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THE EFFECT OF COST ACCOUNTING TECHNIQUES ON PERFORMANCE OF SMES

CHAPTER ONE

INTRODUCTION

Background of the Study

In recent decades, the business climate has gotten increasingly dynamic and unpredictable, and managing a company has become more challenging as a result. The purpose of cost accounting is to gather, analyze, summarize, and evaluate several potential courses of action. Its mission is to advise management on the best course of action based on cost effectiveness and competence. The SMEs sector has been lauded around the world for its contributions to economic development in a variety of areas, including wealth creation, job creation, and poverty alleviation (Kithae, Gakure, & Munyao, 2012).

In most developing countries, small and medium-sized businesses are an integral component of the economic fabric, and they play a critical role in promoting growth, innovation, and prosperity (Dalberg, 2011).

Small and Medium Enterprises (SMEs) are vital to the development of any economy because they have enormous potential for job creation, local technology advancement, output diversity, indigenous entrepreneurship development, and forward integration with large-scale industries.

The purpose of cost accounting is to gather, analyze, summarize, and evaluate several potential courses of action. Its mission is to advise management on the best course of action based on cost effectiveness and competence. Cost accounting offers managers with the complete cost data they need to manage present operations and plan for the future. The SMEs sub-sector in Nigeria has been grossly underdeveloped, undermining its contribution to economic growth and development. Unfriendly business environment, poor funding, low managerial talent, and lack of access to technology are the four main issues hurting SMEs (FSS 2020 SME Sector Report, 2007). Small and medium businesses (SMEs) play a critical role in the economic development of a country. The fact that SMEs generate benefits such as job creation, knowledge spillover, economic multipliers, innovation drivers, and cluster growth in an economy are the reasons for this (Chinaemerem & Anthony, 2012). Given the importance of SMEs in an economy, it makes sense to investigate factors that influence their financial performance, which is a key predictor of their success. An accounting system is a method for delivering accurate financial data and controls in a systematic and efficient manner. The design of a successful accounting system must take into account regulatory regulations as well as internal administration policies. Accounting systems display the books, records, vouchers, and files, as well as relevant supporting data, that come from the accounting process. It entails the layout of papers and the flow of transactions within an organization. Because of the specific nature of small and medium-sized firms, accounting systems must be carefully designed. Small and medium-sized firms make up the great majority of businesses in the economy’s primary and intermediate sectors. These establishments have a huge impact on the nation’s state and well-being in terms of job creation, national outputs and revenues, and providing feedstock for large enterprises. Despite the fact that they lack the ability to implement complex accounting processes, accounting systems have a significant impact on small firms.

Statement of the Problem

Most of the existing research literature on accounting in Port Harcourt SMEs is biased toward the role of cost accounting techniques in SMEs’ performance, with only a few exceptions [(Wairegi, 2011),(Makau, Wawire, & Ofafa, 2013), (Waweru, 2012), (Mugambi, 2010) (Aduda, Mogutu, & Githinji, 2012)]. Lack of technical skills are just as much of an impediment to small business development (Mbogo, 2011). SMEs in Nigeria cover the entire range of economic activity across all sectors and face a number of common challenges in Port Harcourt, including a lack of market access to credit, poor information flow, discriminatory legislation, and poor access to capital.

Poor management ability, which includes accounting problem-solving, is another cause of SME failure. Small and medium-sized businesses have a tough time raising equity capital from banks or individuals. Even when the finance house agrees to offer equity money, the terms are invariably unfavorable. All of these factors contribute to a lack of capital in the business, resulting in bad financing.

Another issue that SME owners face is a lack of competent management as a result of their inability to hire experts; the use of obsolete equipment and methods of production as a result of the owners’ inability to access new technology; and the use of obsolete equipment and methods of production as a result of the owners’ inability to access new technology. Excessive competition as a result of sales as a result of inadequate financing to deal with rising competition in the business;

The high cost of accessible raw resources has an impact on food prices. This has a negative impact not only on the company’s turnover but also on its profitability; the availability of infrastructural facilities, such as access roads, electricity, and water supply, is woefully inadequate; and the proliferation of policies and regulatory measures, such as the removal of fuel subsidies, taxes, and multiple charges on loans, are all detrimental to the company’s profitability.

It is impossible to overstate the importance of strong accounting and internal control systems in every firm, regardless of its size. Even if they could, the great majority of small firms cannot afford the complexity of a thorough accounting system. Hence, the existence of single entries in their books and in some cases incomplete records (Wood, 1979; Onaolapo, et al., 2011). (Wood, 1979; Onaolapo, et al., 2011). Because of the insufficiency of internal controls, audits of small and medium-sized businesses have proven to be among the most concerning for professional accountants. As a result, the purpose of this study was to determine the determining factors as well as the level of adoption of current accounting practices by SMEs in Port Harcourt.

Purpose  of the Study

The goal of this research is to look into the impact of cost accounting systems on the performance of SMEs in Port Harcourt. The following are some of the specific goals:

i. To look into the different sorts of accounting records that SMEs keep and manage.

ii) To assess the issues preventing SMEs in Port Harcourt from using cost accounting techniques.

iii. Determine the extent to which accounting information is used by SMEs to assess financial performance.

 Research Questions

i. What are the different types of accounting records that SMEs keep and maintain?

ii) In Port Harcourt, what are the barriers to Cost Accounting Techniques and SMEs?

iii. How is accounting information used by SMEs in Port Harcourt to measure financial performance?

Research Hypotheses

HO1. There is no discernible link between the sorts of accounting documents that SMEs keep and maintain.

HO2 In Port Harcourt, there is no substantial association between the variables impeding Cost Accounting Techniques and SMEs.

HO3 Accounting information utilized in gauging financial performance by SMEs in Port Harcourt has no significant link.

 Significance of study

Performance and the impact of Cost Accounting Techniques In both practice and academics, the development of small and medium-sized businesses has been a hot topic. This work will be useful to existing and aspiring SMEs entrepreneurs since it provides insight into the strategic impact of sources of money on the operation of a business, allowing them to plan ahead. The research effort could also be used as a source of future reference for future researchers who may find it useful in doing similar or related research.

This empirical investigation of SMEs is therefore a significant contribution to existing literature.

In addition, the survey will show to what extent Rivers state’s small and medium firms are being accommodating in order to acquire strategic competitive advantages in their businesses.

The study would also show that the distinctiveness of small and medium-sized enterprises necessitates special consideration in accounting system design. Small and medium-sized firms make up the great majority of businesses in the economy’s primary and intermediate sectors.

 Scope of the Study

The study’s broad scope includes cost accounting techniques and performance in small and medium businesses. The geographical scope includes Nigeria’s Rivers State. The research would be limited to a few small businesses in Port Harcourt.

Definition of Terms

Accounting is the process of keeping a financial record of business activities and preparing financial statements on a company’s assets, liabilities, and operating outcomes.

Small and medium enterprises (SME) are businesses with fewer than a certain number of employees.

Cost accounting is defined as “the process of accounting for costs from the time they are incurred or committed to the formation of their ultimate link with cost centers and cost units.”

Technique is a method of accomplishing a task that requires specialized knowledge or ability.

All documentation and books used in the creation of financial statements or records relevant to audits and financial reviews are referred to as accounting records.

Financial performance is the measurement of a company’s policies, procedures, and activities in monetary terms.

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