ABSTRACT
This work
looked at accounting practices and the performance of Small and Medium Scale
enterprises in Rivers state with the aim of finding the relationships between
record keeping, payroll accounting and budgeting practices and the
effectiveness and efficiency of Small and Medium Scale enterprises. There were
6 research questions and 6 hypotheses. Structured questionnaires were the means
of getting data. The Spearman rank correlation was used for analysis with the
aid of the Statistical Package for Social Science (SPSS). The findings revealed
that there is a weak positive relationship between the record keeping
practices, payroll accounting practices and budgeting practices of SMEs in
Rivers state and their effectiveness and efficiency. Also the study found that
there were no significant relationships between the record keeping practices,
payroll accounting practices and the budgeting practices of SMEs in Rivers
state and their effectiveness and efficiency. The study, however, found
significant relationship between the budgeting practices of SMEs in Rivers
state and their efficiency. The study concluded that the accounting practices
of SMEs in Rivers state are sub-standard and that this was one of the causes of
their poor performances. Among others, it was recommended that SMEs should make
efforts to adopt and maintain proper and adequate accounting systems.
72 Pages
Project Reference Code: C052
CHAPTER ONE
INTRODUCTION
1.1. Background
to the study
The Small and Medium Scale Enterprises
Development Agency of Nigeria and the National Bureau of Statistics (SMEDAN
& NBS) in a collaborative study of Micro, Small and Medium Enterprises
(MSMEs) in Nigeria carried out in 2013, defined SMEs as firms employing between
10 and 200 employees, and having the value of their assets between N5,000,000
and N500,000,000 (excluding land and building). The Nigerian economy is dominated by SMEs as they represent about 90% of the
manufacturing/industrial sector in terms of number of enterprises and as revealed by studies made by the
International Finance
Corporation (IFC), about 96%
of the businesses in Nigeria are SMEs (Nkwor-Azariah & Nkwor, 2015; Oyelaran-Oyeyinka, 2007). Nwoye (1991) cited by Onaolapo and Adegbite (2014) pointed out that SMEs are catalysts for
Nigeria’s economic growth and development. He believed that with the many SMEs,
Nigeria has great potentials for success and growth, sales of large volume of
goods etc.
Job
creation, strong entrepreneurial base, technological advancement and increased
local raw materials usage are obvious consequence of SMEs’ development (Nkwor-Azariah & Nkwor, 2015). However, for SMEs to play
these crucial developmental roles, there is need for the adoption of accounting
practices among them. For a business to be successful, it needs to make
decisions that will enable it to stay solvent and to operate profitably (Meigs
& Meigs, 1990) and accounting provides the basis for informed decision
making. For instance, crucial decisions such as, pricing, costing, shutting
down of under-performing branches or product lines, investment decisions, among
others, cannot be made without proper accounting information. It is accounting
that makes relevant information available to external parties like: lenders,
prospective shareholders, creditors, government e.t.c. This information is
necessary for their decision making. For instance, lenders will want know the
present performance and solvency of a business before committing funds to
it.
Also
accounting is the language of business. There is therefore the need for every
manager, investor and business decision maker to be familiar with accounting
terms and concepts (Meigs & Meigs, 1990). But to what extent do SMEs adopt
accounting practices? Does it have any significant relationship with their
performance? These are the major issues this study will be saddled with.
1.2 Statement of the problem
It is obvious that SMEs in Nigeria are operating below potential. Their
contribution to GDP is just about 1% which is insignificant when compared to
40% and 50% contribution of SMEs to GDP in Asia and America, respectively (Nkwor-Azariah & Nkwor, 2015; Oyelaran-Oyeyinka, 2007). Oyelaran-Oyeyinka (2007) observed that in countries of the same economic development as Nigeria,
SMEs contribute a much higher proportion to GDP than what is currently observed
in Nigeria.
SMEs have not played the expected vital and
vibrant role in the economic growth and development of SMEs because of their
poor performance so far (Onugu, 2005). Their rate of survival is low, their
contribution to industrial employment and industrial production and GDP is
generally poor (Ohachosim, 2014; Onugu, 2005). SMEDAN and NBS (2013) found in
their study that access to finance, poor infrastructure, inconsistency in
government policies, poor support, multiple taxation, and obsolete technology
are the main challenges facing micro, small and medium enterprises in Nigeria.
Also, most of the MSMEs in Nigeria are not covered by any insurance policy and
are operating without a business plan.
Among other challenges, financial challenges
have been noted to be a major cause of SMEs general poor performance. These
financial challenges are related to: “fund availability, fund accessibility and
fund management” (Ohachosim, 2014:4). It should be noted that accounting has a
lot to do with ameliorating all these challenges. The services of a
professional accountant in a business is invaluable especially in SMEs where
they are about the only professionally qualified members of staff (Jui &
Wong, 2013). The absence such accounting practices as adequate record keeping,
material control and effective budgeting tend to compound the financial
challenges faced by SMEs (Ohachosim, 2014). Accounting information is useful in
such activities as: the evaluation of enterprises’ position in terms
profitability, liquidity, activity and leverage; measurement of performance;
and assessment of the profitability of alternative courses of action (Mosisa,
2011). Based on the poor performance of SMEs and the usefulness of accounting
practices as highlighted above, this work will study the relationship of
accounting practices and SMEs’ performance in Nigeria.
1.3 Aim and objectives of the study
1.4 Research questions
1.5
Research hypotheses
1.6
Significance of the study
1.7
Scope of the study
1.8
Limitations of the study
1.9 Operational definition of terms
1.10. Oorganization of the study
References
CHAPTER TWO
REVIEW OF RELATED LITERATURE
2.1
Theoretical framework
This
study is based on the following theories:
2.1.1
Decision usefulness theory
This
theory emphasizes the role of accounting in providing the relevant information
to the relevant decision makers (Muchira, 2012; Kamau, 2015). Different users
and decision makers require different information on which to base their
decisions. The accounting systems provides the different information to meet
the needs of the different decision makers. For instance, the bank may need
information to assess the credit worthiness of the enterprise before giving
loan, the tax authorities may require information for tax purpose, the would-be
investor may require information on the rate of return on investment, the
entrepreneur may require information on the overall performance of the
business, e.t.c. It is the responsibility of accounting professionals to
determine which information best meets the needs of the users because “users often are not
competent to determine what information is most useful to them or at least not
articulate in stating their needs ”
(Kamau, 2011:12). This theory emphasizes the usefulness of accounting in
effective decision making in business.
2.1.2
Positive Accounting Theory (PAT)
2.2.
Conceptual framework: Accounting practice
2.2.1
Record keeping
2.2.2
Budgeting
2.2.3.
Payroll accounting
2.3
SMEs’ performance
2.3.1
Efficiency
2.3.2
Effectiveness
2.4
Empirical reviews
2.4.1
International studies
2.4.2
Local studies
2.5
Gap in knowledge/Summary
References
CHAPTER
THREE
THE
RESEARCH METHODOLOGY
3.1 Research design
Research
design is described as an outline or a scheme that serves as a useful guide to
the researcher in his data collection efforts (Asika, 1991). Asika (1991)
posited that there are three basic categorization of research design. They are
the Survey, Experimental and Ex post facto research designs. The survey design
is further categorized into: Cross-sectional and Longitudinal research designs.
The cross-sectional survey research design is also broken down to: Descriptive,
Exploratory and Explanatory research designs. This study adopts the
Descriptive cross-sectional survey research design.
The
survey research design is adopted when the researcher is interested in studying
what is happening to a sample subjects without attempting to manipulate or
control them (Asika, 1991). Mitchell & Jolley (2007:208) puts it
beautifully: If you want to know why people do what they do or think
what they think, you should use an experimental design. If on the other
hand, you want to know what people are thinking, feeling, or doing, you should
use a non-experimental design, such as a survey. The
cross-sectional research design is used to observe a set of sample subjects at
a point in time. The descriptive research is useful as it portrays the profile
of persons, events and situations accurately (Robson, 2002 cited by Sounders,
Lewis & Thornhill, 2009). Description has a very clear place in business
and management research (Sounders et. al, 2009).
3.2
Population of the study
3.3 Sample size determination and sampling technique
3.4 Data collection technique
3.5 Data analysis technique
3.6 Mmeasurement of variables
3.7 Vvalidity and reliability test
3.8 Iinstrument design and administration
References
CHAPTER FOUR
DATA PRESENTATION, ANALYSIS AND INTERPRETATION
4.1 Demographic characteristics of respondents
4.2
Test of reliability
4.3
Answer to research questions and test of hypotheses
4.3.1
Research question one and hypothesis one
4.3.2
Research question two and hypothesis two
4.3.3
Research question three and hypothesis three
4.3.4
Research question four and hypothesis four
4.3.5
Research question five and hypothesis five
4.3.6
Research question six and hypothesis six
CHAPTER FIVE
SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATION
5.1
Summary of findings
The
findings of this work are summarized hereunder:
1. There is a weak positive relationship between the
record keeping practices of SMEs in Rivers state and their efficiency.
2. There is a weak positive relationship between record
keeping practices of SMEs in Rivers state and their effectiveness.
3. There is a weak positive relationship between the
payroll accounting practices of SMEs in Rivers state and their efficiency.
4. There is a weak positive relationship between the
payroll accounting practices of SMEs in Rivers state and their effectiveness.
5. There is a weak positive relationship between the
budgeting practices of SMEs in Rivers state and their efficiency.
6. There is a weak positive relationship between the
budgeting practices of SMEs in Rivers state and their effectiveness.
7. There is no significant relationship between the
record keeping practices of SMEs in Rivers state and their efficiency.
8. There is no significant relationship between the
record keeping practices of SMEs in Rivers state and their effectiveness.
9. There is no significant relationship between the
payroll accounting practices of SMEs in Rivers state and their efficiency.
10. There is no significant relationship between the
payroll accounting practices of SMEs in Rivers state and their effectiveness.
11. There is significant relationship between the
budgeting practices of SMEs in Rivers state and their efficiency.
12. There is no significant relationship between the
budgeting practices of SMEs in Rivers state and their effectiveness.
Generally,
this study found weak support for the positive relationship between the
accounting practices of SMEs in Rivers and their performance.
5.2
Conclusion
5.3
Recommendation
5.4
Suggestion for further research
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Project
Reference Code: C052
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