1.1 Background to the Study
Small and medium scale enterprises are gaining wide spread approval as feasible drivers of economic development. They have remarkable effect on employment generation. Nevertheless, a number of these business demise without fulfilling expectations as a result of poor management emerging from weak accounting structure (Olatunji, 2013). A sound accounting and internal control system in any type of business regardless of its scale is essential. Audits of small-scale business have shown to be worrisome for professional accountants due to the insufficiency of the internal controls. Besides legal demands, small and medium enterprises barely provide major ideas to the process of sound accounting yet the adequacy and ineffectiveness of accounting procedures have been responsible for the utmost collapse of a host of them (Mukaila and Adeyemi, 2011).
The uniqueness of small and medium enterprises requires a cautious consideration in the design of an accounting system (Olatunji, 2013). Peacock (2000) argues that, failure of Small and Medium Enterprises (SMEs) to manage cash flows lead to illiquidity and lastly the collapse of SMEs. He advocated for the engagement of a certified accountant that can be instrumental in advising on strategic reaction to turbulent and competitive business environment. There is need to support these small enterprises to ensure that they can grow to maturity and fulfill their intended objectives.
An accounting system documents, keeps and reproduces financial details associating with financial transaction flows and financial position. Financial transaction flows encompass mostly inflows on account of incomes and outflows on account of expenses. Aspects of financial position, consisting of property, money received, or cash spent, are designated to one of the key groups, that is, assets, liabilities, and equity. Within these main groups each unique asset, liability, income and cost is represented by respective "account". An account is just a document of financial inflows and outflows in connection with the respective asset, liability, income or expense. Income and expense accounts are considered short-term accounts, since they stand for just the inflows and outflows absorbed in the financial-position elements on completion of the time period (Williams et al, 2008).
The effect of accounting is a function of the profit that are obtained by the members of the society that had bind themselves into the social organization of their survival and want satisfaction quest (Anyigbo 1999). Businesses take advantage of availability of accounting information, equality important is the availability of accounting that helps with the solution or resolution of business planning, organization and control function of the enterprises as a social organization. Many small-scale enterprises owners prefer to hire unskilled employees particularly clerical and bookkeeping personnel. The product of these unskilled accounting (clerical personnel) has just succeeded in assisting the small-scale enterprises to stagnate; some firms have also wound up. This was because unskilled accounting staff might not maintain reliable accounting records that would certainly stand the test of time; such personnel might not properly identify the profit or loss of the firm preparing profit and loss account.
Poor management of finance has been noted as the primary reason for failure of small and medium scale enterprises (Longenecker, et al., 2006). In the opinion of Bowen (2009), there is a significant correlation between organizational performance and the level of training in the management of organization especially in financial recordkeeping. A comparable view to that was provided by Muchira (2012) that disclosed that business management includes appropriate recordkeeping of transactions. Therefore, the crucial factors that positively affect the growth and sustainability of small and medium scale enterprises are skills and knowledge in bookkeeping. As opined by Germain (2009), poor recordkeeping of financial transactions brings about total collapse of businesses within couple of years of its establishment. It is on these premises that this study seeks to investigate the perceived benefit of keeping accounting record on the performance of small and medium enterprise in Damaturu, Yobe State, Nigeria.
1.1 Statement of the Problem
A number of Small-Scale Enterprises have not given much attention to book keeping in connection with their business transaction, in spite of its significance in the success of businesses. This might be lack of sound understanding in book keeping practices by owners or respective managers. Likewise, there was difficulty in ascertaining whether extensive bookkeeping records that satisfied the laws under which it was incorporation had been kept. It was difficult to identify to what degree no adherence to laid down bookkeeping procedure and constituted in the wheel of implementation of excellent bookkeeping system. Difficulty exists in ascertaining how far non-recognition of the need of bookkeeping to continued existence and growth, low academic background of owners and the employment of unskilled accounting personnel had affected the production of unreliable accounting or financial declaration.
On the other hand, Katwei (2009) carried out a research study on the constraints faced by small scale enterprises in accessing formal financing and concluded that poor record keeping was a substantial contributor of the difficulties of SME financial access. Information available on comprehensiveness of financial methods adapted by SMEs is limited. The government has adopted techniques and made plan changes in an attempt to improve and promote and medium small-scale entrepreneurs. The entrepreneurs on the other hand, have to maintain their records of accounts directly in order to identify their trend in performance when it comes to industry, time, level of financial investment and applied strategies in business operations. As a result, this study sought to answer the question regarding whether there is a correlation between the keeping of accounting records by small and medium scale and their financial performance.
1.3 Objectives of the Study
The main objective of this study is to assess the perceived benefit of keeping accounting record on the performance of small and medium enterprise in Damaturu, Yobe State, Nigeria. However, the specific objectives will be:
i) To establish the relationship between accounting records keeping and small and medium enterprises performance in Damaturu
ii) To ascertain proper accounting records to improve the performance of small and medium enterprises in Damaturu
iii) To highlight the proper accounting records procedures to improve the performance of small and medium enterprises performance in Damaturu
iv) To determine the reasons for poor accounting records by some small and medium enterprises in Damaturu
1.4 Research Questions
This study aims to answer the following questions:
i) To establish the relationship between accounting records keeping and small and medium enterprises performance in Damaturu?
ii) To ascertain proper accounting records to improve the performance of small and medium enterprises in Damaturu?
iii) What are the proper accounting records procedures to improve the performance of small and medium enterprises in Damaturu?
iv) What are the reasons for poor accounting records by some small and medium enterprises performance in Damaturu?
1.5 Research Hypotheses
The followings are the research hypotheses tested by this study:
i) There is no significant relationship between accounting records keeping and small and medium enterprises performance in Damaturu
ii) There is no significant correlation between proper accounting records and improvement in the performance of small and medium enterprises Damaturu
iii) There is a significant correlation between the proper accounting records procedures and the performance of small and medium enterprises in Damaturu
1.6 Significance of the Study
This will improve the performance of the business. SMEs will know the advantages of keeping records properly so that they will be able to maintain transactions, also will help them to know how to manage their finance profit and loss in their financial statement also it can help to know the difference standards which can help them to prepare the accounting records in proper ways.
The study will show the institution the advantages of holding some seminars for entrepreneurs educating the need of keep accounting record for their daily transaction so that they can manage the business properly also in the future use it can help to prepare the financial statements.
The study findings will expect to provide practical guidance to different sectors of Government especially the business sector that may help in ensuring that the small enterprises are growing and performing well at regional and national level.
The study can also be used as a reference to academicians and other student undertaking same field on matters patterning to customer retention studies. Also, the study will add to the literature on accounting practices of small business and to the global body of knowledge. This study will further be useful for SME bodies in Nigeria, business schools and government agencies.
1.7 Scope of the Study
The study focused on the perceived benefit of keeping accounting record on the performance of small and medium enterprise. It explains the nature and accounting regulatory framework of accounting records also the study will be conducted on SMEs in Damaturu, Yobe State, Nigeria.
1.8 Limitations of the Study
Availability of SMEs owner; SMEs traders are seeming to be very busy due to the situation of things currently in Nigeria. A situation where there is a scarcity of physical cash as a result of naira redesign in the country; it was difficult for the researcher to get their time and attention regarding to all questions which the study will need answers to.
1.9 Definition of Terms
Accounting Records: Record keeping systems as set of components that collects, records, classifies, analyses, and processes and summarizes business transactions in the books of accounts. A system should be simple to use, easy to understand, reliable, accurate consistent and designed to provide information on a timely basis.
Performance: Performance of a business refers to the ability of business to meet the required standards, increase market share, improve facilities, ensuring returns on profitability and total cost reduction and once this is achieved, a business is believed to be performing effectively (Fitzgerald, 2006).
Small and Medium Enterprises (SMEs): Small and Medium Enterprises (SMEs) what constitutes “small” in terms of government support and tax policy varies by country and by industry. Businesses with 10 or fewer workers are called micro-enterprises. Those with 11-50 people are small enterprises and 5 1-100 are medium. However, the number of people may not be a good indicator especially if the industry is labor intensive. This is true for countries like India where there is labor intensive approach to industrialization policy. In some cases, it is possible for a trading organization to transact huge sums of business worth transactions and yet employ few people (Maseko, 2011).