state.

Business: This is the sum total in commerce and industry to provide the goods and services needed to improve the standard at living and quality of life.

Posting: Posting is defined as the mechanical process of transferring the essential facts from the books of original entry (Journals) to the ledger account.

Trial Balance:  It is the list of all balance standing on the ledger accounts and cash book of an entity at a given date.

Sole Proprietorship: It is a form of business organization owned by an individual who also controls its operations and supplies all the capital, take all profit and bears any loss thereof.

Asset: It simply means a services, potential or unutilized, that will render a future, benefit to the firm. As services are utilized, assets become expenses.

Balance Sheet: A balance sheet shows at a glance all the assets belonging to an entity at a given date and how these assets are financed.

Profit and Loss Account: A profit and loss account, as the name implies gives the result of trading operations of an entity for a period of time usually a year.

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