Accounting Problems In The Small And Medium Size Industries (A Case Study Of Mr. Bigg’s & Uncle Joe’s Bread Industries)

Accounting Problems In The Small And Medium Size Industries (A Case Study Of Mr. Bigg’s & Uncle Joe’s Bread Industries)

First Part

Introduction

1.1 Introduction To The Study

Interdependence between businesses is a fundamental fact of modern economic existence. No modern enterprise is an expense in and of itself. There is no dispute whatsoever that small and medium-sized businesses are the backbone of a nation’s economy. And it is not an exaggeration to say that the present and future economic advancement of our great country Nigeria depends on the dynamism and development of small- to medium-sized enterprises (SMEs).

Three organizations, including the Nigerian institute of social and economic research (NISER), supported this view at the 1989 economic conference in Lagos. NASSI and the Friedrich-Albert-Stiftung. In other words, small and medium-sized enterprises are essential to economic growth and development.

However, the operating environment of this sector in Nigeria is both demanding and rewarding. It is difficult because it is fraught with the risks that arise from having to invest money in a business in the first place and the difficulties of administering it in a recessionary economy.

In addition, government regulatory activities may have a negative impact on the performance of small and medium-sized enterprises.

In spite of this, there is a positive outlook for the success of small and medium-sized enterprises (SMEs) if they are given dynamic leadership and are properly managed in the current economic climate of the country, as well as with the help of the various incentive packages provided by the federal, state, and local governments to this group of businesses.

The industrial revolution was the most important factor in the economic survival of various developed nations, according to historical records. The majority of the industrialized nations’ financial capacity derives from their industrial and technological prowess. Small and medium-sized businesses are indisputable pillars of any meaningful industrial development and the acquisition of this trial and technological strength.

In recent years, development economists and policymakers have become increasingly concerned about two problems prevalent in developing and developed nations. There is a sluggish growth in industrial development and a lag in rural development; therefore, it is often suggested that small- and medium-sized enterprises (SME) would help promote rural development and general urban employment. It is remarkable, however, that despite these lofty expectations, Nigeria has accomplished little success. The nations of India, Japan, South Korea, Brazil, and Mexico are prime examples of nations that have achieved marginal socioeconomic development success through small-scale industrial activities. Regarding the Nigerian economy and small-scale industrial activities, little can be said.

The emphasis on the development of the small scale industrial sub-sector in Nigeria dates back to the second National Development Plan (1970-1975), during which the small scale industries (SSI) credit scheme was initiated. This resulted from the recognition of government funding support for the sector. This credit program was launched in the then-twelve states of the federation with initial funding from the federal ministry of industry and a grant from the state government’s annual budget allocations.

Without exception, all large industrial organizations, whether multinational or domestic, originated from humble beginnings. The majority of small and medium-sized businesses in Enugu State are engaged in the purchase and sale of goods. Considering the current economic climate in Nigeria, the state’s business proprietors need to diversify their operations.

In the past few decades, Nigeria’s economy has gone through various phases, including the oil boom era of the 1970s, the period of excessive spending in the 1980s, and the current economic downturn caused by the reduction in the nation’s foreign exchange earnings due to the oil glut, which led to the implementation of the Structural Adjustment Programme (SAP).

In the current Nigerian economy, an entrepreneur’s survival depends solely on his initiative and his ability to quickly adapt to the environment. In this country (Nigeria), the era of buy, buy, buy, sell, sell, sell is a thing of the past. For the present and future survival of Nigeria, a sole proprietor must recognize this fact and move forward to study the economy and cultivate an interest in any manufacturing or agricultural sector, no matter how small or medium.

However, Nigerians have been noted for their high prevalence of entrepreneurial tendencies. A typical Nigerian prefers self-employment, that is, he would rather start his own business than work for someone else. This assertion is supported by the fact that the largest market in the subregion of West Africa is located in Onitsha, Anambra State, Nigeria. Despite the exponential growth of small and medium-sized businesses in the country, available data revealed a severe business failure. This issue of business failure is a worldwide phenomenon. According to a series of research findings in Enugu State, one of the most significant contributors to the high rate of business failures affecting SMEs is improper and insufficient record keeping. As a result, nearly all small and medium-sized businesses have never considered keeping or maintaining the necessary documents. On the establishment of small and medium-sized enterprises (SMEs), there is an initial boom due to the proprietors’ initial enthusiasm, followed by a layoff and eventual dissolution. On the other hand, any surviving SME may not produce fruitful results for straightforward comparison with larger businesses. In developed nations where small and medium-sized businesses maintain accurate record administration, businesses expand rapidly in a short period of time.

In order to sustain the growth and survival of small-scale industrial enterprises, it was considered necessary to establish institutions that would provide extension services; thus, industrial development centres (IDCS) were created. They were established to provide direct grassroots support, such as advice on project identification and selection machinery, sourcing, undertaking market studies, and preparing feasibility reports.

Again, the central role that the government ascribed to small industrial activities in its strategy for economic restructuring and growth influenced its decision to use United Nations Development Programme (UNDP) technical assistance to supplement a key element of the programme during the 4th century programme 1992-1996. The United Nations Development Programme (UNDP) aimed its assistance at the five component areas deemed essential to an enterprise’s performance. It assisted in enhancing the regulatory framework for policy, planning, and institutional development in order to ensure that the new private sector-led growth strategy, with the active participation of small-scale/industrialists, is articulated and implemented effectively.

Nonetheless, government and financial institutions have established a variety of programs and policies to assist SMEs.

In 1985, the Nigerian stock exchange acknowledged the supplementary role of small-scale businesses by establishing a second-tier market wherein they could obtain financing of up to N5 million for expansion, modernization, and the development of projects. The world bank provides grants to the federal government for the development and rehabilitation of small and medium-sized enterprises. In February 1990, the European Investment Bank and the Nigerian government attained an advanced stage in leasing N445 million to finance small and medium-sized businesses in Nigeria.

In 1990, the CBN’s credit policy guidelines directed Commercial Bank and Merchant Bank to increase their total credit outstanding to small scale enterprises from 16% to 20%. The Nigeria industrial development bank, the Nigeria Association for Small Scale Industries, the Nigeria Bank for Commerce and Industry, the African Development Bank, the National Directorate of Employment, and the National Economic Reconstruction Fund also influence the status of SMEs in Nigeria.

A business must maintain records for the following reasons: they serve as evidence of the company’s policies and activities.

They highlight the management’s decisions, actions taken in the course of business, and the results of these actions. These policies may be presented as exhibits during court proceedings as legal backings and to regulatory authorities such as the Tax Board Inland Revenue to demonstrate that regulations are strictly adhered to by the entrepreneurs. These records assist regulatory authorities in evaluating the stewardship and control exercised by heir managers in the management of the property under their care.

It provides information beneficial for the general management of the company’s daily operations. Their contribution to the day-to-day administration of the organization expedites the cost management settlement process.

Even today, the economics policy blueprint (EPB) released by the current administration to guide economic re-invention and engineering for the period 1999-2003 gives small and medium-sized businesses and the informal sector a high priority as key instruments for achieving the policy’s stated goals. There is little doubt that it has been fully realized and acknowledged that a revitalized and fully functional SME subsector has the potential to transform the industrial foundation of the country and serve as the impetus for the desperately needed economic revitalization.

Consequently, this initiative titled “Accounting problems of small and medium-sized enterprises in Enugu State” was developed. The purpose of a case study of Uncle Joe’s Bakery and Mr. Bigg’s is to demonstrate the importance of financial record keeping and good management of SMEs to ensure that every Naira and kobo of the industry is used judiciously to achieve the goals and objectives of the business (i.e. maximizing profits and minimizing losses).

1.2 Statement Of Problem

It is now common knowledge that Nigeria’s economy is thriving. Small and medium-sized businesses are experiencing catastrophic failure or setbacks now and over the past few years. The organization lacks authentic or systematic data upon which business owners or managers could base meaningful decisions. In this regard, opinions or decisions cannot be formed based on the current financial position of the company. This position could lead to stagnant business development and a decline in the organization’s capital structure.

This issue, along with others not enumerated here, facing small and medium-sized businesses has garnered widespread support. In addition, the number of survivors from this problem is documented as having bright futures. Numerous individuals have blamed improper or inadequate accounting record keeping or maintenance in conjunction with managerial issues. The aforementioned facts are not the only known factors that can impede a business’s development. Accounting to management, additional variables include finances, the condition of the economy, effective communication between managers and other employees, experience, and dedication to duty, as well as a satisfactory accounting system.

For the objectives of this study, it is assumed that each of the aforementioned variables is consistent with business.

1.3 Objectives Of The Study

The study requires that we investigate the accounting record keeping system of small and medium-sized businesses (SME’s) in Enugu State, Mr. Bigg’s and Uncle Joe’s Bakery, to determine the method of record keeping, the problems associated with it, and whether the system is adequate for the business. In addition, the study will determine the extent to which inadequate management has impeded the organization’s development and growth. The study will also emphasize why small and medium-sized enterprises (SMEs) should maintain sufficient records and actively participate in the country’s industrial transformation. The study will also seek to develop a straightforward yet effective accounting system for small and medium-sized businesses. On the basis of the study’s findings, appropriate recommendations will be made regarding the proper accounting records that SMEs must maintain for profit maximization, management adequacy, and high growth.

1.4 Research Hypothesis

Ho1. The failure of small and medium-sized businesses is not the result of improper and inadequate accounting practices.

Ha1. Small and medium-sized businesses fail as a result of improper and inadequate accounting practices.

Lack of managerial planning, forecasting, and supervision does not significantly contribute to the failure or demise of small and medium-sized enterprises (SMEs).

Ha2: The absence of managerial planning, forecasting, and control significantly contributes to the failure or demise of small and medium-sized enterprises.

1.5 Significance of the Research

This study would be beneficial to both businessmen and farmers, as it will inform them of the potential causes of poor industrial development and the reasons for the actual demise of small and medium-sized businesses (SMEs).

This study will further assist business owners and administrators of SMEs by educating them on the significance of maintaining accurate accounting records.

People who intend to invest their wealth in a small or medium-sized business should be aware of the likelihood of damage that will befall them if they do not maintain adequate financial records, and should therefore take precautions.

However, students of business studies would also find this study extremely useful, as it endeavors to cover all aspects of business establishment.

In conclusion, it is believed that the planning authorities will find this study useful because it will provide them with all the necessary data for formulating economic policies.

1.6 Radius Of Study

This study examines accounting issues in small and medium-sized businesses. Therefore, the research will be conducted at Mr. Bigg’s & Uncle Joe’s Bread Industries, Enugu State.

1.7 Definition Of Terms

Accounting may be defined as the process by which data relating to the economic activities of an organization are recorded, measured, and communicated to interested parties for the purposes of analysis and interpretation.

The definition of accounting reveals that it consists of three main financial accounting branches. Management accounting and cost accounting.

FINANCIAL ACCOUNTING: This is the process of classifying and recording the actual transactions of an entity in monetary terms in accordance with established concept, principles, accounting standard, and legal requirements in order to provide as accurate a view as possible of the effect transactions had over the period and at the end of the year.

Writing on MANAGEMENT ACCOUNTING: Accounting to scale (1976). A perspective on management. Accounting; defined management accounting as the application of accounting knowledge for the purpose of producing and interpreting accounting and statistical information to assist management in its role of promoting maximum efficiency, formulating and ensuring future plans, and measuring their subsequent execution. Therefore, it is concerned with the internal operations and management of an entity.

COST ACCOUNTING is defined as “the portion of management accounting that establishes budgets, standard costs, and the actual cost of operation, process department, or product, and analyzes variances, profitability, and social use of funds.”

COST: Nweze (2000), in “Quantitative approach to management accounting,” defined cost as “a monetary measurement of the quantity of useful resources for some purposes.”

No researcher nor practitioner has reached a consensus on what constitutes a small and medium scale enterprise. Efforts in this area have not been able to produce an acceptable definition of what constitutes a small and medium scale enterprise. Some researchers define a small- to medium-sized enterprise (SME) as one with few employees, modest volume, and modest capital. Typically, the owner is involved in the management and operations of the business, but he or she may lack training or experience in accounting procedures, taxation, finance, business management, and business systems procedures and practices.

The official definition of SMEs in Nigeria is somewhat flexible and broad. Small scale business enterprises are defined by the Nigerian Bank of Commerce and Industry (NBCI) as firms or corporations with assets (including working capital but excluding land) not exceeding N750,000 and paid employment of up to 50 people. In its monetary policy circular No. 2 (1980), the Central Bank of Nigeria (CBN) defined small scale business as an enterprise with an annual turnover between N25,000. The federal ministry of industries defined small scale business for the third National Development plan period (1975-1980) as a business with a per capita investment of N150,000 in plant and machinery, with no lower limit, and fewer than 50 paid employees.

The National Directorate of Employment (NDE) defined a small scale enterprise as one with a minimum capital investment of N5,000 and no more than three employees.

The SAP has changed the maximum capital investment level for small businesses from N150,000 to N500,000. This definition or the utmost level of capital investment serves as a guide for lenders, entrepreneurs, and the government in classifying businesses as large, medium, or small scale.

For the purposes of this study, small and medium-sized enterprises refer to businesses financed, controlled, and managed by their proprietors in a personal capacity, without any family management structure or encumbrances.

The National Economic Reconstruction Fund (NERFUND) defined small and medium-sized enterprises (SMEs) with the criterion that projects to be financed by the company must have a total cost of fixed assets (excluding land) of no more than N10 million.

In accordance with subsection 1 of section 357 of the Companies and Allied Matters Decree (1991) (CAND), a company qualifies as a minor company in a given year if the following conditions are met for that year.

It is a privately held company with a share capital.

– Its annual revenue does not exceed N2 million or such other amount as may be fixed commissions.

– None of its members are government corporation or agency members or their nominees

– The directors hold at least 51 percent of the company’s equity capital