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

Chapiter 1

Introduction

1.1 The Study’s Background

In contrast, the majority of small scale businesses (SSBs) are registered as sole proprietorships rather than corporate bodies, which makes the registration process much simpler and less complicated than for other types of business registration. This dynamic has contributed in part to the fact that SMEs exceed all other business types and are widespread throughout the nation. Recent research reveal that 60% of SSBs fail within the first five years of operation, despite their prevalence and importance Boachie-(2005).

The lack of proper financial records, which financial institutions require, makes it difficult for SMEs to secure financing, according to studies (William, 2008). The failure of SMEs to survive past their initial few months has frequently been attributed in part to a lack of funding. SMEs must find and secure their own financing if they are to be successful and have a real impact on the Nigerian economy.2013 (Amoako).

Size will have an impact on comparability in the majority of businesses. Larger businesses will have access to financial and some advanced quantitative management strategies that may not be feasible for smaller businesses. Smaller businesses might be better able to retain close client relationships than larger ones. According to Abdulrasheed, Khadijat, and Oyebola (2012), the accounting method used to produce financial information may suffer as a result of this disparity in operation methodology. Among the various principles that a company may use are various inventory management systems, depreciation methods, income tax accounting procedures, and revenue recognition processes. The fundamental accounting model still in use today was outlined by Pacioli (1494) in a method created by Italian merchants to account for their operations as owners and administrators of businesses. agricultural continued to adapt to the needs of society as economic activity proceeded from the fundable to agricultural. Accounting developed in response to management’s expanded planning and control responsibilities as business units became more sophisticated and broader in scope. Accounting was created to handle the greater accountability as government grew in size and became more centralized. Business choices are frequently said to require to be backed by high-quality financial data that is timely, relevant, and user-friendly (Abdulrasheed, Khadijat, and Oyebola, 2012).Instead of adding to the administrative requirements that a sole proprietor must meet, accounting should be used as a proactive management tool when necessary. In order for the owners and managers to manage the business in a competitive environment and to make educated decisions to prevent business failure and to grow the business, it is crucial that the accounting systems for one-man businesses perform such functions as providing essential financial information. Accounting systems must be adaptable to account for the unique needs and circumstances that one-man business owners may face in order to avoid adding undue operational costs. (2012) Abdulrasheed, Khadijat, and Oyebola.

The sheer thought of bookkeeping and accounting, however, intimidates many new business owners. However, both are actually quite easy. Keep in mind that bookkeeping and accounting share two fundamental objectives: tracking income and expenses to increase the likelihood of making a profit and gathering the financial data required to submit various tax returns. It is not necessary to maintain records in a specific manner. There is a necessity, however, that some organizations utilize a specific technique of crediting their accounts: the cash method or accrual method, as long as records accurately reflect the business’s income and expenses. One can use accounting or make their own ledgers and reports depending on the size of the company and the volume of sales (Williams, Haka, Bettner, and Carcello, 2008). Financial information about financial transaction flows and financial position is recorded, kept on file, and reproduced by an accounting system. Inflows on account of incomes and outflows on account of expenses are the two main types of financial transaction flows. A financial position’s components, such as real estate, cash received, and cash spent, are categorized into one of the three main groups: assets, liabilities, and equity. Each different asset, obligation, income, and expense is represented by a specific “account” within these fundamental groups.

A record of financial inflows and outflows in relation to a certain asset, liability, income, or expense is called an account. Since they only represent the inflows and outflows absorbed in the financial-position elements at the end of the time period, income and expense accounts are regarded as transient accounts (Williams, Haka, Bettner, and Carcello, 2008). The benefits that society’s members gain from the social order in pursuit of their survival and desire satisfaction determine the impact of accounting (Anyigbo 1999). The availability of accounting information helps businesses, but as significant is the availability of accounting that supports the resolution of business planning, organization, and control issues for businesses as social organizations. The majority of small business owners favor hiring unskilled workers, particularly for secretarial and accounting positions. The result of these inexperienced accounting (clerical staff) workers has only served to slow down small businesses; some have even shut down. This was due to inexperienced accounting staff’s inability to maintain trustworthy accounting records that would withstand the test of time and their inability to accurately estimate the firm’s profit or loss while preparing profit and loss accounts. 2014 (Onaolapo and Adegbite).

No of the size of the business, the need of good internal control and accounting systems cannot be overstated. Even if they could, the great majority of small-scale firms cannot afford the complexity of a sophisticated accounting system. This explains why their books include single entries and, in some circumstances, incomplete records (Wood, 1979; Onaolapo, et al., 2011). Due to the inadequate internal controls, audits of small businesses have consistently ranked among the most concerning for professional accountants. Except for regulatory requirements, small and medium-sized businesses rarely give sound accounting any concern, but their inadequacy and ineffectiveness have led to the premature collapse of a number of them (Mukaila and Adeyemi, 2011). Numerous obstacles to the efficient operation and accountability of a sole proprietorship have been brought about by the amount of bookkeeping and accounting in one man firms. Comparatively to large corporations, one man businesses bear a disproportionate share of the regulatory burden since they frequently lack the financial and human resources needed to carry out their commitments. (2012) Abdulrasheed, Khadijat, and Oyebola.

Even though bookkeeping is crucial to the success of organizations, a number of small scale enterprises have not paid much attention to it in relation to their company transactions. This could be due to owners or managers’ insufficient awareness of appropriate bookkeeping procedures. Additionally, it was challenging to determine whether the company had a complete accounting record that met the requirements of the legislation under which it was incorporated. 2014 (Onaolapo and Adegbite).

It was difficult to gauge how much non-compliance with established accounting procedures contributed to the creation of a sound accounting system. It is difficult to determine how much non-recognition of the importance of accounting to a business’s survival and expansion, the owners’ lack of formal education, and the hiring of untrained accounting staff contributed to the creation of incorrect accounting or financial statements. It is crucial for this study to evaluate the influence of accounting systems used in small scale firms in Nigeria due to the significance of adequate accounting information for owners and managers of one man businesses and their many stakeholders.

The idea of the globe as a global village is frequently used. At this time, how people, businesses, and countries respond to the claim of globalization says it all. To correctly evaluate the concept of globalization, businesses in particular need far more inputs of some kind in order to establish, endure, and flourish. However, a firm must apply accounting rigorously and correctly to every incidence in order to simply survive. This is because corporate firms frequently have limited resources, and adequate management over their allocation and performance monitoring has become the norm.

Small and medium-sized businesses (SMEs) are crucial to Nigeria’s socioeconomic development. The level of success obtained by these business units’ operations will determine how much they can contribute to Nigeria’s growth and development. In actuality, the establishment and implementation of controls by the owners or management, in addition to the regular recording of business transactions, which, at the end of the period, keeps the owner well-informed about the performance of the business, are what ultimately determine whether a business enterprise succeeds or fails.

1.2 State of the problem:

Small-scale business organizations’ use of accounting systems is rife with multiple control issues and inefficiency, which, in the majority of situations, have generated dysfunctional impacts on corporate operations. Similar to this, computerization’s enormous operational, defensive, and strategic issues have made small business organizations’ problematic accounting systems worse.

1.3.1 Purpose Of The Study

These are the study’s goals:

1) To assess the model company’s accounting system to ascertain its suitability, sufficiency, and effectiveness.

2) To assess the operation of the system and the costs and advantages of computerization in order to decide whether or not the adoption of computer technology in the accounting system is feasible.

3) To assess the operational, contextual, and strategic issues that the computerization of accounting systems has raised in order to ascertain how the organization has successfully addressed these issues.

4) Making the recommendation that is thought to be necessary to improve the company’s operational environment.