ASSESSING BOOK KEEPING PRACTICES OF SMALL AND MEDIUM SCALE ENTERPRISES IN CALABAR LOCAL GOVERNMENT AREA
1.1 Background of the Study
Since the prospects of getting white collar jobs has become harder and harder, many people, educated and noneducated, are reverting to being self-employed. One way of being self- employed is to start a small business. A small business is any business that is independently owned and operated (Kuehl, 2006). Generally, Small and medium enterprises (SMEs) are businesses whose turnovers fall below certain limits. The current definitions categorize businesses with less than 10 employees as “micro,” those with fewer that 50 employees as “small” and those with less than 250 as medium”. SMEs therefore need to have between 20-500 employees (Williams, 2010). The definition of an SME may also depend on the number of employees, business turn over and assets (Aremu & Adeyemi, 2011).
SMEs play a big role in the economy as they provide employment and taxes in all sectors of the economy including agriculture and mining. Small and medium enterprises make up the backbone of the world economy (Aremu & Adeyemi, 2011). For example, they account for 67.1% of the European Union non-financial business economy workforce. Hence, in many countries in the world it has been recognized that an SME-friendly business environment is crucial for growth and jobs creation (Kuehl, 2006). In some key industries, such as textiles, wood products, metal products, publishing, construction and furniture-making, SMEs account for more than 70% of all jobs.
Small and medium scale businesses play a pivotal role in the development of the economy of developing countries in terms of generation of employment opportunities, utilization of locally endowed resources, generation of revenue for the government through tax, re-distribution of income thereby contributing to poverty reduction (Prasad et al., 2001).
Book keeping is the process of recording all financial transactions in a systematic and logic manner. Proper book keeping is important to an enterprise in terms of its sustainability and growth.
It helps the owner carry out proper business evaluation and monitor its progress. Without book keeping the entrepreneur can run risks of fund mismanagement and loss of business expansion opportunities. Business records prevent theft and ensure proper organization of the business. Without proper book keeping it will be difficult for the owner to find accurate net profit, determine the correct financial position of the business and be unable to formulate business plans and policies for the future (Wanjala et al., 2014).
Bookkeeping is the recording off all financial transaction in a systematic and logical manner. Transactions include sales, purchase income, and payments by an individual or organization. Book keeping is usually performed by a book keeper using common methods of bookkeeping such as single entry and double entry systems. While these systems may be seen as “real” book keeping, any process that involves recording of financial transactions is a bookkeeping process (Haber, 2004). Primary bookkeeping records all business transactions and allocates the income and expenses to various income and expenses account in separate account records (McCarthy, 2000). The single book keeping can be done with book keeping software to speed up manual calculation (Haber, 2004). Double entry book keeping system involves recording of financial information in a financial accounting system where a financial transaction impacts at least two different accounts. In modem accounting, this is done using debits and credits and serves a kind of error system. If at any point the system of debits doesn’t equal to the sum of credits then an error has occurred. In SMEs, bookkeeping vary in size, frequency, sensitivity, maturity and the level of growth of the SMEs including the relative importance of fixed working capital. The system of book keeping depends on the operator of the SMEs (Enon, 2000).
World’s economic growth and development are majorly stimulated by small and medium scale enterprises which have dominated the industrial sector of both developed and underdeveloped countries (Olukotun et al., 2012). Almost 90% of the enterprises established in Nigeria fall into SMEs category (Aruwa, 2006). An understanding of the causes of small scale businesses failure, Poor business performance and low growth of SMEs in Nigeria is a vital step in ensuring proper Management of SMEs in order to avail employment opportunities and speed up economic growth. Adequate financial record keeping and standard financial reporting serves as catalyst to effective and efficient financial decisions for business growth, development and survival.
Many new business owners are daunted by the mere idea of bookkeeping and accounting. But in reality, both are pretty simple. Keep in mind that book keeping and accounting share two basic goals: to keep track of income and expenses, which improves chances of making a profit, and to collect the financial information necessary for filing various tax returns. There is no requirement that records be kept in any particular way. As long as records accurately reflect the business’s income and expenses, there is a requirement, however, that some businesses use a certain method of crediting their accounts: the cash method or accrual method. Depending on the size of the business and amount of sales, one can create own ledgers and reports, or rely on accounting (Williams et al 1999).
1.2 Statement of the Problem
According to Bowen et al. (2009) up to 50% of MSE’s in operation have a deteriorating performance and are said to stagnate at small level hence do not progressively grow into large enterprises. Previous Studies concluded that about 60% of small businesses fail within the early years of their operation (Boachie-Mensah and MarfoYiadom, 2005). Majority of these small scale businesses are actually running at loss in their assumed generated profits due to lack of understanding and applications of basic accounting terms such as capital, drawings, assets, liabilities, depreciations, provisions, reserves and others; not having adequate records of their payables and receivables also pose a challenge in tracking debtors and creditors balance. Also, these categories of business are financially handicapped and they couldn’t source for finance appropriately due to lack of proper records of their financial transactions as requirements for granting credit facilities by the financial institutions (Williams et al., 2008). In addition, recent literature revealed that many of the MSEs are not keeping adequate financial records that are fundamental to proposal writing and presentation to financial houses to access funds
1.3 Objectives of the Study
The study is to assess the level of book keeping practices of small and medium scale enterprises in Calabar Local Government Area. Specifically, the study sought to;
i. examine the relationship between book keeping practices and small and medium scale enterprises performance.
ii. examine the level of book-keeping understanding of the owners of small and medium scale enterprises and its influence on the growth and expansion of their businesses.
iii. access how book keeping practices influence small and medium scale enterprises in Calabar Local Government.
1.4 Research Questions
i. What is the relationship between book keeping practices and small and medium scale enterprises performance?
ii. What is the level of book-keeping understanding of the owners of small and medium scale enterprises and its influence on the growth and expansion of their businesses?
iii. How do book keeping practices influence small and medium scale enterprises in Calabar Local Government?
1.5 Research Hypotheses
Ho1: There is no relationship between book keeping practices and small and medium scale enterprises performance.
1.6 Significance of the Study
This study will be of immense benefit to other researchers who intend to know more on this study and can also be used by non-researchers to build more on their research work. This study contributes to knowledge and could serve as a guide for other study.
1.7 Scope/Limitations of the Study
This study is on assessment of book keeping practices of small and medium scale enterprises in Calabar Local Government Area, Cross River State, Nigeria.
Limitations of Study
Financial constraint: Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).
Time constraint: The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work.
1.8 Definition of Terms
Assessing: To evaluate or estimate the nature, ability, or quality of the value of a tax, fine, etc., for (a person or property) at a specified level.
Book keeping: Bookkeeping refers mainly to the record-keeping aspects of financial accounting, and involves preparing source documents for all transactions, operations, and other events of a business.
Small and Medium Scale Enterprises (SME): Are those companies whose personal numbers falls below the set criteria.
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