ACCOUNTING INFORMATION IN DECISION MAKING IN SMALL-SCALE BUSINESS IN NIGERIA

By

Author

Presented To

Department of Accountancy

ABSTRACT

This research work entitled "Accounting information in decision making in small scale and medium enterprises in Nigeria" is at exploring the role of accounting information in small-scale firms.

The primary aim of any business enterprise is to make profit. The success and survival of any business is a function of its profitability. However, the level of success is to a considerable extent, a function of the number and quality of the accounting records kept and systems in operation.

In trying to define a small-scale business or enterprise and its characteristics, the researcher will try to explore the problems, sources of funds and the role/importance of small-scale firms in Nigeria.

An attempt will be made to define accounting information and its role in the decision making process.

It was discovered that profitability of a small-scale firm is a function of the number of accounting records kept and the qualification of the entrepreneur.

The researcher therefore recommends that the entrepreneur should endevour to understand the basis in bookkeeping o as to able to prepare complete and accurate records of transactions. They should equally engage the services of experienced and qualified accounting personnel.

Following the above, the researcher concluded that for improved decision making through improved accounting information, entrepreneurs of small-scale firms should endevour to understand and apply basic book keeping or engage the services of experienced and qualified accounting personnel to carry out that function.

TABLE OF CONTENT

COVER PAGE I

TITLE PAGE II

CERTIFICATION III

DEDICATION IV

ACKNOWLEDGEMENT V

ABSTRACT VI

TABLE OF CONTENTS VIII

CHAPTER ONE

1.0 Background of the study 1

1.1 Statement of the problem 2

Objective of the study 4

Hypothesis formulation 5

Significance of the study 7

Scope of the study 8

Limitations of the study 9

Definition of terms 10

CHAPTER TWO

LITERATURE REVIEW 14

2.0 General overview of a business entity 14

2.1 Alternative form of business 18

2.2 What is a small scale business 20

2.3 General characteristics of small business 21

2.4 Sources of funds 23

2.5 The role and importance of small-scale business in the economy 24

2.6 Problems of small-scale business 27

2.7 Accounting information 28

2.8 The accounting process 30

2.9 The accounting information and the decision process 32

2.10 The function of accounting information in decision making 33

2.11 The relevance of accounting information in a business organization 34

2.12 Uses of accounting information 35

CHAPTER THREE

SUMMARY, RECOMMENDATIONS AND CONCLUSIONS

3.0 Introduction 37

3.1 Findings 37

3.2 Recommendations 39

3.3 Conclusions 41

Bibliography 43

CHAPTER ONE

1.0 BACKGROUND OF THE STUDY

Small-scale business is of great importance in the economy of Nigeria. They are to extent index of development and of the well being of the masses. Infact these business ventures have proven themselves to be vehicles of development and change in their various locations.

Osoba (1986) for instance, has in his own view studies when he stated, "Large scale industries have not played and cannot alone from now on be expected to play in the rapid growth and development of economics. This role includes substantial contribution of the sector to gross domestic product employment generation increasing local value added and techno logical development".

Small business is often played with problems which have been too overwhelming her many of than to succeed in contributing to the development of the industrial sector.

These problems are not necessarily that of inadequate capital or lack of management that of inadequate capital or lack of management expertise but the researcher believes that there is a missing lack somewhere along the line.

1.1 STATEMENT OF THE PROBLEM

Small-scale business contributes a lot to the well being of the economy. Profitability is the singular index of growth and survival of small-scale business. The desire of every entrepreneur is to optimize profit in order to exist in business. But contrary to this expectation or desire, most businesses fold up no sooner that they are set up inspite of the fabulous incentives given that by the government.

The researcher therefore, observed that the cause of the problems and frequent of small-scale firms is lack of effective entail measures. Control is affected by keeping appropriate accounting records.

It has been observed that almost all accounting records have equal degree of control for instance; an accurate stock level avoids over-stocking and under-stocking.

This has the effects of avoiding wastes, which are a cost to the firm. Also, under-stocking disrupts production and results in costs being incurred by the firm. The attendant effects of not keeping accurate accounting records and incomplete information about transactions is that the proprietor may not know the true position of his business and also profitably be drastically reduced as a result of unnecessary costs being incurred. The result being business failure.

The problems occasionally constant business failures are therefore, lack of appropriate accounting records, inadequate experience in book keeping of limited accounting records. The following questions are pertinent to be able to accurately analyze the problems at hand.

1) Do small-scale firms keep accounting record?

2) Do the entrepreneur have any requisite experience in book keeping?

3) To what extent do they keep accounting records?

4) What determines their ability to keep accounting records?

1.2 OBJECTIVES OF STUDY

Having sensed the afore maintained problems causing frequent business failure, the researcher decided to carry out a fact findings study to test the appropriateness and validity of his observation.

The objectives of this study is to find out if small-scale firms keep appropriate accounting records and also to find out if the entrepreneurs have the requisite academic qualification and experiences in book keeping and to relate their qualifications with their performance in terms of profits. It is also the objective of this study to explore the extent and content of the accounting records kept and how they have helped to improve their performance by affecting adequate is also to find out what determines the ability or inability of the small-scale firms to keep accounting records. It has been observed that all accounting records serves as control measures and that the higher the number of accounting record kept, the more effective the control process would be. This study is therefore, aimed at finding out the impact of accurate accounting records on the performance of small-scale firms.

Based on the outcome of these findings, the research would make some useful recommendations that would be of immense value to the small-scale businessmen. The findings of this research will also contribute to the existing body of knowledge.

This done, the ultimate objective of his study, being helping to reduce the rate of frequent business failure, would have been achieved.

1.3 HYPOTHESIS FORMULAITON

Using information obtained from a sample drawn from the population in question tests the hypothesis about any population parameters. Consequently, a statistical hypothesis is formulated for the purpose of rejecting it or accepting it. Null hypothesis is usually denoted by H0, is the hypothesis formulated with the intention that it would be rejected.

The hypothesis that we are willing to accept if we reject the null hypothesis is called the alternative hypothesis and is denoted by H1.

In order to register the validity of the researcher observations, the researcher intends formulating the following hypothesis, which would be subjected to statistical test. The outcome of which will either affirm or reject the researcher's observation.

HYPOTHESIS 1: H0 Greater number of the small-scale business in Nigeria does not keep accounting records.

H1: Small number of small-scale business in Nigeria does not keep accounting records.

HYPOTHESIS 2: H0: The profit of a firm depends on the entrepreneur's qualification in bookkeeping.

H1: The profit of a firm does not depend on the entrepreneur's qualification in book keeping.

HYPOTHESIS 3: H0: The success of a small-scale firm is a function of the extent of the accounting records kept by the proprietor.

H1: The success of a small-scale firm is not a function of the extent of the accounting records kept by the proprietor.

1.4 SIGNIFICANCE 0F THE STUDY

The following and recommendations of this study will help:

The prospective investor to know the relevant records to be kept and the importance of bookkeeping them.

Enable the small business manager to derive information from financial statements that will lead them to take good decisions, thereby leading them to growth.

Maintaining proper and adequate financial records will enable the small-scale businessman to get easy access to some government incentives.

This will facilitates growth in the industry and keep on reducing the rate of frequent business failure in Nigeria.

Lastly, the outcome of this study will contribute immensely to the existing stock of knowledge in this area of study.

1.5 SCOPE OF THE STUDY

This study examines the following:

1) The extent to which small-scale business keep accounting records as a basis for generalization

2) The content of information and records kept

3) The probability of greater success of business with complete recording system over those without records

4) The relationship between the derived information, its use and business operation

5) The degree to which small-scale business employ the services of accountant and accounting personnel

6) This research work shall cover a cross section of small scale firms operations in Nigeria

These include the following:

i) Saw mills

ii) Chemists

iii) Poultry farms

iv) Provision stores

v) Brick and block industry

vi) Other retail stores.

1.6 LIMITATION OF THE STUDY

There are some foreseeable problems stated below:

a) Poor response from business might arise from:

The fear that information will be used for tax purposes.

The fear of information being disclosed to competitors

Time taken to supply information.

b) Cost Constraints: This study is limited by inadequate finds.

c) The time available for the conduct of this research is highly limited.

These problems shall be overcome by the following means:

The proper education of the proprietor of he business on the purpose and relevance of the study

Very simple language and non-technical terms will be used to carry out the interviews and where the interviewers themselves will write necessary answer.

Questionnaires will be designed with questions and the number of questions will be limited. Due to the time constraints, the researcher is therefore working on the assumptions that the state of affairs in these firms is similar to what is obtainable in other firms.

1.7 DEFINITION OF TERMS

For the purpose of this study and clarity, the following definitions will be used:

i) ACCOUNTING INFORMATION: Accounting is primary means of organizing and reporting in financial terms for use in the organization by management and outside. It involves the creation, interpretation and use of financial records. According to Zayard (1986:6) defines it as the process of identifying, measuring and communicating economic and financial information to permit informed judgment and decision by the users of the information. To organize accounting records in a useful manner, the classified records have to be reduced to concise. Accounting information and communicated to interested persons within or outside the organization.

ii) ACCOUNTING RECORDS: This refers to the number of classified accounts kept in an organization such as ledgers, journals and other supporting documents. The law requires these records to be kept to enable in the preparation of financial statements so as to show a true and fair view and disclose with reasonable accuracy the financial position of the company at that time. Accounting records must also contain records of assets and liabilities, daily entries of money receipts and payment and statements of stock held at the end of each financial year.

iii) INDUSTRY: This is a group of business that produces and/or sells the same or similar types of goods and services. It may be characterized by level of concentration, durability of the commodity produced, market structure, level of capital investments, advertisement or research and geographical distribution of producers and customers. GREEN WALD .D (1983: 232).

iv) SMALL-SCALE BUSINESS: This is a business organization whether service, training, manufacturing or processing that exhibits at least one of the following characteristics:

a) Capital base not exceeding one hundred thousand naira.

b) Employee strength of at most thirty individuals.

c) Turn over of five hundred thousand naira and below. AYODELE .S (1991)

v) BUSINESS ENTERPRISE: A business enterprise or firm is a business unit formed for the purpose of carrying on some kind of economic activity. It can take may forms such as sole proprietorship, partnership, and private and public liability companies. HANSON J.L. (1974)