THE EFFECT OF PROPER ACCOUNTING RECORD IN SMALL AND MEDIUM SCALE ENTERPRISES (A CASE STUDY OF EXCEL PURE WATER COMPANY OLEH DELTA STATE)

THE EFFECT OF PROPER ACCOUNTING RECORD IN SMALL AND MEDIUM SCALE ENTERPRISES (A CASE STUDY OF EXCEL PURE WATER COMPANY OLEH DELTA STATE)

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CHAPTER ONE

INTRODUCTION

1.1      Background of the Study

In any profit making enterprises, proper accounting records are very important for the survival of the business as is widely recognized as a basic component use in measuring communicating and recording of financial transaction for decision making.

Shareholders are informed of their financial status and progress of their companies. Business ventures have always been keep about their financial status for proper management and investment appraisal as this is the only way business activities can be evaluated.

According to A.H. Milichamp accounting is the process of presenting information derived from book keeping as the accounting for the management and others. He went on to describe book keeping as the accounting or the science of recording transaction involving money or money worth in a regular and systematic account will show true and fair state of the financial worth of the enterprises.

A large portion of the information required by the management is derived from accounting data in which case the ability to analyze and use the data help managers to accomplish their objectives.

During the early days of commercial activities the inflow and outflow of fund was not well taken care of. In other words, there exist no proper accounting, records at that time to give the proprietors sufficient information about the profitable of the business. The merchants, depending on the excess of sales over purchase or the degree of exchange of goods but with the development of commerce and industry and the need for improvement in business. There arose the need for financial records and documentation hence accounting discipline became a course of the study in the educational system after the 16th century.

Automatically in recent times accounting records has undergo some changes for better understanding and fairness.

Today there are many professional firm of accountants in Nigeria, some of these are:

i.            Institute of chartered accountant of Nigeria (ICAN)

ii.          Chartered Association of Certified Accountant (CACA)

iii.        Association of National Accountant of Nigeria (ANAN)

No 15 of 1965, it is indeed the guest for proper accounting records that led to the formulation of the accounting bodies that is stated above every profit oriented organization need the accounting information for proper management and control. In today’s life it is very necessary to have proper accounting records, which can be well interpreted and summarized at point in time by the user. Recording business transactions involved some documentation of facts for reference.

Since accounting records form the based for reference it is important to maintain accurate accounting record for the following reasons.

1.  To enable the ascertainment of profit and loss in the enterprises.

2.  To enable shareholders give proper measurement on management performance and evaluate their own holding.

3.  To meet government requirement of audited financial statement for the purposes of tax.

4.  To supply the management with sufficient information to convert business transaction into useful statistical data that can be summarized into accounting record.

1.2      Statement of the Problem

The purpose of their piece of work is to find out the effect of proper accounting records in a profit making enterprises. In a situation where accounting records are not properly kept the following problem will emerge:-

(i)          Exposure of enterprise fund to fraudulent

(ii)        Poor management and control of resources

(iii)      Non achievement of organization objective

(iv)       Misappropriation and embezzlement of enterprise funds.

However, in keeping proper accounting records in profit making enterprises, the following will be ascertained:

(i)          Showing the true and fair result of a business transactions, that is whether business has made profit or loss.

(ii)        Showing also the financial position of the business at certain date.

1.3      Purpose of the Study

The major purpose of the study is to examine and to be able to identify the possible effects that a proper accounting records will have in profit making enterprises, specifically the study will be.

i.            To find out the effect of proper accounting records

ii.          For the researcher to be able to judge the degree of business effect.

iii.        To identify whether proper accounting records are kept.

iv.         To determine the short coming of the workers, who keep accounting records.

1.4      Significance of the Study

The significance of this research cannot be over emphasized as it will touch all aspect of accounting management function and the process for proper financial records. It will highlight on the tools, method and application of accounting records and information for planning:-

(a)     Internal reporting to manager: For use in making special decision and information of log range plans.

(b)    Internal reporting to manager use in controlling current operation.

(c)     External report to shareholders, government and outside.

1.5      Research Question

The purpose of this section in the research is to be able to gather information from the profit making enterprises mainly on the possible effects of proper accounting records.

i.            What are types of accounting records kept in the enterprises?

ii.          What are effects of these records in the enterprises operations?

iii.        Is there alternative method of overcoming the effects?

iv.         Can a better method adopted upgrade accounting records?

1.6      Hypothesis Formulation

NULL

Ho: Proper accounting records enhance the overall efficiency and growth of the enterprises.

ALTERNATIVE

Hi: Proper accounting records does not enhance over all efficiency and growth of the enterprises.

1.7      Scope/The Limitation of the Study

This piece of work is directed toward the evaluation and appraisal of the effect of proper accounting records in a profit making enterprise in which certain factors made it impossible for a full average of the study, some of the factors which include but not limited to the following.

Inadequate Source of Information: It was difficult to get referent text and literature for adequate referencing.

This project is limited to the small scale industries where the effect of proper accounting records will be studies in detail and so does not cover semi-large scale industries.

1.8      Assumption of the Study

This has to do with some basic assumption associated with research topic which says “THE EFFECTS OF PROPER ACCOUNTING RECORDS IN SMALL AND MEDIUM SCALE ENTERPRISES” some of these assumption made on this research project are:- that they keep accounting records and whether the accounting are properly kept.

1.9      Operational Definition of Terms

In the course of this research works some unfamiliar worlds has been used and needed definition for proper understanding such terms. It is difficult to have universally accepted definition of any term. Therefore any definition in this study will be in context of the research with due regard to the prevailing situation.

1.  Account: A record in a double entry book keeping system that is kept for each asset, liability revenue

2.  Accounting period: That time period, typically one year or financial year.

3.  Balance sheet: Financial statement showing the financial position of an enterprise in term of asset liabilities.

4.  Bankrupting: Legal status imposed upon a person by a court, eight on his own petition or on the petition of his creditors.

5.  Asset: The economic resources of an enterprise that are expected to benefit future time periods and that can be expressed in money terms.

6.  Bad debts: Debt knows to be irrecoverable.

7.  Company: Body corporate whose affairs are regulated by the Company Acts.

8.  Dissolution: The break up of a partnership

9.  F.I.F.O: First in First Out: A method of valuing tangible asset, especially stock.

10.              Gross profit: The excess of sales prices over the cost of the product sold.


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