Accounting Information System and the Growth of Small and Medium Scale Enterprises

ACCOUNTING INFORMATION SYSTEM AND THE GROWTH OF SMALL AND MEDIUM SCALE ENTERPRISES

Abstract

The study looked at the development of small and medium-sized businesses and the accounting information system (a study of SME’s in the Lagos metropolis). Two theories, the Contingency Theory and the Design of Accounting Information System and the Technology Acceptance Model (TAM), were employed in the study to have a broad scope in the research.

Ten SMEs from Lagos State, five from the mainland and five from the island, made up the study’s sample. The study used original data. The required information was gathered from the chosen employees of the SME’s using a standardized questionnaire. From ten (10) SME’s, 200 staff members were chosen using the purposive sample technique. Additionally, twenty (20) employees were chosen for each chosen enterprise. The quantitative analysis of descriptive statistics and the chi-square technique are used to the acquired data. The study’s findings showed that accounting information systems have a significant impact on small businesses’ sales growth in the Lagos Metropolis (value of chi-square: 6.48; critical value of chi-square: 5.74; level of significance: 5%; degree of freedom: 4); and on small businesses’ asset growth in the Lagos Metropolis (value of chi-square: 9.79; critical value of chi-square: 7.59; level of significance: 5%);

According to the study’s findings, accounting information systems significantly affect the growth of SMEs’ assets and sales in the Lagos Metropolitan Area.

The study makes several recommendations, including the following: SMEs should strive to consult accountants on a regular basis in order to be able to maintain high and generally acceptable accounting practices; Lagos State Ministry of Finance should organize accounting training programs for SMEs; Owners of SMEs should integrate accounting information systems into their decision-making processes;

Chapiter 1

Introduction

Background information for the study

The success or failure of current commercial institutions is significantly influenced by accounting. Systems are in charge of keeping track of, analyzing, monitoring, and evaluating the financial health of commercial organizations, creating the paperwork required for tax purposes, and supporting several other organizational responsibilities with information (Amidu, John, & Joshua. 2011). Accounting information is crucial for small and medium-sized businesses (SMEs) because it can help the companies manage their immediate issues in crucial areas like costing, spending, and cash flow by providing data that will be used to support monitoring and control (Mitchell, Reid & Smith, 2000; Son, Marriot, & Marriot, 2006).

Any expanding economy is driven by Small and Medium Sized Businesses. The creation of employment opportunities, rural development, youth empowerment, significant contribution to national revenue and growth, dissemination and development of adaptable technology, and regional balanced growth channel are just a few of the responsibilities that small and medium-sized firms play (Source *****). Due to several internal and international economic issues as well as governmental inconsistencies, these businesses in Nigeria encounter a variety of difficulties. As a result, the enterprises experience a high mortality rate (Dasanayaka, Kankanamge, & Sardana, 2011). Inadequate working capital, intense competition from larger businesses, challenges locating raw materials, low capacity utilization, poor management strategies, operators with inadequate educational backgrounds, severe financial issues, and a reluctance to adopt technology are just a few of the enterprise’s internal problems (Tafamel & Idolor, 2008; Osamwonyi and Tafamel, 2010).

Family businesses frequently grow into small businesses. Family members operate family businesses the majority of the time. However, workers may come from outside the family. As a result, the company environment varies depending on the management style and the cultural traditions that have been passed down through the family (Peter and Buhalis 2004). SME development is crucial to the growth of the Nigerian economy. Depending on how well these business divisions perform in their day-to-day operations, they will have a different impact on the expansion and development of Nigeria. The establishment and implementation of controls by the owners or management, along with the regular recording of business transactions, are the factors that ultimately determine whether a business will succeed or fail. At the end of the period, this systematic record-keeping keeps the owner informed about the performance of the company. (John, Mbroh, and Attom, 2011).

Ismail (2009) did a study on corporate financial management. Accounting data is information that accountants and accounting software offer. Financial statements like the income statement and the statement of financial position typically include this information. Any financial ratios extrapolated from these financial statements are also included. Accounting systems are in charge of assessing and monitoring a company’s financial health, creating documents required for tax reporting, and providing data to support numerous other organizational tasks like production, marketing, human resource administration, and strategic planning. Without such a system, SMEs will find it exceedingly challenging to assess performance, locate customer and supplier account balances, and predict the organization’s future performance. According to Stefanou (2006), the main goals of an accounting information system (AIS) are to gather, record, maintain, process, and communicate data and information about events that have an economic impact on organizations to internal and external stakeholders for proper decision-making.

According to Rashid, Hossain, and Patrick (2001), the development of information processing and storage began to accelerate with the rise of computer technology in the 1950s. The ability of computer technologies to analyze vast amounts of data and generate accurate and fast results increases the usage of information. A number of information systems, such the Accounting Information System (AIS), Manufacturing Resource Planning (MRP) system, and Human Resource (HR) System, have been developed as a result of the special capabilities of computers. The way firms are run has undoubtedly altered as a result of information system technology (Elliot, 1992). As a result of businesses being in a better position to accomplish their goals, this system has helped to enhance business productions and transactions. This improves commercial activities as a result. There will likely be more businesses and transactions, which suggests that more accounting data will need to be collected and updated. The old-fashioned practice of manually entering and recording each day’s transactions into an accounting system has become ineffective and time-consuming. Errors including incorrect data entry, ineffective task execution, and excessive paper product usage caused several issues with corporate operations and organizational effectiveness. Due to these shortcomings, accounting information systems have emerged. A system with increased capacity for data collection, analysis, and report production (Saira, Zariyawati, & Annuar, 2010).

According to Aremu and Adeyemi (2011), small and medium-sized businesses rarely give the practice of sound accounting much thought outside of statutory requirements. They also noted that the inadequacy and ineffectiveness of accounting processes have resulted in the untimely demise of the majority of these businesses. Due to Nigeria’s poor generation and utilization of accounting information, the conditions mentioned above have persisted. The majority of Nigeria’s small and medium-sized businesses lack an accounting information system, which tends to make their problems worse.

1.2 A description of the issue

The Nigerian economy is recognized to be propelled by small and medium-sized businesses, just as every major corporation had its humble beginnings. It is noteworthy that many SMEs have not paid much attention to accounting information and bookkeeping in relation to their business operations, despite its importance to the success of SMEs, despite the significance and necessary nature of SMEs in Nigeria. This can be the result of owners or managers not having a solid understanding of bookkeeping procedures.

Determining the extent of non-recognition of the importance of accounting information to SMEs’ continued survival and growth is difficult. Owners with low educational backgrounds and unqualified accounting staff on staff had an impact on the creation of incorrect accounting or financial statements, which in turn had an impact on managerial decision-making.

Additionally, it has been discovered that the majority of SMEs do not maintain proper books of accounts or adhere to fundamental accounting principles. As a result, they are unable to accurately depict the company’s financial situation. This tends to make it more difficult for the business to get the funding it needs from banks and other lenders for expansion and diversification. It is difficult to prepare the financial statements for SMEs, such as the profit and loss accounts, statement of financial position, and cash flow statement. Such factors make it difficult to estimate annual profitability. However, SMEs in Nigeria frequently face difficulties with accounting and financial administration. The key issues with financial management concerns of SMEs in Nigeria include poor record keeping, ineffective use of accounting information to support managerial decision making, and low quality and reliability of financial data.

1.3 Purpose of the investigation

Examining the relationship between the development of small and medium-sized businesses and the function of accounting information systems is one of the study’s main goals. The precise goals are to:

1. to ascertain AIS’s impact on sales growth.

2. to ascertain how AIS affects asset growth.

1.4 Research Prompts

1. What impact does AIS have on the expansion of sales?

2. What impact does AIS have on asset growth?

1.5 Research Hypothesis No.

The following theory was developed:

H01: AIS significantly affects the increase of sales.

H02: Asset growth is significantly impacted by AIS.

1.6 Operationalization of Variables, Section

Examining the accounting information system and the expansion of small and medium-sized businesses in the Lagos Metropolitan Area is the key goal. The expansion of small and medium-sized businesses, which is determined by two variables, namely sales growth and asset growth, is the dependent variable.

The accounting information system, which is comprised of ethical values (EV), efficient accounting systems (EAS), human resources (HR), and investment in technology (IT), is the independent variable.

Y*= f (Y1, Y2)

Y*= The Development of Small and Medium-Sized Businesses

Where:

Y1= Increased sales

2 = Asset Growth

System of accounting information, X

(X1, X2, X3, X4)=X

Where:

X1 = Moral principles

X2 = Successful accounting methods

Human resources = X3

X4=Technology investment

Another claim is that the development of small and medium-sized businesses is a result of the accounting information system.

X1, X2, X3, X4, Y*= f

This functional relationship becomes: when it is transformed into a regression model.

Y*= α0 + α1X1 + α2X2 + α1X3+ α2X4 + µ

Where:

‘0’ refers to the regression model’s constant term.

1-4 = Coefficients of Accounting information system parameter estimates.

= Random variable.

1.7 Importance of the research

An excellent accounting information system used by a corporation is a crucial tool for management. It gives managers reassurance that their decisions are reliable and consistent with the objectives to be met. The research work will greatly increase management’s awareness of the value of appropriate, complete, and reliable accounting information system records for such purposes as timely, accurate decision-making and efficient planning and control of their business’s activities.

It will make it easier for both employees and customers to judge if a company can consistently manufacture items, provide services, and pay salaries. The government will gain from the research in terms of tax collection and company activity control.

Last but not least, the study will add to the corpus of literature already written about the subject, making it useful to future scholars.

1.8 The study’s scope

The “accounting information system and the growth of small and medium scale enterprises” is the main topic of this study. SMEs in Lagos metropolis, Lagos State, that are registered with “Small and Medium Scale Enterprises Development Agency of Nigeria” (SMEDAN) make up the study’s population.

1.9 Term definitions

Accounting is the disciplined practice of gathering, expressing, summarizing, analyzing, and reporting financial data.

Accounting information is the term describing the method utilized by decision-makers to store, process, and use financial and accounting data.

A computer-based system that improves management and teamwork in businesses is referred to as an accounting information system.

Small-scale enterprises are those that are often privately owned, have a small staff, and generate relatively low levels of revenue.

Medium-sized businesses are those that often come from successful small businesses and their moderate, steady expansion.

Sales Growth: The increase in the volume of average sales of a company’s goods or services, usually from year to year.

Assets Growth: This is a business event related to asset growth.

Ethical Values: The set of accepted rules directing moral conduct.

Effective Accounting Systems: An accurate, practical, and timely system is an effective accounting system. Its goal is to give data for both internal and external uses, such as assessing efficiency and profitability and providing information to investors and tax officials.

The term “human resources” is used to refer to both the employees of a business or organization and the division in charge of overseeing resources pertaining to workers.

An asset or thing is bought as an investment in the hopes that it may one day produce income or increase in value.

Financial statements are the official records of a person, business, or other entity’s financial activity. Additionally, it provides data on the position and operation of the company, including its equity, liabilities, income, and cash flow.

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