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THE EFFECT OF ACCOUNTING TECHNIQUES ON SMALL BUSINESS PERFORMANCES.
CHAPTER ONE
INTRODUCTION
1.1. BACKGROUND TO THE STUDY
The Small and medium scale enterprises sector has been recognized worldwide for its role in economic advancement through ways various like; wealth generation, employment creation, and poverty reduction (Kithae, Gakure, & Munyao, 2012). Small and medium scale enterprises are a fundamental part of the economic fabric in most developing countries, and they play a very important role in furthering growth, innovation and prosperity. Although smaller in size, they are the most important enterprises in the economy due to the fact that when all theindividual effects are aggregated, they surpass that of the larger companies. The social and economic advantages of small and medium scale enterprises cannot be overstated.
SMEs are defined as non- subsidiary, independent firms which employ less than a given number of employees, this number varies across national systems, other parameters other than the number of employees are used in categorizing businesses as SMEs.
As per the time of the new millennium SMES accounted for 95% of firms and 60-70% of employment creation in majority countries in the world (OECD, 2000). Small and Medium Scale Enterprises are mostly found in the service sector of various economies which in most countries account for two-thirds of employment levels.Being highly innovative, they lead to the utilization of our natural resources which in turn translates to increasing the country’s wealth through higher productivity. Small and medium scale enterprises have undoubtedly improved the standard of living of so many people especially those in the rural areas (Ariyo, 2005).
Accountingtechniques serves as a critical tool for recording, analyzing, monitoring and evaluating the financial condition of organizations,preparation of documents necessary for tax purposes, providing information support to many otherorganizational functions, (Amidu et al., 2011). In the context of SMEs, accounting techniques 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.
Many small business owners are daunted by the mere idea of accounting techniques and bookkeeping. But in reality, both are pretty simple. Keep in mind that bookkeeping and accounting techniques shares 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 techniques 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 et al 1999). 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.
Furthermore, nurturing of the small to medium size enterprises (SMEs) is being hailed for their pivotal role in promoting grassroots economic growth and equitable sustainable development, this nurturing has resulted in increased entrepreneur activities in the SMEs sector in developing countries (OECD, 2000). SMEs play a key role in transition and developing countries These firms, constitute a major source of employment and generate significant domestic and export earnings, thus SME development emerges as a key instrument in poverty reduction efforts and their advancement is key to sustained economic growth, for they are an integral part of a country’s economic fabric and their success affects the well being of the society as engines of job creation, economic growth and innovation.
However, the mortality rate of these small firms is very high. According to the Small and Medium Scale Enterprises Development Agency of Nigeria (SMEDAN) Nigeria, 80% of SMEs die before their 5th anniversary, another smaller percentage goes into extinction between the sixth and tenth year thus only about five to ten percent of young SMEs survive, thrive and grow to maturity. This implies that, the survival rate of SMEs in Nigeria is less than 5% in the first five years of existence. This also suggests that, SMEs in Nigeria have not been able to contribute to development. Among the factors responsible for these untimely close-ups are poor accountingtechniques,lack of concrete record keeping, inadequate accounting information and procedures,lack of finance, weak institutional capacity, lack of managerial skills and training of small-scale enterprises,and tax related issues.
Against the backdrop, maintenance of proper accounting records and techniques is a pre-requisite for the success of every business or enterprise, this involves documenting all transactions of business entities includes assets, liabilities and capital (liquidity). In other to solve limitations such as lack of finance, weak institutional capacity, lack of managerial skills and training of small-scale enterprises, there is need for relevant business and management expertise to manage properly the finance, purchasing, selling, production, and human resources aspect of the business. According to Jones (2012), accounting is important in that, it allow businesses or organizations to understand their financial perspective, and moreso,in order to develop the small business enterprises properly; there is the need for them to adopt proper accounting techniques.
SMEs are also require adequate and also sophisticated accounting techniques and systems to better manage scarce resources and enhance customer and owner/manager values, assist them in controlling costs, measuring and improving productivity and thus ensure the achievement of the business goals.
COMPLETE THESIS - THE EFFECT OF ACCOUNTING TECHNIQUES ON SMALL BUSINESS PERFORMANCES.
CHAPTER ONE
INTRODUCTION
1.1. BACKGROUND TO THE STUDY
The Small and medium scale enterprises sector has been recognized worldwide for its role in economic advancement through ways various like; wealth generation, employment creation, and poverty reduction (Kithae, Gakure, & Munyao, 2012). Small and medium scale enterprises are a fundamental part of the economic fabric in most developing countries, and they play a very important role in furthering growth, innovation and prosperity. Although smaller in size, they are the most important enterprises in the economy due to the fact that when all theindividual effects are aggregated, they surpass that of the larger companies. The social and economic advantages of small and medium scale enterprises cannot be overstated.
SMEs are defined as non- subsidiary, independent firms which employ less than a given number of employees, this number varies across national systems, other parameters other than the number of employees are used in categorizing businesses as SMEs.
As per the time of the new millennium SMES accounted for 95% of firms and 60-70% of employment creation in majority countries in the world (OECD, 2000). Small and Medium Scale Enterprises are mostly found in the service sector of various economies which in most countries account for two-thirds of employment levels.Being highly innovative, they lead to the utilization of our natural resources which in turn translates to increasing the country’s wealth through higher productivity. Small and medium scale enterprises have undoubtedly improved the standard of living of so many people especially those in the rural areas (Ariyo, 2005).
Accountingtechniques serves as a critical tool for recording, analyzing, monitoring and evaluating the financial condition of organizations,preparation of documents necessary for tax purposes, providing information support to many otherorganizational functions, (Amidu et al., 2011). In the context of SMEs, accounting techniques 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.
Many small business owners are daunted by the mere idea of accounting techniques and bookkeeping. But in reality, both are pretty simple. Keep in mind that bookkeeping and accounting techniques shares 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 techniques 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 et al 1999). 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.
Furthermore, nurturing of the small to medium size enterprises (SMEs) is being hailed for their pivotal role in promoting grassroots economic growth and equitable sustainable development, this nurturing has resulted in increased entrepreneur activities in the SMEs sector in developing countries (OECD, 2000). SMEs play a key role in transition and developing countries These firms, constitute a major source of employment and generate significant domestic and export earnings, thus SME development emerges as a key instrument in poverty reduction efforts and their advancement is key to sustained economic growth, for they are an integral part of a country’s economic fabric and their success affects the well being of the society as engines of job creation, economic growth and innovation.
However, the mortality rate of these small firms is very high. According to the Small and Medium Scale Enterprises Development Agency of Nigeria (SMEDAN) Nigeria, 80% of SMEs die before their 5th anniversary, another smaller percentage goes into extinction between the sixth and tenth year thus only about five to ten percent of young SMEs survive, thrive and grow to maturity. This implies that, the survival rate of SMEs in Nigeria is less than 5% in the first five years of existence. This also suggests that, SMEs in Nigeria have not been able to contribute to development. Among the factors responsible for these untimely close-ups are poor accountingtechniques,lack of concrete record keeping, inadequate accounting information and procedures,lack of finance, weak institutional capacity, lack of managerial skills and training of small-scale enterprises,and tax related issues.
Against the backdrop, maintenance of proper accounting records and techniques is a pre-requisite for the success of every business or enterprise, this involves documenting all transactions of business entities includes assets, liabilities and capital (liquidity). In other to solve limitations such as lack of finance, weak institutional capacity, lack of managerial skills and training of small-scale enterprises, there is need for relevant business and management expertise to manage properly the finance, purchasing, selling, production, and human resources aspect of the business. According to Jones (2012), accounting is important in that, it allow businesses or organizations to understand their financial perspective, and moreso,in order to develop the small business enterprises properly; there is the need for them to adopt proper accounting techniques.
SMEs are also require adequate and also sophisticated accounting techniques and systems to better manage scarce resources and enhance customer and owner/manager values, assist them in controlling costs, measuring and improving productivity and thus ensure the achievement of the business goals.
COMPLETE THESIS - THE EFFECT OF ACCOUNTING TECHNIQUES ON SMALL BUSINESS PERFORMANCES.
