Accounting System Of Small Scale Business Organisation With Particular Reference To Aqua Rapha Investment And Majesty Bakery

Accounting System Of Small Scale Business Organisation With Particular Reference To Aqua Rapha Investment And Majesty Bakery

First Part

Introduction

1.1 Context Of The Study

Unlike other forms of business registration, the majority of Small Scale Businesses (SSBs) are registered as sole proprietorships, which makes registration procedures considerably simpler and easier. Due in part to this phenomenon, SMEs now outnumber all other business types and can be found virtually everywhere in the country. Recent studies indicate that despite their prevalence and significance, sixty percent of SSBs fail within their first five years of operation Boachie- (2005).

Studies indicate that it is difficult for small and medium-sized enterprises (SMEs) to obtain financing from financial institutions because they lack the required financial records (William, 2008). The inability of many small and medium-sized enterprises to survive beyond their first few months has been attributed in part to a lack of capital. To achieve success and meaningfully contribute to the Nigerian economy, SMEs must independently attract and secure financing.(Amoako, 2013).

In most industries, magnitude will affect comparability. Larger businesses will have access to economic and certain advanced quantitative management techniques that may not be feasible for smaller businesses. Smaller businesses may be able to maintain better client relationships and consumer relations than their larger counterparts. (Abdulrasheed, Khadijat, and Oyebola, 2012) This distinction in operation technique may contribute to a deficiency in the accounting method used to generate financial data. Various inventory techniques, depreciation methods, methods of accounting for income taxes, and revenue recognition procedures are examples of the various accounting principles that a business may employ. Pacioli (1494) referred to the approach devised by Italian merchants to account for their activities as business owners and managers as the fundamental accounting model still in use today. As economic activities shifted from the fundable to agriculture, the latter continued to adapt to societal demands. Accounting has evolved in response to the expanded planning and control responsibilities of management as business units have become more complex and expansive. As the government expands and becomes more centralized, accounting practices have evolved to accommodate the increased accountability. (Abdulrasheed, Khadijat, & Oyebola, 2012) it is frequently stated that business decisions must be supported by high-quality, timely, and pertinent financial information.Accounting should be an active instrument for guiding the operation and management of a business, rather than another administrative burden the sole proprietor must comply with. It is essential that accounting systems for one-person businesses provide owners and managers with essential financial information so they can manage the business in a competitive environment and make informed decisions to prevent business failure and expand the business. Accounting systems must be adaptable so as not to impose unwarranted operational burdens on the proprietors of one-person businesses, who may have specific requirements and circumstances. (Abdulrasheed, Khadijat and Oyebola, 2012).

However, many new business proprietors find bookkeeping and accounting to be intimidating. In actuality, however, both are quite simple. Bookkeeping and accounting share two fundamental objectives: keeping track of income and expenses, which increases the likelihood of making a profit, and gathering the financial data required for submitting various tax returns. There is no requirement that records be maintained in a specific manner. Certain businesses are required to credit their accounts using either the cash method or the accrual method, so long as their records accurately reflect their income and expenditures. Depending on the size of the business and the volume of sales, one can either construct his or her own ledgers and reports or rely on accounting (Williams, Haka, Bettner, and Carcello, 2008). A accounting system records, retains, and reproduces financial data pertaining to financial position and transaction flows. Financial transaction flows consist primarily of cash inflows and outflows for income and expenses, respectively. Elements of financial position, such as property, money received or spent, are designated to one of the three primary categories: assets, liabilities, and equity. Each distinct asset, liability, income, and expense is represented by its own “account” within these primary categories.

A simple account is a record of financial inflows and outflows in relation to a particular asset, liability, income, or expense. Since they represent only the inflows and outflows consumed by the financial-position elements at the end of the accounting period, income and expense accounts are considered temporary accounts (Williams, Haka, Betty, and Carcello, 2008). (Anyigbo, 1999) The impact of accounting is a function of the benefits derived by members of society who have bound themselves to the social organization for their survival and desire satisfaction. Equally essential is the availability of accounting information that facilitates the business planning, organization, and control functions of the enterprise as a social organization. The majority of small business proprietors prefer to hire unskilled personnel, particularly clerical and accounting staff. The work of these unskilled accountants (clerical employees) has only helped small businesses stagnate; some have even gone out of business. This was due to the fact that unskilled accounting personnel could not maintain accurate accounting records that would withstand the test of time, nor could they accurately determine the profit or loss of the company when producing a profit and loss account. (Onaolapo and Adegbite, 2014).

The importance of effective accounting and internal control systems in any business, regardless of size, cannot be overstated. Even if they could afford it, the overwhelming majority of small businesses cannot afford the complexity of a detailed accounting system. Consequently, there are single entries in their books and, in some instances, incomplete recordings (Wood, 1979; Onaolapo, et al., 2011). Due to the inadequacy of the internal controls, audits of small businesses have proved to be among the most stressful for professional accountants. The inadequacy and inefficiency of accounting processes have led to the untimely collapse of a number of small and medium-sized businesses (Mukaila and Adeyeyi, 2011). The level of bookkeeping and accounting in sole proprietorships has posed numerous obstacles to the effective operation and accountability of a sole proprietorship. Small businesses are disproportionately affected by the regulatory burden compared to large corporations because they frequently lack the financial and human resources to manage their obligations in the most efficient manner. (Abdulrasheed, Khadijat and Oyebola, 2012).

Despite its significance to the success of businesses, a number of Small Scale Enterprises have not paid much attention to bookkeeping in relation to their business transactions. This could be due to a deficiency of bookkeeping knowledge on the part of the owners or respective managers. In addition, it was challenging to determine if the company’s accounting records complied with the laws under which it was incorporated. (Onaolapo and Adegbite, 2014).

It was difficult to determine to what extent noncompliance with established accounting procedures impeded the implementation of a sound accounting system. It is difficult to determine the extent to which the non-recognition of the importance of accounting to continued existence and growth, the low educational background of the proprietors, and the employment of unskilled accounting staff contributed to the production of unreliable accounting or financial statements. Due to the significance of accurate accounting information for the owners and administrators of one-person businesses and their various stakeholders, it is crucial for this study to evaluate the impact of accounting systems used in small scale businesses in Nigeria.

The globe is frequently referred to as a global village. The current reaction of individuals, businesses, and nations to this assertion of globalization reveals everything. In order to accurately evaluate the concept of globalization, the current era necessitates significantly more inputs of some kind in order for businesses to establish, survive, and expand. To merely survive as a business, however, requires a rigorous application of accounting to each and every incident. This is due to the fact that business enterprises frequently have limited resources, and their allocation and performance measurement must now be strictly managed.

Small and medium-sized enterprises (SMEs) serve an essential role in Nigeria’s socioeconomic development. The extent to which these business units can contribute to the growth and development of Nigeria is contingent on the success of their operations. The establishment and application of controls by the owners or management, as well as the systematic recording of business transactions, which, at the end of the period, keeps the owner informed about the performance of the business, are essential to the success of a business.

1.2DESCRIPTION OF THE PROBLEM

The operation of accounting systems in small-scale business organizations is beset by numerous control issues and inefficiency, which have, in the majority of cases, produced dysfunctional effects on business operations. Similarly, the magnitudes of computerization’s operational, countervailing, and strategic problems have exacerbated the issue of flawed accounting systems in small-scale business organizations.

1.3 Objectives Of The Study

These are the objectives of this study:

1) Evaluate the accounting system of the model company in order to determine its appropriateness, adequacy, and efficacy.

2) Examine its operation as well as the cost and benefit of computerization in order to determine the plausibility of adopting computer technology in its accounting system.

3) Examine the operational, contextual, and strategic issues inherent in the computerization of accounting systems in order to determine how effectively the company has addressed these issues.

4) Finally, to make any recommendations deemed essential to improve the company’s operational environment.