CHAPTER ONE

INTRODUCTION

1.1     BACKGROUND OF THE STUDY

Accounting is the language of business that can tell with reasonable accuracy the degree of success an organization has achieved in approaching its financial goal of profit. Accounting system can be defined as records, procedures, and equipment that routinely deal with the events affecting the financial performance and position of the organization, (Horngren and Foster, 1975). The accounting system entails repetitive voluminous transactions which generally fall into cash disbursement, cash receipts, purchases and sales, services including employee payroll.

The purpose of accounting systems is to provide an orderly method for gathering and organizing information about the various business transactions so that it may be used as an aid to management in operating the business, (Copeland and Dascher, 1978).

Small scale enterprises have been defined in various ways according to the capital of the enterprise, size, and the number of people employed by the enterprises, the ownership and management of the enterprises and sales volume. Small scale enterprises according to Omorodion (1989) are very important to nations. They are catalysts for industrialization. This is because they provide raw materials for medium and large scale enterprises. They also provide employment opportunities for large segments of the population.

For the small scale enterprises to efficiently play the mentioned roles there should be an orderly method for gathering and organizing information about the various business transactions. This can only be done by the use of adequate accounting system.

Basically, there are two types of accounting systems commonly in use, namely, single entry and double entry system. These could be operated manually or computerized (Baumback, 1983). The single entry accounting system according to Osuala (1993) is the easiest accounting system to operate. The system records the flow of income and expenses through the business on daily summary of cash receipts, a monthly summary of cash disbursements. In single entry book-keeping there might be single aspects of certain transactions and no record at all of some.

Generally, there are rough records of cash received and paid, and of sundry debtors and creditors. Transactions are exchange of values. For every value received, there is an equal value parted with. It is obvious, therefore, that a transaction has a double effect-receiving of value and giving out value. This method is known as double entry book-keeping method. Double entry bookkeeping according to Passion (1989) does not mean recording twice but instead, it means that every entry or recording of transaction has two parts- a left side and a right side. The left side in the accountant’s language is a debit and the right side, a credit when applied to a transaction, the value received is a debit and the value parted with a credit.

1.2     STATEMENT OF THE PROBLEM

          The essence of setting up a business organization is to make profit. Goods and services are normally the means of making profits. Without profit, a business is bound to fail. In the process of planning for profit, financial data are assembled in a way that can help make informed judgment and take decisions concerning the organization. An accounting system is one of the most effective decision making tools of management. It provides an orderly method of gathering and organizing information about the various business transactions so that it may be used as an aid to management in operating the business (Copeland and Dascher, 1978).

          The high incidence of failure among the small scale enterprises in Nigeria necessitated the study. The failures are attributed to the poor accounting systems used by these enterprises, (Ofonagoro, 1983). Since, accounting system used by an enterprises is one of the key things that determine business growth and profitability, there is need to evaluate the accounting systems used by small and medium scale enterprises, Uyo, Akwa Ibom State. This is important because for optimum business growth, small scale enterprises must make use of a system of accounting which will enable them determine the volume of sales, profits/losses, assets and liabilities at any given time.

1.3     OBJECTIVES OF THE STUDY

          The objectives of this study are to find out the following:

i)       To examine the impact of accounting in the growth of small and medium scale enterprises.

ii)      To ascertained the types of accounting systems available to small and medium scale enterprises.

iii)     To determine the extent the accounting systems enhance small and medium scale enterprises profitability.

iv)     To ascertained the problems that hinder the utilization of accounting systems by small and medium scale enterprises operating in Uyo.

v)      To make useful recommendations based on research findings.

1.4     RESEARCH QUESTIONS

          The following research questions were stated to guide this study:

i)       Does accounting impacted in the growth of small and medium scale enterprises?

ii)      What are the types of accounting systems available to small and medium scale enterprises?

iii)     To what extent does the use of accounting systems enhance the profitability of the small and medium scale enterprises?

iv)     What are the problems that hinder the utilization of the accounting systems by small and medium scale enterprises?

1.5     RESEARCH HYPOTHESES

Hypothesis 1

H0:     There is no significant difference between accounting and the growth of small and medium enterprises.

H1:     There is a significant difference between accounting and the growth of small and medium enterprises.

Hypothesis 2

H0:     The use of accounting systems does not enhance the profitability of the small and medium scale enterprises.

H1:     The use of accounting systems enhances the profitability of the small and medium scale enterprises.

1.6     SIGNIFICANCE OF THE STUDY

In this study, the researchers have set out to examine the impact of accounting in the growth of small and medium enterprises using L.G Plc, Uyo with the aid of highlighting the inherent problem encountered in the small and medium scale enterprises in Uyo. It is expected that this work will be of interest to the managers of company, owners of business enterprises, the government, students and the general public.

To shareholders, owners of enterprise, interested persons and the government, this study is expected to enkindle their interest the more and they will take note of various recommendations mentioned here and help steer the management team towards forming and maintain effective organizations to present and accurate financial information of their firm.

          This study will also help to serve as literature (reference source) to students, individuals or corporate bodies into what to carry out on further research on the impact of accounting information in the growth of small and medium business.

1.7     SCOPE OF THE STUDY

The study concerns with the impact accounting in the growth of small and medium scale enterprises with a particular reference to L.G Plc, Uyo.

1.8     LIMITATION OF THE STUDY

The limitation of this study was inability of management to divulge certain information which they consider sensitive and fear of publication which might be detrimental to their operation.

Also, the outright inability of some respondents to complete and return the questionnaire to the researcher is one of the limitations of the study. Another limitation to the study was traffic congestion for the researcher to meet them in their offices and for possible return of the questionnaire.

Finally, the researcher observed the non-cooperative attitude of some workers of the company to make information available for her.

1.9     DEFINITION OF TERMS AND ACRONYMS

Ø    Accounting: It is the process of recording, summarizing, analysis and interpreting financial (money-related) activities to permit individuals and organizations to make informed judgments and decisions.

Ø    ACCOUNTING INFORMATION SYSTEM: Accounting Information System is defined as is a computer based system that increases the control and enhances the cooperation in the organization (Nicoloau, 2000).

Ø    Business: It is an activity of enterprise or organization established to provide goods and services at a profit, in order to satisfy human wants.

Ø    Business Decision: The choices made on matters relating to the allocation and/or use of business resources for making, buying, selling, or supplying goods or services at a profit.

Ø    Growth: It is act or process or manner of growing, development and gradual increase of an organization.

Ø    Small and Medium Enterprises: defines small business as the one that is independently owned and operated and which is not dominant in its field of operation.

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