CHAPTER ONE

INTRODUCTION

BACKGROUND TO THE STUDY

Accounting data is an integral component of modern life, as it is required to comprehend the organization’s precise financial condition and is needed to make strategic decisions. Accounting is crucial to the success or failure of today’s businesses.

Accounting information is essential for documenting, analyzing, monitoring, and evaluating a company’s financial position, preparing tax records, and giving information support to a variety of other organizational responsibilities (Amidu et al.,2011). Accounting information is crucial in the context of SMEs because it can assist them handle short-term difficulties in critical areas such as costing, expenditure, and cashflow by giving information to support monitoring and management.

Accounting information users come in a wide variety of shapes and sizes, with varying information needs but similar quality expectations in terms of accounting data in financial statements. Even though accounting information has a lot of flaws and limits, it remains the most essential source of substantiation for most small and medium-sized businesses’ financial choices.

Accounting information is critical to corporate management, according to Ademola et al (2012). For the creation of financial statements, it entails the identification, classification, storage, and protection of records, as well as their reception and transfer, retention, and destruction.

In today’s economic climate, a successful small business owner requires a large amount of dependable accounting data in order to make sound business decisions (Miko, 2008).

Economical information, particularly financial and accounting information, is always used by small-scale business owners in short-term and strategic decisions, and they may have the greatest application among different variables effective in decision-making and in all types of decisions, thereby increasing the business’ productivity and profitability.

Accounting has consolidated its central place within the information system of any enterprise, be it public or private, clearly bringing its “contribution in an area of complex social, multilateral, and multidimensional relations, as a result of the increasingly important role that financial-accounting information plays today in small and medium scale business as “social good.”

The influence of accounting data is determined by the benefits gained by members of society who have committed themselves to the social organization of their survival and seek fulfillment (Anyigbo 1999).

Business benefits from accounting information availability, but equally important is accounting information availability that enables the solution or resolution of business planning, organization, and control functions of enterprises as a social organization. The number of small and medium-sized businesses in Nigeria is steadily increasing; they are the country’s largest company cluster, and they are widely recognized as the major commercial organisms capable of enhancing and sustaining an economy’s wealth over time.

This contribution is measured in terms of providing jobs for both skilled and unskilled employees, increasing national GDP, and assisting other small and large-scale business enterprises (Heenetigala & Armstrong, 2009). The contribution of small businesses inspires public and private groups to support them by providing a variety of services. They are also vital for the development of trades and the labor market; additionally, despite problems, such as financial and accounting systems, certain Small and Medium Enterprises have a strong potential to extend their businesses to a greater size.

A small business owner organizes, operates, manages, and controls a small business.

Throughout this study, the phrase “small business owner” is used to replace terms like “operator,” “manager,” “self-employed,” “sole-trader,” and “entrepreneur.”

Small and medium-sized businesses (SMEs) play a significant part in Nigeria’s development. The extent to which these business units may contribute to Nigeria’s growth and development is determined by the level of success that their activities achieve. The fact is that the establishment and application of controls by the owners or management, as well as the systematic record keeping of business transactions, is what drives the success of a business enterprise. At the end of the period, the owner is well-informed about the performance of the business.

Accounting data is also required so that financial statements can accurately and consistently depict financial performance. Users of financial statements would have to understand the accounting principles of each business without information and standards, making comparisons across firms impossible. While keeping track of your company’s finances may appear daunting, it’s not as difficult as it appears after you understand the fundamentals of accounting and bookkeeping.

Appropriate accounting information has long been regarded as critical to the successful operation of any corporate entity, large or small (European Commission (EC), 2008).

 STATEMENT OF PROBLEM

Despite its importance in the success of a small scale company organization, a lot of small scale businesses have not paid much attention to accounting information and bookkeeping in relation to their business transactions. This could be due to the owners’ or managers’ lack of understanding of accounting practices.

It was also difficult to determine if full accounting records were kept that satisfied the regulations under which it was incorporated. It was difficult to ascertain how much non-compliance with established accounting procedures contributed to the failure of a good accounting system to be implemented.

Most small business owners prefer to hire unskilled workers, particularly administrative and accounting personnel. The result of these inexperienced accounting (clerical personnel) has only served to keep small businesses stagnant, with some even closing down. This was due to the fact that inexperienced accounting personnel could not maintain solid accounting records that would stand the test of time legally; such staff could not accurately assess the profit or loss of the firm when preparing profit and loss accounts.

It’s difficult to say how non-recognition of the importance of accounting information to a company’s continued survival and growth, the owners’ lack of educational background, and the hiring of incompetent accounting staff influenced the generation of incorrect accounting or financial statements. It has also been discovered that the majority of small businesses do not keep proper books of account or follow basic accounting practices. As a result, they are unable to accurately portray the financial status of their small business enterprise. This obstructs the company’s capacity to get critical financing from financial institutions and other sources for expansion and diversification. Financial statements for small businesses, such as profit and loss accounts, balance sheets, and cash flow statements, are difficult to create. Annual profits are difficult to estimate in such conditions.

Small and medium-sized businesses in Nigeria, on the other hand, frequently face accounting and financial management issues. Poor record keeping, inefficient use of accounting information to assist financial decision-making, and low quality and dependability of financial data are all issues that small and medium-sized businesses in Nigeria face when it comes to financial management.

Adeboye (Adeboye, 2005) While competent accounting is a beneficial mechanism for making sound economic decisions, the misuse, untimeliness, poor record keeping, and inaccuracy of accounting information also causes small and medium scale businesses in Nigeria to make inaccurate financial assessments and poor financial judgments.

These flaws may be the source of challenges in succeeding and raising funds or borrowing money at a later time. In the worst-case scenario, the company may face collapse and maybe bankruptcy.

It is also crucial to note that the lack of accurate accounting information not only hinders small-scale business growth, but also, as previously indicated, affects their prospects of acquiring credit from banking institutions and other money lenders. It goes without saying that a cash-strapped small business will have challenges in expanding and/or diversifying its operations. Because financial accounting is one of the social sciences that aims to fulfill the needs of private and public business facilities, it is influenced by changes in the general economic, social, legal, and political situations that exist in each country or environment at any given time. Accounting data is derived from certain requirements that alter as a result of numerous environmental conditions in the economic, social, legal, and political environments in which accountancy operates.

 OBJECTIVES OF THE STUDY

The primary goal of this study is to look into the impact of accounting data on small business efficiency and performance.

Other specific goals that must be met include:

1. To investigate the significance of accounting data and basic accounting procedures in small and medium-sized businesses.

2. To determine how well accounting data and basic accounting procedures have been implemented and utilized in small and medium-sized businesses.

3. To look into the different forms of accounting records kept and maintained by small and medium-sized businesses.

4. Determine the extent to which accounting data is used as a financial tool for SMEs to measure their financial performance.

5. Examine the link between accounting data and the performance of small businesses.

6. Assess the completeness of SMEs’ accounting records as a source of information for economic and financial decision-making.

7. Identify the primary roadblocks to efficient accounting data access.

RESEARCH QUESTION

The research question gives a structure and recommendations for understanding the research study’s substantial knowledge.

The following are some of the research questions that were posed:

1. How important is accounting data and fundamental accounting procedures in small and medium-sized businesses?

2. How widely are accounting data and fundamental accounting procedures used and executed in SMEs?

3. What types of accounting records do small- and medium-sized businesses keep and maintain?

4. To what extent is the accounting information is being used as a financial tool for measuring financial performance of SMEs?

5. Is there a link between accounting data and the performance of small businesses?

6. How effective is the completeness of SMEs’ accounting records as a source of information for economic and financial decision-making?

 

7.Are there any hurdles to SMEs getting access to accurate accounting data?

STATEMENT OF HYPOTHESIS

For testing, the hypotheses are given in the null form:

HYPOTHESIS NUMBER ONE

Ho1 -There is no significant link between accounting data and the performance of small businesses.

TWO HYPOTHESIS

Ho2 – Accounting data and procedures do not improve the likelihood of the business operating and succeeding.

 SIGNIFICANCE OF THE STUDY

Though the purpose of this study was to determine the value of accounting information in small and medium-sized businesses, it goes without saying that accounting information plays an important part in the integrity of choices and the success of small businesses.

The goal of this study was to raise awareness of the value of accounting information and fundamental accounting practices to small businesses through documentation.

It will also provide information to small-scale businesses (SSE) on how to keep adequate accounting records and standards. The result will make it much easier for Internal Revenue Service and Value Added Tax authorities to establish strategies for expanding the tax net to include businesses that make up a large section of the economy.

This study will also be useful to policy analysts because it will help them assess the effectiveness and success of the Small Scale Agency Board’s operations in Nigeria.

It will also be of great use to the National Board for Small-Scale Industries in assessing the success of its operations, particularly in relation to the issue of poor accounting information initialization and fundamental accounting procedures in such industries. It would also aid boards in establishing or formulating their long-term strategies.

 

It will also be useful to students, scholars for additional research, current and prospective entrepreneurs, and anybody else who is interested. It will aid students in their knowledge acquisition and understanding of the real-world accounting issue.

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